1. 1 Strategies for Containing Multifamily Development Costs October 8, 2014

2. 2 Context: Cost Curve for Housing Financed by Minnesota Housing (adj. for inflation)

3. 3 Policy Cost Drivers Added Since 2003 Enterprise Green Community Standards Funding Supportive Housing for Long-Term Homeless Location Efficiency – access to transit / walkable Economic Integration

4. 4 Cost Containment Efforts 1.Predictive Cost Model Assess cost reasonableness 2.Tax Credit Scoring Criterion Encourage cost reductions for individual projects, not just cost reasonableness 3.Consolidated RFP Coordinate and Consolidate Funding 4.Process Redesign at MHFA Reduce complexity, uncertainty, and delays 5.MN Challenge Encourage system-level cost reductions

5. 5 Cost Containment Effort #1 Predictive Model – Cost Reasonableness First used in 2006 Econometric regression model that predicts TDC per unit based on 18 project characteristics Uses data from projects that Minnesota Housing financed between 2003 and 2014 (costs adjusted for inflation) Also uses cost data from RSMeans as a benchmark Model is used to assess cost reasonableness by comparing proposed and predicted costs

6. 6 Cost Containment Effort #2 Tax Credit Scoring Criterion New with 2014 QAP 4 points available to 50% of applications with lowest TDC per unit o Broken out by development type and location:  Metro – New Construction  Metro – Rehab  Greater MN – New Construction  Greater MN – Rehab o Includes unit size adjustments

7. 7 Policy and Priority Context of Cost Containment Scoring – 2016 QAP CriterionPointsCriterionPoints Supportive Housing for LTH110/10Economic Integration9 Preservation of Federally Assisted35Location Efficiency9 Unacceptable Practices-25Intermediary (Soft) Costs6 Rental Assistance21Workforce Housing Community5 Lowest Income / Rent Reduction16Universal Design5 Financial Readiness to Proceed14 Cost Containment4 Strategically Targeted Resources12High Speed Internet Access1 Federal/Local/Other Contribution10Smoke Free Building1 Household Targeting10QCT / Community Revitalization1 Foreclosure10Eventual Tenant Ownership1

8. 8 Cost Containment Effort #3 Consolidated RFP First used in 2004 Coordinate and consolidate funding Funding PartnersCollaborating Partners Family Housing FundCity of Minneapolis Greater Minnesota Housing FundCity of St. Paul Metropolitan CouncilHennepin County Department of Employment and Economic Development (CDBG Small Cities) Ramsey County Department of Human Services HUD USDA Rural Development

9. 9 Cost Containment Effort #4 Process Redesign at MHFA Eliminate unnecessary: o Complexity o Uncertainty o Delays Focus on application/project processing: o Proposal inception and concept o Application o Selection o Underwriting o Commitment o Closing o Construction Management o Lease Up

10. 10 Cost Containment Effort #5 MN Challenge Need more than project-specific savings Need system-level savings Leverage work by Enterprise and ULI Terwilliger Center – report on national best practices

11. 11 MN Challenge Idea Competition Overview Generate implementable ideas to lower the cost of affordable housing Two-phase idea competition o Phase I: 3 page concept papers o Phase II: Fully developed proposals with an implementation plan (3 finalists) $100,000 in assistance o $10,000 for each finalist (to create full proposal) o $70,000 for winner (to implement idea)

12. 12 MN Challenge Evaluating Proposals High quality and achievable idea Amount of cost savings – applicable to a wide range of projects types and locations Supported and vetted by multi-disciplinary team Not compromise housing quality, durability, location desirability etc. Implementable in near future

13. 13 Cost Categories (2003-13; Adj. for Inflation) Project Type Sample Size Avg. TDC Per Unit Average Share of TDC AcqConstrSoft ALL412 $161,791 15.35%65.03%19.61% ALL ACQ PROJECTS284 $186,825 20.95%58.29%20.77% ACQNEW CONLIHTCMETRO70$237,3088.24%67.45%24.31% ACQNEW CONNON LIHTCMETRO18$202,84210.16%72.06%17.78% ACQNEW CONLIHTCGR. MN45$186,3214.99%71.84%23.17% ACQNEW CONNON LIHTCGR. MN25$183,5016.58%76.59%16.83% ACQREHABLIHTCMETRO37$197,39935.11%41.15%23.74% ACQREHABNON LIHTCMETRO39$123,89141.43%43.32%15.26% ACQREHABLIHTCGR. MN29$149,74635.48%43.15%21.37% ACQREHABNON LIHTCGR. MN21$117,40342.37%42.73%14.89%

14. 14 MN Challenge Competition Results Phase I - 12 concept papers received Phase II - 3 finalists developed full proposals: o Right sizing reserves – insurance or guarantee o Building archetypes o Local regulations and practices  Winner  Targeted communities – tailored recommendations and technical assistance

15. 15 MN Challenge Next Steps – Conversation Not Over November 18, 2014 Workshop 1.Right Sizing Reserves Insuring or guaranteeing portion of reserves Reduce reserves actually held Issues: How will it work? Who will provide insurance or guarantee? What are potential unintended consequences?

16. 16 MN Challenge Next Steps – Conversation Not Over November 18 Workshop (continued) 2.MnDocs – Bringing MassDocs Concept to Minnesota One set of legal documents for all subordinate debt Reduce legal costs

17. 17 For More Information Contact: John Patterson Planning, Research & Evaluation Minnesota Housing john.patterson@state.mn.us (651) 296-0763