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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 Page 2 of 10 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 DECEMBER 18, 2008 LOBBY CONFERENCE ROOM, CITY HALL Page 4 of 10 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 DECEMBER 18, 2008 LOBBY CONFERENCE ROOM, CITY HALL Page 5 of 10 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 DECEMBER 18,2008 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. HOUSING AND COMMUNITY DEVELOPMENT COMMISSION DECEMBER 18, 2008 LOBBY CONFERENCE ROOM, CITY HALL 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. an I I - . . A practical guide to real estate financing for nonprofit developers 2nd EDITION , ~\ \1 \ \ '\ \ \ \ \U I LL kJJ. I ii ~ ~. ROBERT R. REAM LYNN ARLINGTON PHARE Commissioned by a consortium of New York banks l ' t 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. .r: ,.; " .~. 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 62 ; 1"1'11 ,. 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.) I': til ,II nl 11 , ( ;~ !: ' ,Ii. fll: I: q' 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 -- 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 '~J- 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 FC Exhibit 3: Pro Forma Income and Expenses 1!lf " I i i i,l! i DATE 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 " : I GROSS ANNUAL INCOME $162,600 Iii J L I (less) Residential Vacancy 5.00% ($7,080) (less) Commercial Vacancy 10.00% ( 2, I 00) 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/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 , . Z 65 ~ 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. . -J' '" 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. 67 111 # \ : 'i ;. j f I i:,! -.!. \111 III ii, : i i ,P 'i: 1 (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 ,~ ! -~= -10 :f:~W:.t:'t ~~~...~ --- - 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