1. Preserving Existing HUD Subsidized Housing 2014 ARHC-AHMA Joint Convention, Yakima, WA Sarah Nichols, Senior Project Manager Brian Lloyd, Director of Development

2. Who is Beacon Development Group?  Formed in 1999; To date, has developed / preserved 3,129 units valued at over $461 million  Works with non-profits and housing authorities that are committed to serving low- and moderate-income households  Acquisition / Rehab  Farmworker Family Housing  Green / Sustainable / LEED Certified Buildings  Historic Rehab  New Multi-story Construction  Senior / Special Needs Housing

3. Preservation Experience  Recently completed / currently working on 8 HUD housing preservation transactions  HUD Section 202, Section 236 and RAD (Rental Assistance Demonstration) projects  All large, 125-200 unit projects  Refinances include FHA 223f and 221d4, LIHTC, restructuring of existing subsidy  Awarded Senior Preservation Rental Assistance (SPRAC) – one of twelve awards nationwide  Closed first RAD transaction in Washington State

4. Why Preservation? Why Now?  Many Section 236 and Section 202 buildings are 40+ years old with maturing mortgages and expiring subsidy  Recent HUD policies provide new subsidy options with prepayment, refinance and rehabilitation  Current FHA mortgage rates are low

5. 1.Existing project subsidy 2.Potential future subsidy / available funding 3.Current rents and occupancy history 4.Project capital needs 5.Tenant services 6.Tenant income mix 7.Project ownership Key Preservation Elements

6.  Section 202 Direct Loan (pre or post 1974)  Section 236 loan and Interest Reduction Payments (IRP)  Multifamily HAP Contract  Flexible Subsidy Loan  Rent Supplement or RAP  Public Housing  Local PHA Project Based or Housing Choice Vouchers 1. Existing project subsidy

7.  Rent increases / HAP contract renewal  Tenant protection vouchers (regular, enhanced or converted to project based)  SPRAC  Deferral of flexible subsidy loan  RAD PBRA or PBV  FHA loans  Tax Credits (4 or 9%)  Tax Exempt Bonds  Other local sources (CDBG, State HTF) 2. Potential future subsidy / funding

8. 3. Current rents and occupancy history  At or below market rents?  Assisted rents compared to unassisted rents?  Local PHA FMR and payment standards  Current vacancy rate  Historic occupancy issues  Demand for unit types (studios vs. one bedrooms)

9. 4. Project capital needs  Identify both critical and discretionary needs  HUD form of capital needs assessment (PCNA, RAD SOW) may be required  Encourage clients to complete an owner directed CNA outside of HUD requirements  Prioritize

10. 5. Tenant services  Meal program  Service coordinator  Wellness and activity programs (limitations on what can be funded by a HAP contract)  Assisted living  Additions or changes to existing services

11. 6. Tenant income mix  Current snapshot of income mix  # of rent burdened tenants  Expected or desired future income mix / demand  Income qualification for new funding varies  SPRAC eligibility <80% of MI  SPRAC funding preference<50% of MI  Tax credits <60% of MI  Flexible subsidy deferral <80% of MI  Preservation vouchers <95% of MI  PHA voucher eligibility <50% of MI

12. 7. Project ownership  Section 202 and 236 require single asset entities  Often only housing project associated with the sponsoring organization  Typically non-profit, volunteer boards  May not have the skill, experience or desire for a refinance transaction  Limited financial resources for predevelopment funding

13. Northaven Apartments  Located in North Seattle  198 studios and one- bedroom units  8 stories  Built in 1972

14.  Section 236 loan and Interest Reduction Payments (IRP) – $3MM original mortgage maturing in 2012; 8.5% interest rate written down to 1% with IRP  Multifamily HAP Contract – 61 units  Flexible Subsidy Loan - $2.9MM, 1% 1. Northaven existing project subsidy

15.  HAP Contract rent increases/renewal  Increase HAP rents to support new debt service (HAP Renewal Guide Ch. 15, Option 2)  20 year HAP contract with rents reset to market at Yr. 6, 11 and 16  Allowable 10% across the board increase prior to refinance  Deferral of flexible subsidy loan – Requested; payments from surplus cash  Tenant protection vouchers triggered by prepayment  All tenants <95% of MI eligible for enhanced vouchers  Potential to project base enhanced vouchers  FHA loans – 223f; 35 year amortization 2. Northaven potential future subsidy/funding

16. 3. Northaven current rents and occupancy history  Section 236 basic and HAP contract rents 45-60% of market rents  Section 236 “market rents” – 50-70% of true market rents  50-80% of Seattle Housing Authority Voucher Payment Standards (which are slightly below market)  No vacancy issues  Occupancy at or above 97% for past three years  Content with current mix of 70% studios; 30% one bedroom units

17. 4. Northaven project capital needs  $3MM ($15K per unit) in hard cost repairs identified (223f limit $17.6K per unit)  Additional $450K in hard cost contingency and $300K in soft costs  Unit cabinetry, roof, call system and standard GFCI and ADA improvements considered HUD critical and non-critical repairs – approximately $400K  $2.6MM of discretionary repairs

18. 5. Northaven tenant services  Meal program  Requested waiver under FHA program; mandatory program, self sustaining  Considered an important element to promote tenant well being and independence  Commercial kitchen upgrades included in refinance  Service coordinator  Continuing eligibility  Funding subject to annual appropriations

19. 6. Northaven tenant income mix  70% of tenants below 50% of MI  40% of tenants below 30% of MI  11 non-HAP tenants rent burdened even at the severely depressed Section 236 rent levels  Owner declined opportunity to pursue project based vouchers to preserve income mix of tenants (not all low or extremely low)

20. 7. Northaven project ownership  Founded by Olympic View Community Church of the Brethren  Board committed to remain involved with project  Constructed an adjacent, related 40 unit assisted living project in 1993  Separate non-profit, Northaven Foundation able to advance predevelopment funds  Strong administrator and maintenance staff in support of the refinance transaction

21. Northaven Outcomes  $4.8MM; 35 year loan; all-in rate <4%  Over $500K funded into replacement reserves  Deferral of flex sub loan with repayment from surplus cash  20 year HAP contract for 61 units; rents still well below market; reset to market in Yr. 6  64 tenants with preservation vouchers  Non-HAP / non-voucher tenant rents fixed at closing based on flex sub deferral

22. Northaven Outcomes (cont.)  No tenant relocation, only displaced during work hours  Rehab scope included-  New roof  Electrical panels  Emergency call system  New storefront/entry  Unit kitchens, heaters and closet doors  Commercial kitchen upgrades  Elevator modernization  Corridor carpets and maintenance building added out of contingency funds

23. Garden Terrace Apartments  Located in Wenatchee  146 studios and one- bedroom units  6 stories  Built in two phases  1970  1981

24. 1. Garden Terrace - existing project subsidy  Section 202 loan – $3.5MM original mortgages maturing in 2021 & 2023; 3% and 7.6% interest rates  Two Multifamily HAP Contracts – 16+70 units  Flexible Subsidy Loan - $154K, 1%

25. 2. Garden Terrace - potential future subsidy/funding  HAP Contract rent increases/renewal  Increased HAP rents to support new debt service (HAP Renewal Guide Ch. 15, Option 2)  20 year HAP contract with rents reset to market at Yr. 6, 11 and 16  Allowable 10% increase prior to refinance  Deferral of flexible subsidy loan – payments from surplus cash  Tenant protection vouchers triggered by flex sub deferral  All tenants <80% of MI eligible for enhanced vouchers  Potential to project base vouchers – HA declined  EV’s had no impact because no rent increase  FHA loans – 223f; 35 year amortization

26. 3. Garden Terrace -- current rents and occupancy history  Section 202 rents (assisted and non-assisted) were 50-70% of market rents  Low vacancy history  Occupancy at or above 90% for past three years  Some challenge renting unassisted studios  Current mix of 35% studios; 65% one bedroom units

27. 4. Garden Terrace - project capital needs  $2.4MM repairs identified in PCNA  Initial contractor estimate: $3.8MM  VE process and scope reduction  Final contract: $2.3MM (15,700/unit)  223(f) limit in this region: 17,500/unit  Limited by loan amount (rate blip prior to close)  230K contingency + 356K soft costs

28. 4. Garden Terrace - project capital needs (cont’d)  Safety: fire sprinkler and alarm systems  New windows  Low flow toilets and bath faucets (all)  Kitchen cabinets, counters, sinks (GT)  PTAC heat/AC units (GT)  Accessibility changes  Add backs: GT boiler, corridor changes, entry improvements

29. 5. Garden Terrace - tenant services  Meal program  Requested waiver under FHA program; mandatory program, self sustaining  Considered an important element to promote tenant well being and independence  No commercial kitchen upgrades included in refinance; planned for future phase  Service coordinator  Continuing eligibility  Funding subject to annual appropriations

30. 6. Garden Terrace - tenant income mix  Tenant incomes  65% below 30% AMI  20% below 50% AMI  15% below 80% AMI  Housing Authority declined opportunity to pursue project based vouchers  HA screened for households eligible for enhanced vouchers; no rent increase post closing, so no households eligible

31. 7. Garden Terrace - project ownership  Founded by Brethren Baptist Church of Wenatchee  Board committed to remain involved with project; very engaged in re-fi process  Motivated by safety concerns; long-term preservation; needed upgrades and improvements  Important community asset; largest low income senior housing project in the area  Administrator and staff critical in making the transaction work:  Tenant communication  Budgeting and HUD processing  Tenant relocation

32. Garden Terrace Outcomes  $5MM; 35 year loan; all-in rate = 4.57% (4.12% plus.45% MIP)  Consolidated loan structure – single budget going forward  Deferral of flex sub loan with repayment from surplus cash  20 year HAP contracts for 86 units  Unassisted rents still well below market

33. Garden Terrace Outcomes (cont.) Internal tenant relocation for GT units; day-work for GTW  Significant building improvements  Safety  Accessibility  Sustainability  Comfort  Replenished the Replacement Reserve  Resident concern turned to satisfaction and relief  20 Year reset

34. Preservation Challenges  Sorting out potential funding opportunities based on multiple layers of existing subsidy and conflicting programs  FHA and Asset Management rules are often not in sync  Resolving all HUD asset management issues ahead of new FHA loan (chicken before the egg)  Securing a source of predevelopment funding (est. $75K- $100K for 223f program; $400K plus for 221d4 program)  Tenant relocation to accommodate rehab

35. Preservation Opportunities  Increasing HUD flexibility and new policies to address preservation  Without preservation, wave of mortgage and subsidy expirations will result in loss of affordable units  Low interest rates  <3.75% for 223f  <5% for 221d4

36. Questions? Sarah Nichols sarahn@beacondevgroup.com 206-914-3023 Brian Lloyd brianl@beacondevgroup.com 206-860-2491 Ext. 210