1. Western North Dakota Energy Project Housing Solutions Webinar Series December 9, 2014 1 Affordable Housing 101 Development Finance Basics

2. What is “Affordable Housing”? No more than 30% of a household’s gross income. –Senior with $15,450 Social Security income $386 per month –Preschool teacher earning $26,680 per year $667 per month –Highway Patrol officer earning $46,250 per yr $1,156 per month Monthly rent of $2,500 requires $100,000 annual household income 2

3. 33 Factors Impacting Rent Levels Costs the same to develop whether rents are affordable or market rate Special needs housing may cost more Rent revenue must be sufficient to cover operating expenses, debt service, and return on investment Direct relationship between development costs and rent level

4. 44 Options to Achieve Affordable Rents Reduce development costs Reduce operating expenses Subsidize rents (vouchers) Subsidize development costs

5. 55 Development Subsidy’s Impact on Affordable Housing Development Low-cost development funding enables rents to be affordable to more people Affordability is ensured for the long term –Deed Restrictions limit incomes and rents –Income and rent limits are adjusted annually One source may unlock the door to other private, local, state and federal resources

6. 24 Unit Apartment Building $175,000 x 24 units = $4,200,000 Total Cost Traditional Financing Equity $1.26 million (30%) Debt $2.94 million (70%) $189,391 Debt Service (5%, 30 year) $120,000 Operating Expense $100,800 Return on Equity (8%) $410,191 Needed Annual Revenue = $1,424 Average Monthly Rent per Unit 66

7. 24 Unit Apartment Building $175,000 x 24 units = $4,200,000 Total Cost Traditional Financing Equity $1.26 million (30%) Debt $2.94 million (70%) $189,391 Debt Service (5%, 30 year) $120,000 Operating Expense $100,800 Return on Equity (8%) $410,191 Needed Annual Revenue = $1,424 Average Monthly Rent per Unit Development Subsidy Equity $1.26 million (30%) Soft Debt/Grant $1.26 mil. (30%) Debt $1.68 million (40%) $108,223 Debt Service (5%, 30 year) $120,000 Operating Expense $100,800 Return on Equity (8%) $329,023 Needed Annual Revenue = $1,142 Average Monthly Rent per Unit 77

8. 24 Unit Apartment Building Mixed Income Property Rent Distribution Scenario 5 units @ $415 (30% AMI) 5 units @ $670 (50% AMI) 5 units @ $1,050 (80% AMI) 9 units @ $1,860 (“Market Rate”) = $1,142 Average Unit Rent 88

9. Development Funding Resources Grant Programs –No repayment –Provide equity into the project –Tenant income and rent requirements –Examples Affordable Housing Program - FHLB Community Development Block Grant Private philanthropic foundations Low Income Housing Tax Credits –9% “competitive” credits –4% credits with bond financing 9

10. Development Funding Resources Soft Debt Programs –Repayment is flexible Deferred payments Forgivable Interest-only payments Contingent payments based on cash flow –Tenant income and rent requirements –Examples Housing Incentive Fund HOME Neighborhood Stabilization Program 10

11. Development Funding Resources Other Programs and Strategies Interest Buydown –Flex PACE (BND and Local EDC/JDA) –Rural Development Finance Corp. (NDAREC) Property Tax Reduction –NDCC Section 57-02-08(43) –Renaissance Zone Local concessions –Land at Reduced Cost –Permits, Fees and Utilities 11

12. 24 Unit Senior Project Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Total Funding Sources$0 12 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 35,000 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($114,700) Net Operating Income$121,892 Debt Service (Principal & Interest) Net Cash Flow Debt Coverage Ratio

13. 24 Unit Senior Project: Conventional Financing Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$4,000,000 Owner Equity Investment500,000 Total Funding Sources$4,500,000 13 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 35,000 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($114,700) Net Operating Income$121,892 Debt Service (Principal & Interest)(379,581) Net Cash Flow($257,689) Debt Coverage Ratio0.32

14. 24 Unit Senior Project: Land Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$3,550,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Total Funding Sources$4,500,000 14 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 35,000 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($114,700) Net Operating Income$121,892 Debt Service (Principal & Interest)(336,878) Net Cash Flow($214,986) Debt Coverage Ratio0.36

15. 24 Unit Senior Project: Fees & Permits Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$3,500,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Total Funding Sources$4,500,000 15 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 35,000 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($114,700) Net Operating Income$121,892 Debt Service (Principal & Interest)(332,133) Net Cash Flow($210,241) Debt Coverage Ratio0.37

16. 24 Unit Senior Project: Soft Debt Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$2,300,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Soft Debt (HIF, NSP)1,200,000 Total Funding Sources$4,500,000 16 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 35,000 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($114,700) Net Operating Income$121,892 Debt Service (Principal & Interest)(218,259) Net Cash Flow($96,367) Debt Coverage Ratio0.56

17. 24 Unit Senior Project: Property Taxes Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$2,300,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Soft Debt (HIF, NSP)1,200,000 Total Funding Sources$4,500,000 17 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 10,400 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($90,100) Net Operating Income$146,492 Debt Service (Principal & Interest)(218,259) Net Cash Flow($71,767) Debt Coverage Ratio0.67

18. 24 Unit Senior Project: Grants Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (5% 15 years)$1,900,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Soft Debt (HIF, NSP)1,200,000 Grants (Found’n, CDBG)400,000 Total Funding Sources$4,500,000 18 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 10,400 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($90,100) Net Operating Income$146,492 Debt Service (Principal & Interest)(180,300) Net Cash Flow($33,808) Debt Coverage Ratio0.81

19. 24 Unit Senior Project: FlexPACE Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (Buydown to 1%) $1,900,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Soft Debt (HIF, NSP)1,200,000 Grants (Found’n, CDBG)400,000 $175,000 Local FlexPACE Match (EDC/JDA) Total Funding Sources$4,500,000 19 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 10,400 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($90,100) Net Operating Income$146,492 Debt Service (Principal & Interest)(136,457) Net Cash Flow$10,035 Debt Coverage Ratio1.07

20. 24 Unit Senior Project: Final Pro Forma Costs Land Acquisition$650,000 New Construction3,200,000 Fees and Permits50,000 Soft Costs120,000 Finance Costs100,000 Developer Fee300,000 Operating Reserve80,000 Total Cost $4,500,000 Funding Sources Bank Debt (Buydown to 1%) $1,700,000 Owner Equity Investment500,000 Discounted Land (City)450,000 Waive Fees/Permits (City)50,000 Soft Debt (HIF, NSP)1,200,000 Grants (Found’n, CDBG)400,000 $175,000 Local FlexPACE Match (EDC/JDA) Deferred Developer Fee200,000 Total Funding Sources$4,500,000 20 Operating Budget Tenant# UnitsRentAnnual 30% AMI8$450$43,200 50% AMI6$750 54,000 80% AMI4$1,100 52,800 120%AMI6$1,450104,400 Gross Potential Rent$254,400 Less Vacancy & Bad Debt(17,808) Effective Gross Income$236,592 Administrative Expense$23,500 Utility Expense 30,000 Operating and Maintenance 19,000 Property Taxes 10,400 Replacement Reserve ($300/unit) 7,200 Total Operating Expenses($90,100) Net Operating Income$146,492 Debt Service (Principal & Interest)(122,093) Net Cash Flow$24,399 Debt Coverage Ratio1.20

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22. The NDSBDC can work with you to help put the finance package together utilizing this program and flex pace plus your local programs. We have proforma spred sheets that will calculate all ratios needed for 22

23. Bank NDHFA Appraiser Developer All will be have slightly different views of rates of return, debt coverage needs and ways to maximize what is important to the project lead 23

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29. We can run several different scenarios so you can fine tune the rent to best possible level for your project and your community and make sure it fits what you are trying to accomplish. 29

30. 30 Questions? North Dakota Housing Finance Agency www.ndhfa.org Bill Hourigan Housing Outreach Officer 701/328-8080 or 800/292-8621 whourigan@ndhfa.org Keith Olson SBDC Director Williston State College SBDC 1-701-570-4260 Keith.r.olson@willistonstate.edu