Rental Assistance Demonstration Lessons Learned Midwestern Lenders Conference October 14, 2015

Four HUD Hot Buttons Functional Obsolescence Scattered Sites Fair Housing Environmental Issues

Functional Obsolescence Small Units Too few Bathrooms Small doorways Site design Terra Cotta sewer lines

Scattered Sites 5 contiguous units per parcel One marketable, manageable property Similar quality when renovated Rotating staff serves all properties

Fair Housing Fair Housing Accessibility if built after March 13, 1991 – First floor units or all elevator units must be adaptable (blocking, accessible path, adaptable cabinets) Section 504: Federal Funds (Section 8) = 5% fully accessible and 2% hearing and sight HUD Minimum Property Standards – Elderly Units: call systems; grab bars in bathtubs; non-slip tub surface; elevators sizes (waivable); stair height (waivable); hallway handrails on one side – Disabled Units: blocking for grab bars

Environmental Issues Floodway Floodplain Asbestos Lead-based Paint Radon 8-step process Form 4128

Who is in Charge? Four RAD Underwriting Offices: – Atlanta – Chicago – Ft. Worth – Seattle See Handout for who to call for concept meeting, RAD jurisdictions, and work-load sharing

Who is in Charge: Two Examples If originating office is Atlanta, Chicago, Ft. Worth, or Seattle – RAD office conducts concept Call – Discuss HUD Hot Buttons, Waivers, and Issues Attending: Housing underwriter, RAD transaction manager, housing authority, developer, and lender. Project probably underwritten in geographic RAD office

Who is in Charge: Two Examples If originating office is NOT Atlanta, Chicago, Ft. Worth, or Seattle – Originating office conducts concept Call – Discuss HUD Hot Buttons, Waivers, and Issues Attending: Housing underwriter, RAD transaction manager, housing authority, developer, and lender. Project will NOT be underwritten in the originating office

Who is in Charge? Work-Load Sharing: in all cases – Call Mark Wiesendanger to ask which RAD office will receive your RAD project – If not the concept call office, conduct a new “warm-up” call, discuss Hot Buttons, Waivers, and Issues Attending warm-up call: Housing underwriter, RAD transaction manager, housing authority, developer, and lender.

Where are Decisions Made? Underwriting branch chief: RAD office HUB-level waivers: RAD processing office, housing and legal Environmental reviews: Geographic office Closing: Geographic office – At the concept meeting or warm-up meeting, ASK

Random Lessons Learned Waiver of Paragraph B of the Ground Lease is approved in RAD housing and legal with HUD Central concurrence Leasehold value on ground lease from public entity is always $0, which may be changing and may not matter; what to cost certify? Payments in cash on GL during construction are part of replacement cost and cost certifiable; single up front payments satisfied by a landlord note are not

Random Lessons Learned Good repair history is hard to get Justify 10% contingency in heavy rehab Check terms of RE tax PILOTs: role of HA

Random Lessons Learned Housing Authority can contribute cash and take cash out if last transaction 223f: value is set by restricted value RECAP will take care of releases of Declarations of Trust

Random Lessons Learned Developer fee LIHTC: – Lesser of 15% of total development cost or Agency allowed fee – Distributed on Syndicator Schedule – Paid from tax credit equity

Random Lessons Learned Developer fee Not LIHTC: – 10% of total development cost less reserves, developer fee, and acquisition cost in IOI transactions – Distributed 33% at IE 33% at 50% complete Remainder at 100% complete

Random Lessons Learned: 221d4 Value may be more or less than purchase price Purchase price negotiated between buyer and seller; included in basis Underwrite and certify lesser of “as is” value or purchase price Seller note may exceed market value with a waiver of MAP Guide 8.9B2

Random Lessons Learned: 221d4 “as is” value set at market rents, market expenses, market cap rate No cash out from any source at IE; waiver of ML IV.P for 5%-10% required by syndicators Cash out from “as is” value at 6 months of sustaining occupancy following FE MAP Guide 8.13J