Supportive Housing Partnerships

Ability Housing Mission: Vision: How: Building strong communities where everyone has a home Vision: A society where housing is a right, not a privilege; and all individuals have safe, affordable housing in vibrant communities How: Develop & operate rental housing Administer rental assistance Partner with others to provide individualized supports

Ability Housing Northeast Florida Central Florida Developer Services 29 rental homes and four apartment communities in Jacksonville for a total of 238 unit; fifth 80-unit development to be completed by end of 2019 Provide rental assistance to over 100 formerly chronically homeless households access market housing Central Florida Two apartment communities under construction in Orange County (243 units); another under construction in Osceola County (80 units) Developer Services Assisting a Jacksonville nonprofit construct a 22-unit property; and a St. Petersburg nonprofit construct two 30-unit properties in Pasco County

Making Rental Housing Affordable Subsidize the Tenant’s Rent Subsidize the Cost of Construction Subsidize the Cost of Construction and the Cost of Long Term Operations

Subsidize Tenant Rents Tenant Pays 30% of Income for Rent Program makes up the difference between what tenant can afford and fair market rent Guarantees both affordability for the tenant and reasonable rate of return for the property owner Expensive Limited Congressional Support

Subsidize Construction Cost Currently the main method for constructing/rehabbing affordable rental housing Low Income Housing Tax Credit Provides money that does not have to be repaid Reduces the amount of money that has to be borrowed, which reduces monthly expenses Reduced monthly expenses means rent can be lower Challenge – Difficult to serve extremely low income tenants

Subsidize Construction and Operations Subsidy used for construction In addition, an operating reserve is funded to cover annual shortfall In Florida: LIHTC and SAIL used to cover all construction costs Additional SAIL funds are provided to capitalize an operating reserve to cover annual shortfall between income from rent and actual operating expenses

Real estate Development is Complex Expensive Risky Real estate Development is 

Partnerships/Joint Ventures August 2018 Partnerships/Joint Ventures One way to mitigate risk Another Entity provides needed expertise Another Entity provides needed cash Another Entity shares/takes the financial risk Predictable Surprises Partner Experience Expectations Funder/Lender Requirements Money

Characteristics of Deals That Lend Themselves to Partnerships August 2018 Characteristics of Deals That Lend Themselves to Partnerships Large Developments with Relatively Large Fees/Cash Flow Complex Developments Funder Requirements that Benefit Certain Types of Developers (i.e. Nonprofit Set Asides)

What Type of Deals? Single Family Infill? No Less Complex Limited Fees Subdivision Yes Complex High Fee Potential Small Scale Rental Large Scale Rental

Hire a Turnkey Developer Find an Experienced Developer Negotiate a scope of work Contract for a fee You (not the developer) owns project at the end There are essentially two different legal structures for joint ventures and either one will work. The first is contracting for a fee developer. In this arrangement, the non-profit owns 100% of the general partnership and contracts with a developer, for-profit or non-profit, to develop the project. It could be a set fee or a split of the developer fee. The good news is that you are not in bed with your partner for the entire 15 years of the compliance period and the bad news is that you are not in bed with your partner for the entire 15 year of the project.

Turnkey Model Characteristics Developer Typically Wants All or Most of Developer Fee Developer Typically Does not want to provide any guarantees Developer wants out of the deal at completion

Turnkey Model Challenges Affordable rental housing provides limited cash flow Affordable rental housing comes with long affordability periods Some developers may not adequately supervise construction since they aren’t in the deal long term Some developers may be more willing to cut corners if they aren’t in a deal long term DRA aerator at Mercy Example Construction expense to avoid higher operating

Turnkey Challenges Continued There is still a supervisory role for the entity hiring the developer There are limited funds from the deal available to pay for this role The cost of this supervision won’t be made up from cash flow

Joint Venture Structure Limited Liability Company (LLC) Created The two Entities involved are members One member typically has a controlling interest (owns 51% of the LLC) Ownership percentage is unrelated to how fees and cash flow are split

Operating Agreements Operating Agreement Created for the LLC August 2018 Operating Agreements Operating Agreement Created for the LLC Controlling Document for the Entity Operating Agreement must contain all negotiated expectations Van Halen Story

August 2018 Expectations

Expectations Level of Approval for Each Partner Capacity Building Draw Requests Change Orders Capacity Building Opportunity to Learn the Process Fees and Cash Flow Splits Guarantees Handout

Guarantees Funders/Lenders typically require Construction Completion Guarantee Operating Deficit Guarantees Environmental Indemnities If LIHTC, tax credit delivery guarantees REMEMBER: Lenders/Funders are not a party to the operating agreement

Financial Capacity Funders/Lenders review the Financial Capacity of Borrowers Liquid Assets and Total Assets All members of an LLC are typically required to be guarantors This is true regardless of the language in the operating agreement

Risks Who’s going to be on the line for what and when? The risks in a project are mitigated by financial guarantees. However, in order to sign a guarantee, the investors are going to want to see a positive net worth on your balance sheet. If you need a partner to sign all the guarantees, it will impact your developer fee.

Guarantees Construction Completion Lease-up On-Going Operations Credit Adjuster Other Guarantees On tax credit projects, the investors are going to require a number of guarantees because of the requirements of the tax credit program. The usual guarantees are: Construction completion – has to be completed on time, lien free and all development expenses paid. Permanent financing must be as agreed to in partnership docs Lease –up – Funding operating deficient during lease-up. There is usual a lease-up reserve in the development budget but if the deficient exceeds the reserve, you’re on the line. On-going operating – funding for operating deficient after lease-up. They usually burn off in three to five years Credit Adjuster – If the project doesn’t earn the number of credits expected either because they didn’t spend enough during development or didn’t lease to enough qualified tenants, there is a credit adjuster and $$ will be due to the investor. Other guarantees can include failure to complete the proper IRS forms or to make housing credit program deadlines that will jeopardize the credits. This includes the 10% carry over, the placed-in-service date and the timely filing of the 8609.

Ability Housing’s Experience with Joint Ventures

Small Rental Developments No Economies of Scale, so difficult to structure in a way that has a positive cash flow Same amount of work as large developments, but Fewer Units (Mission) Lower Developer Fees (Money) No Money, No Mission

Large Rental Deals Easier to make work financially There is typically a split of the developer fee Experienced partner does most of the work Experienced partner typically has the better balance sheet and therefore takes the financial risk Contingent Liabilities What is the less experienced partner bringing to the deal?

Mayfair Village Before After 83 units 12 residential buildings August 2018 August 2018 Mayfair Village Before After 83 units 12 residential buildings Clubhouse with computer lab Onsite laundry facilities Onsite support services Originally constructed in 1951, the property suffered from significant deferred maintenance and high crime rates. Ability Housing purchased it in 2008 with interim financing and received permanent financing from the Florida Housing Finance Corporation in 2010. The community underwent significant rehabilitation. 42 units of housing for homeless individuals and families and 41 units of housing for households earning 50% AMI or less. Average rent $257

Oakland Terrace Before After 60 units 4 residential buildings August 2018 August 2018 Oakland Terrace Before After 60 units 4 residential buildings Clubhouse with computer lab Onsite laundry facilities Project based rental assistance contract with HUD so tenants pay 60% of their income for rent and utilities and the Housing Assistance Payment Contract makes up the difference In 1971 a neighborhood church built the Oakland Terrace Apartments, a HUD-assisted property. These apartments have a special significance to the community because it was built on the location of the former Boylan-Haven School, which was founded in 1886 as Boylan High School. The school's health training program led to the founding of the Brewster Hospital - which was one of the first such institutions for African-Americans in Florida and among the earliest of its kind in the South. Unfortunately, the school was closed in 1959 and the building was demolished in 1971. The Oakland Terrace Apartments were built in its place. The term of the renewal contract is 20-years ending December 1, 2021.

Renaissance Village Before After 52 units 2 residential buildings August 2018 August 2018 Renaissance Village Before After 52 units 2 residential buildings Clubhouse Onsite laundry facilities Onsite support services where formerly homeless and at-risk individuals and families NSP and LISC Another example of where the construction cost was subsidized to eliminate need for debt, reducing the amount of monthly expenses reducing the income needed from rent Average rent $447

Village on Wiley Construction After 43 units 11 residential buildings August 2018 Village on Wiley Construction After 43 units 11 residential buildings Clubhouse with computer lab Onsite laundry facilities Onsite support services

Managing Director, Property Development Stan Fitterman Managing Director, Property Development