1. New Mexico Housing Summit Get Smart About Financing a Multi- Family Remodel September 19-20, 2016 Presented by Bryan Hooper

2. Copyright © 2015 Accenture All Rights Reserved. Agenda Comprehensive Property Assessment (CPA) Rural Development Preservation and Revitalization (MPR) program Section 538 Guaranteed Program Tax Credit Transfer Process Improvement

3. Copyright © 2015 Accenture All Rights Reserved. Comprehensive Property Assessment In 2004, RHS conducted a physical assessment of its Section 515 portfolio. That assessment found that it would cost about $2.5 billion to modernize RD’s Section 515 direct loan portfolio. Last fall, RHS contracted with Corelogic and RSM to conduct an updated portfolio assessment. This assessment sampled properties across the portfolio – from the 515, Farm Labor, 538 and MPR programs. A total of 394 properties were reviewed between October and early January. A total of 4 properties in New Mexico were included in the study – 2 Farmworker Housing properties, 1 Section 515, and 1 Section 538 property. The report indicates that gap between funded and annual reserve requirements, and the amount of reserves needed to maintain the functional utility of our portfolios over 20 years is: Total (Present Value)Per unit/per year 2004 (2015 $) 515$4.72 billion$964 $647 Farm Labor$187 million$924 538$481 million$1,171 MPR$114 million$408 Total$5.596 billion Contents of the assessment are available on RD’s website at http://www.rd.usda.gov/files/reports/USDA-RD-CPAMFH.pdf

4. Copyright © 2015 Accenture All Rights Reserved. How do we rehab our properties? Different funding sources o Rural Development Multi-Family Preservation and Revitalization (MPR) program o Tax credits o Section 538 Guaranteed Rural Rental Housing Program loans o Other potential sources

5. Copyright © 2015 Accenture All Rights Reserved. Multi-Family Preservation and Revitalization Demonstration program Flexible tools o Grants (for nonprofits to address health and safety issues) o Loans (zero percent, soft second), Section 515 loans o Deferral of existing Section 515 loans o Financing package tailored to individual property situation Often used in combination with tax credits and other funding sources

6. Copyright © 2015 Accenture All Rights Reserved. Section 538 Guarantee Program The Guaranteed Rural Rental Housing Program (GRRHP) - offers guarantees on loans for permanent financing and construction advances to encourage private and public lenders to make loans to construct and preserve affordable rural rental properties. Program provides up to a 90% guarantee on fixed rate on loans with terms of 25 to 40 years. The 538 program is one of the most effective tools for levering private capital for rural communities; works very well with tax credits. The 538 program helps with rehabilitation of existing RD Section 515 housing; loan can pay for ineligible RD costs like sellers equity and certain fees. We used our entire $150 million in guarantee outstanding this year. We received additional funding which will help our portfolio reach the $1 billion level in program loans closed. This demonstrates the high demand for this program and positions us well to grow it.

7. Copyright © 2015 Accenture All Rights Reserved. Tax Credits Tax Credits are a critical source of funding to rehabilitate the Section 515 Rental Housing portfolio. RD values this source of equity to make rehabilitation possible, and the New Mexico RD staff are ready to assist in processing these transactions. Typically, HFAs usually utilize 4 percent LIHTC program to assist in Section 515 rehabilitation. One benefit of the 4 percent transactions is they allow the rehabilitation of multiple properties at one time, so more efficient than multiple single property rehabilitations (although RD encourages them as well).

8. Copyright © 2015 Accenture All Rights Reserved. Tax Credits Issues Some issues to be aware of: 4 percent LIHTC program is rarely feasible with a single RD property due to property size and transaction expenses. Generally need to process a portfolio sale to be able to prorate costs over more units (typically, 10-20 properties and at least 300 units) Only properties in similar markets may be consolidated, otherwise each property must be underwritten and determined feasible on their own If using a 538 Guaranteed loan, separate 538 NOSA responses required if properties not located in similar market Less equity generated with 4% LIHTC. Generally: o Requires additional private loans or RD MPR loans o Less funds available for rehabilitation o Added debt service increases rents and RA cost

9. Copyright © 2015 Accenture All Rights Reserved. Typical 4 Percent Rehabilitation Transaction In late 2015, RD completed a portfolio transfer/rehabilitation in a Southeastern state that is fairly typical of these types of transactions. The specifics: 18 Section 515, with 563 total units (1, 2, and 3 BR units) 363 RA units, 20 Properties Section 8 units Average pre-transaction rents: $451 Properties received complete renovations to both exterior and interior, including accessibility requirements Funding Sources: Bonds: 20,085,000 4% LIHTC: $10,742,474 HOMES: $500,000 538: $775,000 515: $4,976,463 MPR 0% Loan: $10,954,537 Section 515 loan debt deferral: $7,851,239 Average post-transaction rents: $434

10. Copyright © 2015 Accenture All Rights Reserved. Transfer Process Improvement  We have improved the property transfer process through the development of a new Preliminary Assessment Tool that enables interested developers to discern whether a transaction is eligible for RD approval. This tool has simplified underwriting, reduced processing times, and improved customer satisfaction. It was the outcome of a joint effort by RD and industry stakeholders, so we thank those that provided input.  Processing times have already been reduced from 157 days before the process improvement started to 113 days for transfers approved so far this year.  We are currently working on revisions to our handbooks that will publicize our streamlined transfer processing policies to our customers.

11. Rural Development Multi-Family Housing Bryan.Hooper@wdc.usda.gov Bryan.Hooper@wdc.usda.gov Office: 202-720-9739 www.rd.usda.gov