HomeMy WebLinkAbout01-06-2011 Housing & Community Development Commission
AGENDA
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
LOBBY CONFERENCE ROOM, CITY HALL
410 E. WASHINGTON STREET, IOWA CITY
THURSDAY, JANUARY 6, 2011
6:30 P.M.
1. Call Meeting to Order
2. Approval of the November 10& 18, 2010 Minutes
3. Public Comment of Items Not on the Agenda
4. Staff/Commission Comment
5. Review of the FY12 Allocation Process and Proforma
6. Discussion Regarding FY12 Aid to Agencies Funding Requests
. Discuss Aid to Agencies Applications
. Develop Aid to Agencies Budget Recommendation to Council
7. Discussion Regarding the formation of a HOME Consortia with Contiguous
Municipalities
. Provide a Recommendation to City Council
8. Monitoring Reports
. Habitat for Humanity - Land Acquisition (Chappell)
. Aid to Agencies - United Action for Youth, Elder Services Inc.
(Chappell)
. Johnson County Ag. Ext~nsion District - New Construction (Drum)
. MECCA - Facility Rehabilitation (Drum)
. Crisis Center - Operations (Drum)
. FY07 & 08 Habitat for Humanity - Land Acquisition (Dragoo)
9. Adjournment
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CITY OF IOWA CITY
MEMORANDUM
Date: December 30, 2010
To: Housing and Community Development Commission
From: Community Development Staff
Re: January 6, 2011 HCDC Meeting
The following is a short description of the January agenda items. All the agenda items
from the cancelled December meeting are carried over to this month. The only new
items are the review of the FY12 allocation process and the monitoring reports
scheduled for January. Please bring your December packets to the meeting.
If you have any questions about the agenda or if you are unable to attend the meeting,
please contact Tracy Hightshoe at 356-5244 or by email at tracy-hightshoe@iowa-
city.org as soon as possible.
Review of the FY12 Allocation Process and Proforma Basics
Staff will review the allocation cycle for the benefit of the current and new commission
members. Staff will also provide a brief overview of the proforma sheet included in the
housing application for rental housing projects. Please review the packet of information
regarding housing project finance. This information will give you the basics in
understanding the spreadsheet and rental housing budgets. Staff will also be
discussing conflict of interest issues as they relate to the allocation process.
FY12 Aid to Agencies Funding Requests
(Please bring your FY12 Aid to Agencies Funding Applications binder)
Discussion of HOME Consortiums
The Johnson County Council of Governments (JCCOG) formed a sub-committee to
review affordable housing needs in their member communities. One strategy was to
form a HOME consortium with Iowa City as the lead entity. A HOME consortium may
include contiguous municipalities. If HUD approves the consortium, the Iowa City
consortium would receive an annual allocation of HOME entitlement funds that could be
used to fund HOME eligible affordable housing activities throughout its member
communities. The memo regarding HOME consortiums from JCCOG to the JCCOG
Urbanized Area Policy Board is attached for your reference.
The City of Iowa City annually receives approximately $678,000 in HOME entitlement
funds. Depending on the mix of communities in the consortium and based on the 2010
Census numbers, the consortium would be annually allocated between $609/976 to
$713/274.
The benefit of a consortium allows the municipalities to look at affordable housing as a
regional issue. One disadvantage for Iowa City would be a decrease in funds available
for Iowa City housing activities.
(OVER)
December 30, 2010
Page 2
At Thursday's meeting, staff will provide additional details about HOME consortiums and
review possible scenarios depending on those municipalities that have expressed an
interest to date. HCDC will review the proposed consortium strategy and determine if
they will make a recommendation to the City Council.
Monitoring reports
Habitat for Humanity (FY11) - Land Acquisition (Chappell)
Contact Mark Patton at 337.8949 or markpatton22@gmail.com.
Aid to Agencies - United Action for Youth, Elder Services Inc. (Chappell)
UAY, Contact Jim Swaim at 338.7518 or jimswaim@unitedactionforyouth.org
ESI, Contact Mary Wiemann at 338.0515 or mwiemann@elderservicesinc.com
Johnson County Ag. Extension District - New Construction
Contact Gene Mohling at 337.2145 or mohling@iastate.edu
MECCA - Facility Rehabilitation
Contact Ron Berg at 351.4357 or rberg@meccaia.com
Crisis Center - Operations
Contact Becci Reedus at 351.2726 or becci.reedus@jccrisiscenter.org
FY07 & 08 Habitat for Humanity - Land Acquisition (Dragoo)
Contact Mark Patton at 337.8949 or markpatton22@gmail.com.
CITY OF IOWA CITY
FY12 ALLOCATIONS TIMELINE
Dates Subject to Change
Dee. 17, 2010
Dec. 28, 2010
Jan. 12, 2011
Jan. 25, 2011
Feb. 17,2011
Feb. 28, 2011
Mar. 10, 2011
Mar. 24, 2011
March 29, 2011
April 1, 2011
April 21, 2011
May 2, 2011
May 3, 2011
May 3, 2011
July 1, 2011
Public notice that CDBG and HOME applications are available
CDBG/HOME Applicant Workshop,
Emma Harvat Hall, City Hall, 4:00 PM
CDBG/HOME Applicant Workshop
Emma Harvat Hall, City Hall, 11:00 AM
Applications due to City of Iowa City by 12 noon
HCDC meeting: question/answer discussion with CDBG/HOME
applicants. Iowa City Public Library, Meeting Room A, 6:30 PM
HCDC ranking forms due to City staff
HCDC meeting: review of groupings and consensus funding
scenario. City Hall, Emma Harvat Hall, 6:30 PM
(CDBG/HOME applicants encouraged to attend, but not mandatory)
HCDC meeting: recommendation on CDBG/HOME funding awards.
City Hall, Emma Harvat Hall, 6:30 PM
(CDBG/HOME applicants encouraged to attend, but not mandatory)
HCDC justifications memo due for council packet
Draft FY12 Annual Action Plan done - 30-day comment period begins
HCDC meeting: Review FY12 Annual Action Plan and recommendation to
City Council
Expiration 30-day comment period on the FY12 Annual Action Plan
City Council: public hearing on the FY12 Annual Action Plan (If needed,
joint HCDC/City Council meeting)
City Council Meeting: resolution-approving the FY12 Annual Action Plan
Start FY12 projects
(If awarded funding, no expenses may be incurred prior to both
July 1 AND execution of a CDBG/HOME agreement)
12/21/2010
IFA Requirements for LIHTC Projects (2011)
SECTION 4. UNDERWRITING
The Application will require the Applicant to demonstrate that the Project is financially feasible and
viable using the least amount of Tax Credits. Underwriting will be completed by IF A during the review
of the Application. IF A may adjust the amount of Tax Credit based upon the underwriting. Underwriting
shall be completed for a Project prior to the time a reservation is awarded, at submission of the Carryover
10% test, and before a Form 8609 is issued. The pro forma cash flow is part of the Application. If a gap
in financing is discovered after underwriting the Project, the gap may be filled from the Developer's fee if
the fee is sufficient not to exceed fifty percent (50%) of the fee. No other fee will be used to fill a gap in
financing.
The Application will require the Applicant to supply sufficient information to allow IF A to determine
whether the Project is financially feasible during the construction phase and the operational phase of the
Project. The Application will require the Applicant to provide information regarding loans, grants, equity
contributions, the anticipated value received from syndicators, equity partners or private funding sources
for the Tax Credits, Property tax abatements, tax increment financing, enterprise zone benefits and any
other type of financing or contributions that are relevant to the economic feasibility of the Project and are
available to the Project. State tax credits may be used provided that the Applicant can demonstrate that
the credits will be available to the Project prior to the due date of the Carryover 10% Test submission
date.
The following minimum financial underwriting requirements apply to all Projects. Projects that cannot
meet the minimum requirements, as determined by IF A, will not receive Tax Credits.
4.1 Underwriting Standards.
4.1.1 Projects will be underwritten with income escalating at a minimum of two percent
(2%) and operating expenses escalating at a minimum of three percent (3%), with a minimum
spread of one percent (1 %) required between the income and expense escalators.
4.1.2 Projects will be underwritten assuming no less than an eight percent (8%) vacancy
rate and no more than a ten percent (10%) vacancy rate. For a Project qualified under Section
2.2.3.1, IFA will allow a five percent (5%) vacancy rate if the property has maintained a
ninety-five percent (95%) or higher amiual occupancy rate for the previous five (5) years, and
is currently occupied at a minimum of ninety-five percent (95%).
4.1.3 All Projects must reflect a Debt Service Coverage Ratio (DSCR) between 1.20 and
1.50 for the first 15 years. If the Debt Service Coverage Ratio falls outside of this range, the
Applicant must provide a narrative to justifY the deviation. If the justification is not acceptable
to IF A, the Project may be rejected. Only reason allowed for the DSCR to exceed 1.50 is if
the majority of the units of the Project will provide rents targeting extremely low income
tenants that meet the Federal definition of Homeless. At IFA's discretion, small projects as
defined in Section 4.1.4, and special needs housing may exceed the 1.50 DSCR.
4.1.4 Projects with less than 20 Units must also demonstrate $150 per Unit per year of net
cash flow for the first 15 years. This does not apply to Projects with rental assistance through
RD.
PART A - REQUIREMENTS FOR 9% TAX CREDITS
Page IO
4.2 Operating Expenses.
4.2.1 Housing for Older Persons: Minimum of $2,750 per Unit per year not including
taxes, reserves and resident support services.
4.2.2 Housing for Families: Minimum of $3,250 per Unit per year not including taxes,
reserves, and resident support services.
4.3 Reserves.
4.3.1 Operating Reserve. The operating reserve will be the greater of 1) $1,500 per Unit
or 2) eight (8) month's debt service and operating expenses. The operating reserve must be in
place for the first 10 years and be used solely to cover operating deficits. The Applicant must
include a narrative explaining how the operating reserve will be established.
4.3.1.1 The Applicant may use the terms and conditions of the operating reserve
required by lenders or other funders financing the Project provided the reserve is
equal to or greater than the reserve required by this Section.
4.3.1.2 The operating reserve can be funded by deferring the Developer's fees of
the Project.
4.3.1.3 The Ownership Entity may fund the operating reserve using an irrevocable
letter of credit. The letter of credit will be released after the end of the 10-year period
described in Section 4.3.1. If a letter of credit is used, the proceeds should not be
included in the Project costs. The fees associated with obtaining the letter of credit
may be included in Project costs.
4.3.1.4 The requirement for the operating reserve is a compliance issue and may be
satisfied using the terms and conditions of the operating reserve required by lenders
or other funders financing the Project provided the reserve is equal to or greater than
the reserve required by this Section. Applicants are required to submit to IF A a
verification that the terms and conditions of the operating reserve required by lenders
or other funders financing the Project has or will be satisfied at the time a building is
placed in service. If the operating reserve will be established with the final equity
payment, a letter from the syndicator or investor will be required.
4.3.2 Replacement Reserve. All family Projects must budget replacement reserves of
$400 per Unit per year. All Older Persons Projects must budget replacement reserves of $300
per Unit per year.
4.3.2.1 The Application will require the Applicant to include a narrative explaining
how the replacement reserve will be escrowed and used only for the replacement of
capital components of the Project. The replacement reserve must be shown on the
pro forma.
PART A - REQUIREMENTS FOR 9% TAX CREDITS
Page 11
4.3.2.2 The requirement for the replacement reserve is a compliance issue and may
be satisfied using the terms and conditions of the replacement reserve required by
lenders or other funders financing the Project provided the reserve is equal to or
greater than the reserve required by this Section. Applicants are required to submit to
IF A a verification that the terms and conditions of the replacement reserve required
by lenders or other funders financing the Project has or will be satisfied at the time a
building is placed in service.
4.4 Deferred Developer Fees.
4.4.1 Developer fees can be deferred to cover a gap in funding sources as long as:
1. The entire amount will be paid within 15 years and meets the standards required
by the IRS to stay in basis;
2. The deferred portion does not exceed fifty percent (50%) of the total amount as of
the full Application; and
3. Payment projections do not negatively impact the operation of the Project.
If the deferred Developer fee cannot be paid within 15 years, IF A will consider the unpaid
amount to be a Developer contribution to the Project. Each of these will be determined by
IF A. Nonprofit organizations must include a resolution from the Board of Directors allowing
such a deferred payment obligation to the Project. The deferred Developer fee must be paid
from the net cash flow and not be calculated into the minimum Debt Service Coverage Ratio.
4.5 Financing Commitment.
4.5.1 F or all Projects proposing private construction and permanent financing, a letter of
intent from the lending institution on their letterhead is required. This letter must clearly state
the term of the permanent loan, how the interest rate will be indexed and the current rate at the
time of the letter, the amortization period, fees, any prepayment penalties, anticipated security
interest in the Property and lien position. The letter of intent must extend at least 6 months
beyond the Application due at IF A date.
4.5.2 For all other sources, except state HOME funds, City of Des Moines HOME funds,
and IDED Multi-family (Rental) Unit Production with Low Income Housing Tax Credit funds,
a commitment for funding must be made in advance. This includes any other grants, loans, tax
credits, etc. Documentation that specifies the value of the commitment, the purpose the funds
can be used for, and time limitations related to the commitment must be provided from the
entity making the commitment.
4.5.3 Unless a request is being submitted for a loan from IF A, Applications may only
include one set of proposed funding sources. IF A will not consider multiple funding
scenarios. A Project will be ineligible for allocation if any of the listed funding sources will
not be available in an amount and under the terms described in the Application. IF A may
waive this limitation if the Project otherwise demonstrates financial feasibility. If a loan is
being requested from IF A for a revolving loan program, the Applicant may submit the
PART A - REQUIREMENTS FOR 9% TAX CREDITS
Page 12
designated financial documents listing the IFA construction and/or permanent loan(s) listed as
a source, and may submit the designated financial documents with an alternative source for the
construction and/or permanent loan(s).
4.6 Developer, Builder, and Architect Fees.
4.6.1 Developer fees (including overhead and profit and Consultant Fees) shall not exceed
the percentages described below. The Developer's fee is calculated as a percentage of Total
Project Costs minus land, Developer's fee, Developer's overhead and profit, Consultant Fees
and Project reserves. The fees will be limited as follows:
Project Type
Fee Limit
4.6.2 Builder and general contractor fees will be limited to a total of fourteen percent
(14%) of the Hard Construction Costs.
4.6.3 In the event the Developer fee, Consultant Fee or builder fee limits are in excess of
the limits imposed, IF A will make the appropriate adjustments during the underwriting phase
of the evaluation of the Applications.
4.6.4. When the General Partner of the Ownership Entity is a non-profit organization, the
Nonprofit shall receive no less than fifty percent (50%) of the combined total of the Developer
and Consultant Fee.
4.7 Other Fees and Considerations.
4.7.1 Investor Services Fees. Investor services fees are an allowable expense and shall be
calculated into the minimum Debt Service Coverage Ratio.
4.7.2 Construction Contingency Funding. All new construction Projects shall have a
hard cost Construction Contingency line item of NO MORE THAN seven percent (7%) of
total hard costs, including Builder Profit and Builder Overhead, less construction contingency.
Acquisition/Rehabilitation, Preservation, Adaptive Reuse and Historic Preservation Projects
shall include a hard cost Construction Contingency line item of NO LESS THAN thirteen
percent (13%) and NO MORE THAN fifteen percent (15%) of the total hard costs, including
Builder Profit and Builder Overhead, less construction contingency..
PART A - REQUIREMENTS FOR 9% TAX CREDITS
Page 13
4.7.3 Project Ownership. There must be a common ownership between all Units and
buildings within a single Project for the duration of the Extended Use Period.
4.8 Subsidy Layering Review. HUD is required to undertake subsidy layering reviews of each
Project receiving HUD housing assistance to ensure that the Applicant does not receive excessive
government subsidies by combining HUD housing assistance with other forms of federal, State or local
assistance. For Projects that combine HUD housing assistance with Tax Credits, HUD has delegated the
subsidy layering review to IF A. HUD and IF A have entered into a Memorandum of Understanding
("MOU") governing the procedures that IFA must follow when undertaking the subsidy layering review.
Generally, the fee limits for Developer's fee, overhead, builder's profit and other fee limits set forth in
this QAP in Sections 4.6 and 4.7 will be applied by IFA in its subsidy layering review. IFA will complete
the subsidy layering review for applicable Projects after the Applicant and HUD submit relevant
documentation for review at Carryover. This information includes the results of HUD's underwriting
analysis, the Applicant's proposed development costs, and information concerning any syndication of the
Project. IF A will undertake the subsidy layering review for each Project after completion of HUD's and
IF A's underwriting, if applicable. IF A will complete a second subsidy layering review at the time the IRS
Form 8609 is issued for the Project. IFA reserves the right, without amending this QAP, to amend its
subsidy layering procedures as necessary to comply with changes in applicable federal law or regulations,
HUD guidelines or the MOD. HOME and CDBG funding, when combined solely, with Tax Credits do
not trigger the subsidy layering review process.
4.9 U nit Cost Cap. IF A shall not award LIHTC to a Project in which the cost per unit is greater
than the amounts listed below less the costs of off-site land improvements and energy saving heating and
cooling systems that benefit the tenants such as geo-thermal, solar panels, and wind turbines.
Additionally, ROSE projects will be allowed to deduct fifty percent (50%) ofland cost when calculating
the cost per unit. Enterprise Zone sales tax rebates and utility company rebates for energy efficiency
measures will be included in the calculation of total project costs.
All ro' ects exce t those with Federal or State historic tax credits
o bedrooms 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms
125,000 140,000 170,000 210,000 225,000
Unit cost caps are maximum amounts. IF A provides no guarantee that Projects at or below the Unit cost
caps will be deemed financially feasible. At the time of the Carryover 10% Test or 8609 Application, if
the project costs exceed the unit cost caps, the Developer must provide a narrative explaining the
extenuating circumstances and request an exception to the unit cost cap.
4.9.1 Projects receIvmg state and/or federal historic rehabilitation Tax Credits will be
allowed to deduct the residential portion of the historic Tax Credit from the Project costs to
allow for stricter rehabilitation standards and the costs of off-site land improvements, however,
IF A shall not award LIHTC to a Project if the overall cost per unit is greater than the unit cost
cap listed below:
Projects with Federal or State historic tax credits (total project costs less
residential ortion of historic tax credits
o bedrooms 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms
150,000 165,000 195,000 235,000 250,000
PART A - REQUIREMENTS FOR 9% TAX CREDITS
Page 14
Excerpt from:
Bank-Ability, A practical guide to real estate financing for nonprofit developers (1996)
Sources and Uses of Funds
DATE
NAME OF PROJECT
SCHEDULE 1 : SOURCES AND USES OF FUNDS
SOURCES OF FUNDS
NYS Housing Grant
XYZ Foundation Grant
Big Dollar Bank
TOT AL SOURCES
USES OF FUNDS
ACQUISITION
CONSTRUCTION COSTS
Contractor Price
Contingency ( I 0%)
TOTAL CONSTRUCTION COST
DEVELOPMENT SOFT COSTS
Architect and Engineering
Environmental Survey
Appraisal
Consultant Fees
Survey
Tax Exemption Filing Fee
Title Insurance
Mortgage Recording tax
Developer Legal
Developer Fee
Const, Period R. E. Taxes
Const. Period Water and Sewer
Const. Period Insurance
Permanent Lender Fee
Permanent Lender Lega]
Construction Lender Fee
Construction Lender Legal
Bank Engineer
Construction Loan Interest
Marketing and Leasing
Soft Cost Contingency
TOT AL SOFT COSTS
TOT AL DEVELOPMENT COSTS
$640,000
50,000
649,286
$960,000
96.000
$57,600
2,000
2,500
10,000
],500
1,010
9,375
17,855
10,000
28,800
9,210
4,800
13,393
6,493
10,000
6,493
10,000
11,500
38,957
13,800
10000
$1,339,286
$8,000
S 1,056,000
$275,286
$1.339.286
Description of Sources of Funds
New York State Housing Grant Program $640,000
The Housing Grant Program provides grants to non-profit organizations
of up to $40,000 per unit for low-income housing projects including
mixed-use projects. All residential units must be rented to families with
incomes at or below 80% of the area median income. Grants can be
used for acquisition, construction, and soft costs. The program requires
that grantees provide a mortgage on the property to assure that grant
funds are used as intended. No repayment is required and the
mortgage evaporates over a fifteen year period. The mortgage is
subordinate to private financing. Preliminary approval of this grant has
been received. Final approval is subject to obtaining a commitment for
private financing.
XYZ Foundation Grant $50,000
Grant funds can be used for any pre-development expense. Grant funds
have been used for pre-development professional fees including
preliminary plans, legal fees, and a marketing study.
Big Dollar Federal Savings Bank $649,286
The construction and permanent mortgage financing requested in the
proposal.
Total Financing $1,339,286
Uses of Funds
Uses of funds are usually divided into the following main categories:
Acquisition: The cost of purchasing the land or land and buildings to
be developed.
Construction: The estimated hard construction cost based on a
projected per square foot amount or the actual estimate or bid provided
by the contractor. The constructiontost should include a construction
contingency that is designed to protect the developer and the bank
from construction cost overruns by paying for unforeseen construction
costs. The contingency is usually 10% for rehab projects and from 3%
to 5% in new construction projects.
Soft Costs: As can be seen in the sample spreadsheet, this category
includes a wide variety of costs that are incurred as part of the
development process. Major items include construction period interest,
architectural fees, legal fees, bank fees, mortgage recording tax and
costs that will be incurred during the construction of the project. A list of
rules of thumb for estimating each of these items follows.
Rules of Thumb for Estimating Development Soft Costs
(Note: Soft costs vary according to the size, type and location of the
development project. Most of the guidelines presented below are based on
formulas currently used by the New York City Division of Housing Preservation
and Development (HPD) and the Community Preservation Corporation (CPC).
These rules of thumb reflect current (1996) cost estimates which are subject
to change. Whenever possible, obtain information about actual costs for your
project.
Architect and Engineering: The fee charged by the architect for
preparing drawings and monitoring the project during construction. Usually
4% to 10% of the construction cost, not including the contingency
allowance. Government funders frequently set a maximum allowable
percentage. The architect's fee includes the cost of hiring engineers needed
for structural and major system design.
Environmental Survey: Survey of building and lot for toxic substances
including asbestos. Varies from about $1,700 to $2,500 per building or site.
Appraisal: A determination of the value of the existing property and the
value of the property after completion of construction. The appraised value
determines the maximum loan amount based on the loan to value formula
used by the lender. Varies with the size and complexity of the project. Cost
will be higher for mixed-use and scattered site projects. Allow at least
$2,500 to $5,000.
Consultant Fees: Varies with the size and complexity of the project and
the extent of consultant services to be provided. Allowable consultant fees
are usually limited by government funders.
Survey: Determines the boundaries and exact location of the lot and is
required in order to obtain title insurance. Fee varies, allow $1,500 per
building or lot.
Tax Exemption Program Filing Fee: A fee paid to a government agency
for processing an application for real estate tax exemption and/or
abatement. Varies with the program.
Title Insurance: Insurance that protects the owner and lender from
possible future losses caused by defects in the title. Estimated cost is .007 x
the amount of the mortgage or the total development cost.
Mortgage Recording Tax: A State tax charged when a mortgage
recorded in a book of public records. Calculate as 2.75% of the mortgage
recorded. Calculate as 2.5% of mortgages over $500,000 and 2% of
mortgages under $500,000. "'[his fee can be waived for certain types
of nonprofit development corporations.
Developer Legal: Lawyer1s fees for reviewing and preparing documents and
managing the legal aspects of the closing. Varies with the complexity of the
project. Allow from $10,000 to $25,000. Developers of projects with multiple
sources of government and private financing may incur higher legal fees.
Developer Fee: Varies. Usually calculated at 3% to 10% of the total project cost
or as a flat fee based on the number of units. Certain government programs allow
developer fees of up to 15% of the total development cost. The fee is intended to
compensate the developer for project-related administrative costs, salaries, office
rent, transportation, etc. Government funders may limit or disallow this fee.
Construction Period Real Estate Taxes: Real estate taxes on the land and the
building under construction. Calculate by using the present assessed value x tax
rate x length of the construction period. Real estate taxes will be higher if the
project is re-assessed during construction and is not exempt from tax increases.
Construction Period Water and Sewer: Charges for water and sewer service
during construction. Calculated by assessment x length of construction period or as
a flat fee for limited usage during construction.
Construction Period Insurance: Cost of fire and liability insurance during
construction. Insurance is in addition to insurance carried by the general
contractor. Use actual quote from your insurer or estimate at $5 to $8 per $1,000
of replacement value.
Permanent Lender Fee: A fee charged by the lender for underwriting and
processing the loan. Usually 1 % to 2% of the loan.
Permanent Lender Legal: Legal expenses incurred by the lender in connection
with making the loan. Paid by the developer. Estimate at $10,000 to $30,000
depending on the size and complexity of, the project.
Construction Lender Fee: A fee charged by the lender for underwriting and
processing the loan. Usually 1 % to 2% of the loan.
Construction Lender Legal: Legal expenses incurred by the lender in
connection with making the loan. Paid by the developer. Estimate at $10,000 to
$30,000 depending on the size and complexity of the project.
Bank Engineer: Usually a consultant selected by the lender to inspect the
construction work and approve the release of funds to the general contractor. Fee
includes the initial review of construction drawings ($2,500 to $5,000) plus a
charge for each inspection of the building and review of the contractor1s
requisitions for payment. Allow $500 to $750 for each inspection and
assume one inspection per month during construction.
Construction Loan Interest: Interest paid monthly on the portion of the
loan that has been advanced to the borrower. Usually estimated at 50% to
60% of the construction loan x the interest rate x the length of the
construction period.
Marketing and Leasing: Costs incurred during leasing of apartments
and commercial space or the sale of residential units can vary
enormously - estimates should be given careful consideration. For low
and moderate income residential rental projects, HPD allows $9,000
plus $300 per unit.
Soft Cost Contingency: This is an allowance for unforeseen costs
and overruns. Allow a lump sum of $10,000 to $25,000 depending on
the size of the project, or use 5% to 10% of the soft costs.
Income and Expenses
The Schedule of Pro Forma Income and Expenses is used for income
producing property only and is frequently referred to as the pro
forma. The pro forma presents the expected results of the first year
of operation of the project after it has been completed and leased. The
pro forma is simply a detailed presentation of the following formula:
Gross Rents - Vacancy Allowance - Expenses = Net Operating
Income. Each of the components of this formula is discussed below.
(In the case of a sales project, the comparable schedule would show
projected gross income from the sale of the units less the expenses
incurred in selling the units such as legal costs, brokerage fees,
advertising and transfer taxes. The schedule should include a
breakdown of the projected per unit sales price for each unit or type of
unit. For a sales project, the schedule is a detailed presentation of the
following formula: Gross Sales Proceeds - Sales Expenses = Net Sales
Proceeds. The developer's profit equals Net Sales Proceeds less the
total development cost shown in the Sources and Uses schedule.)
Gross Rents: This item includes all sources of income including
residential rents broken out by unit type, number of units; commercial
units with square footage and rent per square foot, and any other
come such as coin operated laundry, parking, and other charges. The
total gross rent is the projected total income from the project if all
units are occupied for the full year and all rents are collected.
Vacancy and Loss Allowance: Gross rents are reduced by this
allowance for vacancies and uncollected rents. The rule of thumb for
determining the vacancy and loss allowance is 5% for residential and
at least 10% for commercial space. Banks may require higher vacancy
and loss allowances depending upon the location of a project and
market conditions. While the demand for affordable rental housing is
usually very strong, demand for commercial space can vary greatly
and the lender may require a vacancy allowance of 20% or more for
commercial space.
Water and Sewer: Based on frontage or metered water. Use
the actual assessment or calculate at $125 per room.
Heat: Varies with the age and type of the building and the type of
fuel used. HPD estimates at $150 to $175 per room per year. Buildings
heated with gas or the best grade of fuel oil are estimated at $175 per
room.
Utilities: Apartment gas and electricity is usually individually metered
and paid by the tenant. For common area utility expense (hallways,
basement, exterior) the City uses $40 per room for walk-up buildings
and $45 per room for elevator buildings.
Supplies, Cleaning and Exterminating: Charge for contract with
exterminating service and for cost of supplies used by superintendent
and porter. Varies. CPC and HPD use $42 per room.
Repairs and Replacements: Estimate at $230 to $390 per unit
depending upon the extent of the work. Includes the cost of repairing
and replacing appliances. Gut rehabs and new construction projects will
have lower repair and replacement expenses, at least during the early
years of operation.
Painting: Annual allowance for painting apartments and hallways.
Estimate at $40 per room.
Legal and Accounting: Covers legal fees for leasing and evictions and
accountant's fees. CPC and HPD estimate this cost at $1,600 plus $100
per unit.
Management Fee: Use 6% to 8% of the net rent (gross income
less vacancy allowance). Note that lenders will require a deduction for
this expense even if your organization intends to manage the project.
Building Reserve: Annual payments into a fund used for future major
expenses such as replacing the roof or the boiler. Usually calculated as
2% to 3% of the gross rent. Total rehabilitation and new construction
projects should use 2%.
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Exhibit 3: Pro Forma Income and Expenses
DATE
NAME OF PROJECT
SCHEDULE 2 : Pro Forma INCOME AND EXPENSES
RESIDENTIAL INCOME
Unit Type Rent/Mo. Units GrosslYr
One Bedroom $650 6 $46,800
Two Bedroom $750 6 $54,000
Three Bedroom $850 4 $40.800
TOT ALS 16 $141,600
COMMERCIAL INCOME
Gross Rentable SF 1,200
Rent per SF/Year $17.50
TOT AL COMMERCIAL INCOME $21,000
GROSS ANNUAL INCOME $162,600
(less) Residential Vacancy 5.00% ($7,080)
(less) Commercial Vacancy 10.00% ( 2,100)
EFFECTIVE GROSS INCOME $153,420
EXPENSES
Real Estate Taxes $0
Insurance 7,348
Payroll 18,000
Elevator Maintenance 4,000
Water and Sewer 7,750
Heating 10,850
Utilities 2,790
Clean ing/Extenninating/Supplies 2,604
Repairs and Replacements 3,680
Painting 2,480
Legal and Accounting 3,200
Management Fee (6%) 9,205
Building Reserve (2% of gross) 3,252
TOT AL EXPENSES AND RESERVES $75,159
NET OPERATING INCOME $78,26 I