HomeMy WebLinkAbout01-05-2009 Housing & Community Development Commission
AGENDA
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
PLANNING CONFERENCE ROOM (2ND FLOOR), CITY HALL
THURSDAY, JANUARY 15,2009
6:30 P.M.
1. Call Meeting to Order
2. Approval of the December 18, 2008 Minutes
3. Public Comment of Items Not on the Agenda
4. Staff/Commission Comment
5. Review of the FY10 Allocation Process and Proforma Basics
6. Old Business
. Discussion of a HCDC Sponsored Event Focused on Affordable
Housing
7. Monitoring Reports
. Iowa City Housing Authority - Downpayment Assistance & Tenant
Based Rent Assistance (McMurray)
. Compeer Program - Operations (Hart)
. Extend the Dream Foundation - Operations (Douglas)
. Neighborhood Centers of Johnson County - Facility Rehab.
( Crane)
. The Housing Fellowship - CHDO Operating, Pre-Development
Loan and Affordable Rental Housing (Drum)
. Local Foods Connection - Operations (Hart)
. MECCA - Operations & Aid to Agencies (DeFrance)
8. Adjournment
MINUTES
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
DECEMBER 18, 200~ - 6:30 PM
LOBBY CONFERENCE ROOM, CITY HALL
PRELIMINARY
Members Present: Stephen Crane, Andy Douglas, Charlie Drum, Holly Jane Hart, Rebecca
McMurray, Brian Richman, Michael Shaw
Members Absent: Marcy DeFrance, Michael McKay
Staff Present: Tracy Hightshoe
Others Present: Maryann Dennis, Charlie Eastham
RECOMMENDATIONS TO COUNCIL (become effective only after separate Council action):
None
CALL TO ORDER:
The meeting was called to order at 6:30 p.m.
APPROVAL OF THE NOVEMBER 20. 2008 MINUTES:
Drum motioned to approve the minutes. Crane seconded. The motion carried 7-0 (DeFrance
and McKay absent ).
PUBLIC COMMENT FOR ITEMS NOT ON THE AGENDA:
Maryann Dennis of the Housing Fellowship informed the Commission that the Aniston Village
Project was awarded low-income housing tax credit status. Dennis said that 35 applications were
received, and 15 were awarded, 2 of which were non-profits. Dennis said Aniston Village was the
only application from Iowa City, and is the only application in the state that provides single-family
housing.
There was no other comment from the public.
ST AFF/COMMISSION COMMENT:
Hightshoe noted that in this month's packet there is a report on program income. Total CDBG &
HOME program income was $260,000 in FY08. The major source of program income is the City's
owner occupied housing rehabilitation program. A lien is placed on the homeowner's property.
When they sell or rent the property, the amount of assistance the City provided is repaid. Some
households are able to make monthly payments to repay, but for some the City does not get repaid
until the homeowner sells, dies or when the home no longer remains their principal residence.
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
DECEMBER 18, 2008
LOBBY CONFERENCE ROOM, CITY HALL
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Economic development loans are also repaid, most with interest. $13,000 was received during the
fiscal year. The remaining public facility projects continue to repay their loans. Current policy for
public facility loans are conditional occupancy loans that only have to be repaid if the recipient is in
default. Total HOME program income was $99,285, which includes rehab from the owner-occupied
rehab program, all rental projects, any owner-occupied project where it was sold and the money came
back. Total program income is down $42,000 from last year, so it will be interesting to see how
FY09 comes in, Hightshoe said. Crane asked why there was a drop from last year. Hightshoe said
that on some of the economic development projects there are monthly payments so it is a fairly
reliable source of program income. With rehab, however, if the amount of the rehab payment is over
what the homeowner pays (if they pay more than 30% of their housing costs already) then the City
does not require them to make monthly payments. Instead, a lien is placed on their property and
when the property is sold the payment comes due. Rehab makes up a large chunk of program
income; however, the income is sporadic. Richman asked if this money is then added to the amounts
that are available for allocation the next year. Hightshoe said it is not because they are required to
estimate their FY08 program income, so it has already been allocated. Because it is based on
estimates, sometimes the following year's estimate has to be lowered to make up for shortfalls in
prior year's program income. Hightshoe said that FY09 income will have to be watched closely as if
it is not coming in at the rate expected and could therefore affect FYlO funding.
Hightshoe passed out a report outlining what financial terms other entitlement cities offer their low-
income tax credit projects. She said they vary across the board. She said there were not a lot of
cities that provide grants, but there were deferred loans, interest-only payments, etc. Davenport did
true gap-financing with a wide variety of terms offered on a project by project basis. Hightshoe said
Council Bluffs was interesting because they are in a consortium with Omaha. Thus, when a Council
Bluffs project pays program income it does not necessarily get reinvested in their city. Des Moines
goes through quite a review process with a balloon payment after year 16. Hightshoe said the
majority had a general structure they followed, making exceptions as needed.
Richman announced that Deb Briggs of the Iowa City Housing Authority (ICHA) would be leaving
her position as Public Housing Coordinator to take a position with the Iowa Finance Authority. Pat
McKay, currently an inspector with Housing and Inspections Services will be taking over Briggs'
position. Hightshoe cautioned that this could cause some delays for the HOME assisted
downpayment program as Briggs' had been running the program and was also a certified mortgage
counselor.
Hightshoe passed out the FY09 aid-to-agencies recommendations for the Commissioners to review.
The FYI 0 HOME and CDBG application process has just begun, with the first applicant workshop
having just taken place.
Hightshoe noted that the first home-based business for CDBG economic development funding was
just approved. This is a handyman and property maintenance business which qualified as a micro-
enterprise that will be hiring one full-time employee. Crane asked if it was ever necessary to monitor
the financials on any of these businesses. Hightshoe said micro-enterprises are the easiest because
they just have to qualify as a micro-enterprise when the application is made. Even though they have
to qualify as a micro-enterprise upon award, we have not had one expand so rapidly as to not be
considered a micro-enterprise during the first year.
Crane asked how much funding was left for economic development since a lot of funding was used
this year. Hightshoe said there had been $155,000, and $35,000 was just allocated to the micro-
enterprise she had mentioned. She said that $95,000 would be added to the funds for FYIO. Staff
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
DECEMBER 18, 2008
LOBBY CONFERENCE ROOM, CITY HALL
Page 3 of 10
will make recommendations for this money based on applications received. She noted that in the 5-
Year Plan, public facility spending is not up to the level required by the goals that had been set. The
target for public facilities was 21 % of the budget, and only 13 % has been reached. If applications are
low, staff may make a recommendation not to fund economic development quite up to the $95,000
level, and shift some of those funds to public facilities or other spending. Hightshoe said she is
finding that it is much easier to concentrate on micro-enterprises for economic development funding,
and that these generally require less money/capital. Hightshoe said that she has found that businesses
that are simply creating jobs have more difficulty maintaining the necessary paperwork. She noted
that in prior years City Council has been pretty adamant about fully funding economic development,
so staff would have to wait and see what applications are received. Crane asked if many recent
applications had been denied. Hightshoe offered an example of a home-based daycare business
whose application was denied, as it could not be determined if the benefit would be more to the
homeowner in remodeling the home or more for the business. She said staff and the committee have
denied potential businesses. Many due to poor credit scores (not caused by a health problem), lack of
a business plan, or insufficient information.
PUBLIC HEARING & APPROVAL OF THE FY08 CONSOLIDATED ANNUAL
PERFORMANCE & EVALUATION REPORT (CAPER):
Hightshoe explained that this was the HUD required evaluation report that is typically due by the end
of September (3 months into the current fiscal year); however, due to the flood, HUD gave staff an
extension to December 31, 2008.
Hightshoe said it puts in perspective how much was accomplished over the course of the year. She
said the "meat" of the document is actually in the tables found on page 16; they summarize CDBO-
assisted projects. These tables outline which projects are still underway, how much was spent, etc.
Hightshoe noted that pages 32-36 are all new HUD required tables which take the CITY STEPS plan
and breaks it down into estimated numbers for each year. Hightshoe acknowledged that many of the
original goals may have been unrealistic given the amount of funds to be received. For example the
goal of helping 120 families with down-payment assistance was not realistic given the amount of
funds received and how much downpayment assistance is needed for a low-income household. The
new CITY STEPS plan will incorporate more realistic goals based on estimations of the amount of
money the City will receive, and what kind of programs can be supported with it.
Shaw asked how much was allocated in the FY08 cycle. Hightshoe said that for public services there
was about $124,000, $105,000 of which went to aid-to-agencies (MECCA, UA Y, Elder Services),
leaving only about $19,000 to fund other agencies. Hart said it was her impression that there was
only $9,000 left. Hightshoe explained that that was for FY09, and that for FYlO only about $10,000
is available, making it a competitive process. Shaw asked if what this meant was that for Elder
Services, for example, the CBDO funding was $59,500; Hightshoe said this was correct. Hightshoe
explained that HCDC provides $105,000 for the aid to agencies budget. Rather than dividing this
$105,000 among all 16 agencies, staff takes the three agencies (receiving the most funds) and who
have the capacity to administer federal funds and enters a CDBO agreement with just those three
agencies. In this way, staff avoids imposing all of the federal requirements on the smaller agencies.
Hightshoe said she believes that in FY 1 0 the aid to agencies also takes a hit.
Douglas asked if it was correct that it had been agreed to put a $2,500 minimum on public service
applications. Hart said that her impression was that this would better target the money to agencies
that can viably use it; she said she believed Council also liked the idea of making a larger impact.
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
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Richman gave an example that instead of allocating $10,000 to six or eight agencies; it would now be
allocated to a maximum of four agencies. Douglas noted that the Commission will have to discuss
how best to prioritize funding. Hart said she has wondered if the Commission should more broadly
consider other types of funding sources in its overall discussions, as it is usually the same agencies
that require funding. McMurray said she thought there was a three year cut-off for CDBG funding.
Hightshoe said that there used to be a three year funding limit for CDBG public service funding, but
that it was dropped prior to her employment with the City. Hightshoe said the "double-dipping"
question was never really resolved, and the Commission would sort of have to go on the basis of who
applies. She said that it could be put on the January agenda as part of the year-end report and the
review process. Crane asked if economic development funds could be used for public service.
Hightshoe said they could not; CDBG rules are very specific and have very stringent definitions.
Economic development basically has to go to for-profits (with some exceptions for specific job
training programs).
Hightshoe said she has received no public comment on the report.
Richman opened the floor for a motion.
Hart motioned to approve the FY08 CAPER with corrections as noted in discussions (heading
change on a table). Drum seconded. The motion carried 7-0.
OLD BUSINESS:
. Review and Discuss Amendment to CITY STEPS as it Relates to Chan2es in Proiect
Financin2
Currently, cases are not reviewed unless there has been a substantial change in purpose, scope,
location or beneficiary of funding. At last month's meeting, Hightshoe noted that there was
discussion about modifying language in CITY STEPS so that a change in financial terms also
constituted a "substantial change." Hightshoe said that staff has never been thrilled with the
review process in CITY STEPS, as even time-sensitive issues can sometimes take two months
because they must go back through HCDC and City Council. Staff is looking at alternative ways
to review. In the meantime, language changes have been proposed to address a change in
financial terms. Richman asked what the schedule for such changes would be. Hightshoe said
that a new CITY STEPS plan is due by December of next year; in January a consultant will be
hired to take it through the public input steps and community meetings, and then will draft an
initial plan.
Richman invited Maryann Dennis and Charlie Eastham of The Housing Fellowship to address
the Commission on the subject of changes in financial terms resulting in a review.
Dennis said that when The Housing Fellowship requested a change in financial terms they felt
they were making a reasonable and honest request in order to be able to provide affordable
housing to low-income Iowa City residents. Dennis said that it is her personal opinion that this
new policy is being established because of The Housing Fellowship, and that she is very sorry to
hear that. Dennis said she was not sure it was wise for a local unit of government to try to
establish a policy because of one applicant. On the other hand, The Housing Fellowship has been
in business for many years and as a private non-profit, Dennis said, their whole intention is to
provide housing for people oflow-income. She said that she thinks the amendment is
unnecessary, and she would ask that projects be reviewed on their merits and their priorities.
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
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Dennis said that in The Housing Fellowship's case, iftheir request had had to go back to
Council, they would not have been able to submit their application (which ultimately was granted
tax-credit status). Dennis said that if this becomes policy, then they will always first seek the
amended terms they received (20 years deferred at 0% interest), as will every other applicant.
Eastham said that as he understands it this proposed change has the intended purpose of the City
and the applicant settling on the most reasonable terms. If that is the general purpose, then it
does not get to the ultimate goal of getting to the best loan terms to encourage affordable
housing. Eastham said that for tax-credit projects the best terms for HOME funds cannot be
known until all of the financing is in place for the project. It is not known what the tax credits
are going to sell for until after the application processes are completed and the syndicator
commits to a price. At that point, the general contractor knows what all of the financing is. It is
not until that point that it is rational to look at the City's terms for financing and see if the
original terms should be modified.
Douglas asked for clarification on what triggered the request for the change in terms. Eastham
said it was the requirement of submitting the application by October 31 st. Hightshoe said the
financial terms did not change; the budget did. Dennis explained that everything changed
between October 7th (the date The Housing Fellowship requested a change in financial terms
from HCDC) and October 31 5t (the date the application was due). Dennis explained that the
qualified allocation plan changed and the costs that were eligible changed, as a result, the whole
budget changed. Shaw said that it was his understanding that the changes were triggered by
changes that IF A made at the last minute. Eastham said The Housing Fellowship had been
talking about requesting changes in the terms for the HOME funds since summer time, because
they had concerns all along that the original terms would not make it through the tax-credit
process. Dennis acknowledged that the budget for the project did change a lot between October
7th and October 31 st. Shaw said that as he recalled, because it was not a substantial change
according to CITY STEPS, HCDC did not have the authority to require The Housing Fellowship
to return to the Commission. Hightshoe said that based on the budget that was ultimately
submitted, staff would not have made the recommendation for the change in financial terms that
was granted. Hightshoe said she did not want to get back into a conversation about what had
happened, but wanted to focus on how to proceed from here. She said that one way of
proceeding with low-income housing tax-credits would be to approve it with no financial terms
and then have HCDC give final approval in October when all the numbers are in. Eastham said
he is not sure that is even possible; Hightshoe said they would look into it. Dennis said she also
believed that it depended on what the City allocated HOME funds were being used for on the
project. Dennis said they have always used the funds for land acquisition; with land acquisition,
you have to have site control before the application can be sent in.
Shaw said that for him changing the policy was not related to one particular agency doing what
they needed to do to keep a project moving forward. Shaw said his understanding is that the
policy at that time might not have been a good policy to be able to make effective decisions as a
Commission and he wants to look at the policy in that context. Richman said that there were, in
his opinion, two things that the Commission was not there to discuss: 1) Aniston Village; that
project is done and their allocation has been made, and 2) concepts for broader investment policy.
Richman said the item on the agenda is whether or not an amendment is needed for CITY STEPS
to help the Commission respond to changes in projects, and, if so, is this the correct amendment.
Richman suggested continuing along Shaw's line of discussion and focus first on whether it is
appropriate for HCDC to have the ability to respond to changes in projects. Hightshoe said that
there is no pressing need on the immediate horizon to make these changes. She said if HCDC
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
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LOBBY CONFERENCE ROOM, CITY HALL
Page 6 of 10
wished to wait and combine it with the other changes to CITY STEPS that would take effect next
year that would be fine; if HCDC wished to make more immediate and incremental changes, that
is fine too. Richman asked what the consultant's approach to dealing with this issue might be.
Hightshoe said that hopefully the consultant would look at what other city's do, and perhaps look
at financing at the same time. The current policy is very rigid, with little flexibility. That sort of
a discussion would have to be part of a process, and would not get done in one night. Hightshoe
said she wants to revamp CITY STEPS quite a bit, and the current amendment is not critical to
her at this time.
Richman said that he strongly supports the need to deal with this issue, but also supports what
Eastham said, which is that adopting the current amendment does provide very little incentive for
a developer to ask for anything other than a 30-year non-amortizing loan at 0% interest. This
amendment requires the Commission to take a more active role in setting financial terms.
Richman said he is not sure that is a role the Commission is ready to take on at present, or if it
would be better to discuss the matter fully with the consultant. Hightshoe said the Commission
does get a variety of housing applications that present their financial terms to the Commission
(transitional housing, down-payment assistance, low-income-tax-credits) so that will continue to
be a question asked in the application process regardless of whether an amendment is adopted.
Hightshoe said that economic development loans are also at issue with this amendment; payment
deferrals (for small time periods) are granted without taking the matter back to HCDC or City
Council.
Richman said it sounds to him like the choices are to 1) approve this amendment (or amend it and
approve it), 2) do nothing, or 3) direct staff to have the consultant address the issue in the larger
CITY STEPS revision. The general consensus was to address the issue on a more macro-level
with the consultant.
Richman said he had a somewhat related question for Hightshoe. He asked if there could be a
policy that if members of the public or agencies cannot provide the Commission with supporting
documents at the time the agenda is put out then they simply will not consider it. Drum said it
was important not to cut somebody out, and that there may be extenuating circumstances that
reasonably prevent someone from submitting documents ahead of time; these would be things to
consider before creating a written policy. Hightshoe said she would discuss the matter with the
City Attorney's Office and see what if anything was already in place. Hightshoe said the
applicant workshops have been and will be addressing this very issue to cut down on duplicate,
incomplete, and late additions received after the deadline this year.
. Discussion of a HCDC Sponsored Event Focused on Affordable Housin2
Douglas said he had an idea for this and wanted to present it to the Commission. One of the
Commission's roles is to educate the public about affordable housing issues as well as provide
new options for affordable housing. Given the present need for more affordable housing and the
economic downturn, the Commission needs to encourage more environmentally sustainable
building. Douglas suggested that a few public events could help place attention on some of these
needs. The original idea was for a conference on affordable housing options that are not
currently being considered or utilized, such as shared equity cooperative housing for families and
co-housing (groups of smaller houses that share a communal area). McMurray said she was
aware of this phenomenon for retirees, but not for young families. Douglas also suggested
smaller houses as an option. Other concepts are the ecological village (one exists in Fairfield)
and the idea of universal design. Douglas said that at the FAIR! meeting last week the idea was
HOUSING AND COMMUNITY DEVELOPMENT COMMISSION
DECEMBER 18, 2008
LOBBY CONFERENCE ROOM, CITY HALL
Page 7 of 10
put forward to put on an affordable housing fair so that affordable housing consumers could get a
better idea of what was out there. Douglas said he simply wanted to present some of these ideas
and see if anyone was interested.
Hightshoe said she and Steve Long had tossed around some ideas prior to the flood, one of which
was a marketing campaign about who needs affordable workforce housing. Basically, Hightshoe
said, it is just a campaign that reminds people that everyone needs housing. Committing HOME
funds for a design sponsored by a University student for a green building, universal design,
starter home, or affordable housing and then deeding it over to a non-profit for rental housing
was another idea. Hightshoe noted that the Housing Trust Fund does do a Housing Summit so it
would be important to do something different from what they are doing. Hightshoe said her
office receives a lot of literature on building smaller houses and noted that it might be good to see
what could be done to encourage private developers to build smaller houses, making them
affordable without the need for subsidy.
Shaw suggested determining where the gap is, so that they can target those who do not typically
attend the Housing Summit. Hightshoe said that she felt the Housing Summit targeted lenders
and developers. Hart noted that the Energy Expo created a venue with a wide variety of target
audiences, creating room for multiple focuses. Hightshoe noted that an advertising campaign
could similarly reach a wide range of people. Hightshoe said she likes the idea of a partnership
with the University, but that it would require looking at the University's schedule too. Richman
asked where the money would come from to co-sponsor such an event. Hightshoe said that
money from the City's general fund and administrative budget would have to be used, as public
service funds have not been applied for in the past. Shaw noted that the library would be a good
venue if the target audience was the community, whereas if the target audience was academics,
the University would want to have the event on campus somewhere. He recommended defining
the purpose and the audience as the first step in determining the scale of the project.
Hightshoe said the idea behind a marketing campaign was to reach an audience that had not been
reached before. She said that in all honesty people who would come to an affordable housing
event are going to be people who are already in favor of affordable housing and versed in the
issues. Douglas stated that it had been suggested at the FAIR! meeting that a "Housing Week"
could be held, with different days targeting different audiences, i.e., one targeting consumers, one
targeting policy makers, etc. It was suggested to plug an event into an existing venue, such as
"Homeless Week" or the annual Homebuilders Association event held in April. Richman noted
that many of the ideas Douglas had put forth would be developer driven ideas, and suggested
seeing if the Homebuilders would be interested in having an expert in such topics come and
speak to them, thus creating some energy around some of these ideas. Crane suggested having
different booths at the builders show supporting some of these concepts. It was noted that the
Homebuilders Association had previously been against the concept of universal design as cost-
prohibitive but now embraced it as sound policy, and that the same could happen with some of
these design concepts.
Hightshoe asked if the general idea was to form a subcommittee at the present meeting and bring
the issue back up in a subsequent meeting in January of February. She noted that in February and
March the Commission would have a lot of materials relating to allocation. Richman asked if
anyone wished to volunteer for a committee to look into the issue. McMurray and Drum
volunteered. Hightshoe suggested looking into partnerships in the community for transitional
housing for domestic violence and other issues.
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Page 8 of 1 0
MONITORING REPORTS:
. Hawkeve Area Community Action Pro2ram - Housin2 (Dou21as)
Douglas said he spoke with Al Axeen who said that they have 50 units for people who are
moving from unstable situations to more stable situations. Douglas said that HACAP had
received $80,000 from HCDC & intended to purchase another unit after the 1 st of the year. All
ofHACAP's clients have an income of under 30% of the median income.
. Iowa City Housin2 Authority - Down-payment Assistance & Tenant-Based Rent
Assistance (McMurray)
No report.
. Compeer Pro2ram - Operations (Hart)
No report.
. Extend the Dream Foundation - Operations (Dou21as)
No report.
. Nei2hborhood Centers of Johnson County - Facility Rehab. (Crane)
No report.
. Shelter House - FY04 Land ACQuisition (Hart)
Hightshoe said that Shelter House got their land; the state court ruled in Shelter House's favor.
The project will be closed out. The neighborhood filed a new suit, this time in federal court.
The City is anticipating that the lower federal court will dismiss the case, but has not heard what
the Court will do. Shelter House hopes to be finished building by December 2009.
. Goodwill (Shaw)
The work is done, but they have not yet been billed for the retainer.
ADJOURNMENT:
Crane motioned to adjourn. Shaw seconded. The motion passed 7-0.
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A practical guide to real estate financing for nonprofit developers
2nd EDITION
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Rules of Thumb for Estimating Development Soft Costs
(Note: Soft costs vary according to the size, type and location of the de-
velopment 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 es-
timates 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 pre-
paring drawings and monitoring the project during construction. Usu-
ally 4% to 10% of the construction cost, not including the contingency
allowance. Government funders frequently set a maximum allowable
percentage. The architects fee includes the cost of hiring engineers
needed for structural and major system design.
Environmental Survey: Survey of building and lot for toxic sub-
stances 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 ap-
praised value determines the maximum loan amount based on the loan
to value formula used by the lender. Varies with the size and complex-
ity 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 con-
sultant 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 Exen:tption 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 is re-
corded in a book of public records. Calculate as 2.75% of the mort-
gage recorded. Calculate as 2.5% of mortgages over $500,000 and 2%
of mortgages under $500,000. This fee can be waived for certain types
of nonprofit development corporations.
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61
Developer Legal LaWyer's fees for reviewing and preparing docu-
ments and managing the legal aspects of the closing. Varies with the
complexity of the project. Allow from $10,000 to $25,000. Develop-
ers of projects with multiple sources of government and private financ-
ing 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 gov-
ernment programs allow developer fees of up to 15% of the total devel-
opment cost. The fee is intended to compensate the developer for
project-related administrative costs, salaries, office rent, transporta-
tion, 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 as-
sessed 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 construc~ion. Calculated by assessment x length of the
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 underwrit-
ing 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 lpan. 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 con-
tractor. Fee includes the initial review of construction drawings ($2,500 to
$5,000) plus a charge for each inspection ofthe building and review of the
contractor's requisitions for payment. Allow $500 to $750 for each inspec-
tion 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
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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-esti-
mates should be given careful consideration. For low and moderate income
residential rental projects, HPD allows $9,000 plus $300 per unit.
Soft Cost Contingency: This is ,an allowance for unforeseen costs and
overruns. Allow a lump sum of$l 0,000 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 opera-
tion of the project after it has been completed and leased. The pro
forma is simply a detailed presentation of the, following formula: Gross
Rents -ya,pancy 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 in-
come 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 Pro-
ceeds - 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.)
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Gross Rents: This item includes all sources of income including resi-
dential rents broken out by unit type, number of units; commercial
units with square footage and rent per square foot, and any other in-
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 allow-
ance for vacancies and uncollected rents. The rule of thumb for determin-
ing the vacancy and loss allowance is 5% for residential and at least 10%
for commercial space. Banks may require higher vacancy and loss allow-
ances depending upon the location of a project and market conditions.
While the demand for affordable rental housing is usually very strong, de-
mand for commercial space can vary greatly and the lender may require a
vacancy allowances of 20% or more for commercial space.
63
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Expenses: Lists all operating expenses, management fees, and alloca-
tions to reserve funds. Remember to include the operating expenses
for the superintendent's apartment. (See Rules of Thumb for Estimat-
ing Annual Operating Expenses, below.)
Net Operating Income: This "bottom line" is referred to as the Net
Operating Income (NOl). It is the most important number on the
spreadsheet because it will be used by the lender to determine the
amount of debt that your project can support. (Determining the maxi-
mum loan amount using the NOI is discussed in Chapter 3.)
Rules of Thumb for Estimating Annual Operating Expenses
(Note: Operating costs vary greatly depending upon the age, size and
location of the building. The guidelines presented below are based on
formulas used by the New York City Division of Housing Preservation
and Development (HPD) and the Community Preservation Corporation
(CPe). For cost estimates based on the number of rooms, calculate the
room count by using two rooms for studios, three rooms for one bed-
room units, four rooms for two bedroom units and five rooms for three
bedroom units.)
Real Estate Taxes: Varies with the type of tax exemption program.
Most projects in low and moderate income areas will be eligible for
tax exemption. For projects without tax exemption benefits, annual
taxes equal the estimated assessed value of the completed project x the
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applicable tax rate. .
Insurance: Includes fire and liability insurance. Estimate insurance
costs at $2.50 per $1,000 of coverage for fire insurance plus $250 per
unit for liability insurance. If possible, obtain an estimate from your in-
surance agent.
Payroll: Varies with the size of the building, location and the services
to be provided. This cost is usually estimated on a case by case basis.
HPD uses the following general guidelines:
Superintendent
Porter . . . .
$25,000
$12,000
Superintendents oflarger buildings (20+ units) are usually also given
a free apartment. A porter is usually required for buildings with more
than 35 units.
Elevator Maintenance: Includes the cost of the elevator maintenance
contract and an allowance for repairs. Estimate at $4,000 per elevator.
64
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Exhibit 3: Pro Forma Income and Expenses
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NAME OF PROJECT
SCHEDULE 2 : Pro Forma INCOME AND EXPENSES
RESIDENTIAL INCOME
Unit Type Rent/Mo. Units GrossIYr
One Bedroom $650 6 $46,800
Two Bedroom $750 6 $54,000
Three Bedroom $850 -A $40.800
TOTALS 16 $141 ,600
COMMERCIAL INCOME
Gross Rentable SF 1,200
Rent per SFIYear $17.50
TOTAL COMMERCIAL INCOME $21,000 -.r "
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GROSS ANNUAL INCOME $162,600 Iii
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(less) Residential Vacancy 5.00% ($7,080)
(less) Commercial Vacancy 10.00% ( 2, I 00)
EFFECTIVE GROSS INCOME $153,420
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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/Exterm inating/Suppl ies 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) ...u22
TOTAL EXPENSES AND RESERVES $75.159
NET OPERATING INCOME $78.261
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65
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Water and Sewer: Based on frontage or metered water use. 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. Build-
ings 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 ex'penses (hall-
ways,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 ex-
terminating 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 depend-
jng upon the extent of the work. Includes the cost of repairing and re-
placing appliances. Gut rehabs and new construction projects will
have lower repair and replacement expenses, at least during the early
years of operation. .
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Painting: Annual allowance for painting apartments and hallways. Es-
timate 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%.
Questions To Ask The Lender
Before taking the time to prepare and submit a loan application, contact
prospective lenders and briefly describe the project and the type and ap-
proximate amount of the loan required for your project. Lender
guidelines regarding the type and size of loans being made are subject
to change. The fact that six months ago XYZ Bank made a construction
loan at 1.5% over prime for a mixed-use project in Brooklyn does not
assure that they would make the same loan today. The overall availabil-
ity of loans, the availability of particular types of loans, and the terms
66
Interest Rate
and conditions of those loans are all subject to change. Make sure there
is a match between your project and the type of loans currently being
made by the lender.
If the lender is willing to consider your application, ask for guidelines
regarding terms and conditions such as the current rate or range of
rates, the commitment fee, bank legal fees, and bank policy regarding
equity requirements and guarantees. (You may want to request a letter
confirming the lenders interest in the project.) Don't be afraid to ask
questions, but don't expect precise answers. Remember that at this
stage, information provided about rates, fees, and other terms will be
very preliminary and subject to negotiation and change during the loan
review and underwriting process. If your loan is approved, the lender
will issue a commitment letter detailing the terms and conditions of the
loan. Until the commitment letter has been signed by both parties,
terms and conditions can be negotiated and changed.
Listed below are some questions you may want to ask the lender prior
to subiliifting an application. (Many of these items are discussed in
Chapter 3.)
. For the type ofloan requested, what is the current interest rate or range
of rates? For variable rate loans, how is the rate calculated? (Construc-
tion loans are usually keyed to the prime interest rate, variable rate
mortgages are usually keyed to treasury bill rates.)
Loan-to-Value and Debt Service Coverage
Fees
Ask about the lender's guidelines for these underwriting criteria. (For-
mulas for calculating loan-to-value and debt service coverage are
presented in Chapter 3.)
For the type of loan requested, what is the range of percentage points
charged as a commitment fee? (Although commitment fees usually
vary with the type of loan and the perceived level of risk, the lender can
usually provide an estimate that is within a fairly narrow range.) Does
the lender normally charge a lower commitment fee to non-profit bor-
rowers. Could payment of the commitment fee be deferred until the
loan closing? If not, what is the likely schedule for payment of the fee.
67
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(This is an important consideration in planning for the pre-closing ex-
penses you will incur.)
If the loan is approved but does not close, will your organization still
be liable for payment of the commitment fee and other bank expenses?
Other Fees and Expenses
For the type of loan requested, what is a reasonable estimate of bank le-
gal fees? Would the legal work be done in-house or by outside
counsel? (Fees for outside counsel are usually higher.) Ask about the
timing of payments for fees and expenses such as the cost of the ap-
praisal, surveys, and environmental reports. (The loan officer can be a
useful source of information about expenses you will incur and pay
prior to the closing.)
Equity Requirements and Guarantees
What is the lender's policy regarding corporate guarantees by nonprofit
organizations? What are the lender's guidelines regarding equity re-
quirements by nonprofits? Would grants and loans be accepted as
equity contributions? What types of expenses previously incurred in
connection with the project would be acceptable as equity? Will the
lender require that the equity be spent prior to release of funds by the
lender? ',. J.
Nature and Timing of the Loan Review Proc,ess
What are the steps in the loan review process and how much time is re-
quired for each step? What types of information or documentation will
be required at each step?
Loan Application Checklist
A suggested list of documents and additional information that should
be submitted with the loan proposal is presented below. Some of these
items supplement information about your organization, others are pro-
ject specific. Prior to submitting your application, contact the loan
officer and list for her the items you plan to include in the application.
Ask about any additional items you should include. By submitting a
complete package to the lender now, you will avoid future delays and
frustration.
68
December 24, 2008
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CITY OF IOWA CITY
410 Llsl Washington Street
10l\'a Clly. Iowa 52240-11\26
(319) 356-5000
(319) 3565009 FAX
WWIV.lcgov.org
Dear Jumpstart Applicant:
Here is an update on what is happening with the flood recovery programs and HMGP buyout:
Jumpstart State
The City received 124 applications for $686,000 in Jumpstart State funds. These funds were
allocated based on the City's priorities used for the City's owner-occupied housing rehabilitation
program and explained in the staff memo dated October 6, 2008 available online at
www.icqov.orq/recoverv. There are no income qualifications for state funds. To date, we have
committed Jumpstart state funds to 21 households. Twelve households have or will receive
funds for housing repair, six for interim mortgage assistance and three have requested down
payment assistance. If all 21 households spend the committed funds, then all of the $686,000 in
Jumpstart State funds will be expended.
Jumpstart Federal/CDBG
There are currently 46 households that are income-eligible to receive Jumpstart Federal
(CDBG) assistance and we feel confident that each of those eligible households will receive
assistance from the $1.2 million available for Iowa City. We are in the process of verifying
financial and other information required under federal regulations for the first 28 applicants. We
will continue to contact and send verification forms and move through that part of the process so
that all of the documentation and paperwork are in place prior to committing funds. Under the
newly named "Jumpstart Express", homes that were built before 1978 will be able to receive up
to $24,999 in hard project costs without undergoing the lead abatement process. Please note
that each home will have to be under contract with a professional contractor before payment
and/or reimbursement can be provided. Some homes are also subject to an environmental
review process. For more information regarding these restrictions, please contact City staff.
Overall Progress
Many residents, as well as City staff, are frustrated with the time delays to get the funds out to
those in need. As these programs are state and federal programs, the City must follow certain
requirements that may add time to getting the funds distributed. This process has also been
exacerbated by changes in program rules along the way. The City believes that many of the
recent changes are positive and will assist the City in distributing federal funds out to local
households faster than anticipated. Some of the requirements that add to this delay include
income and asset verification forms (for the federal program), disability verification forms
completed by a physician, contract documentation for work to be done or reimbursed if eligible,
environmental reviews, adherence to basic lead-based paint safety guidelines, and an
application to the Iowa Department of Economic Development for duplication of benefits
analysis. We are working to get the money distributed as quickly as possible. Your continued
patience is greatly appreciated.
Over -+
December 24, 2008
Page 2
HMGP Buyout
The HMGP application will be submitted to FEMA in early January. FEMA anticipates that their
review will take 2-3 months upon the City submitting the application. We anticipate approval
and a signed agreement with FEMA in late spring/early summer. Upon confirmation that the
City receives the HMGP award, we will be working with homeowners to acquire their properties.
As a reminder, only those properties both substantially damaged and those where the home
(structure) is in the 100 year flood plain qualified under the HMGP standards. Based on our
most recent communication with the 57 eligible households, 40 have indicated that they are
interested in the buyout. This program is completely voluntary and homeowners are able to
refuse the buyout up until the day the City buys the property. For more information about the
HMGP buyout process, please contact David Purdy at 319.356.5489 or at david-purdy@iowa-
city.org.
Mitigation
The long term mitigation strategies for the flood impacted neighborhoods will be influenced by
the outcome of the HMGP buyout program. As we have stated previously, we need to know
which homes will actually be bought out and removed before we can determine what our
mitigation strategy alternatives will look like. In addition to the buyout, some of the possible
solutions are temporary flood barrier systems, permanent flood walls, wet-proofing homes by
elevating mechanical and electrical structures, purchasing flood insurance and installing
backflow valves on storm sewers with staging for temporary pumps which will reduce street
flooding.
The City Public Works Department is coordinating the development of flood mitigation strategy
alternatives with two private consultants, Stanley Engineering and Sasaki & Associates. Sasaki
is also working with Cedar Rapids and the University, and we are hopeful they can provide a
fresh perspective on our possible strategies. Please be assured that no decisions will be made
until we have received input from residents and property owners in the flood-affected
neighborhoods. This will occur after the first of the year, and involve neighborhood meetings,
information on the website, and direct mailing if necessary.
Please continue to go to www.icaov.ora/recoverv for updates on the flood recovery programs or
www.icaov.orQ/buvout for updates on the HMGP buyout program. If you have any questions or
are unable to access the City's website for any of the documents mentioned, please contact me
at 319.356.5479 or email at nasseem-moradi@iowa-city.org.
Nasseem Moradi
Flood Recovery
2