Transcript Property Acquisition Cont’d

The Development Process
An Overview
 Forming the development concept
 Evaluating your capacity and the needs of your
community
 Evaluating the properties in your community
 Feasibility
 Creating an experienced project development
team
 Preparing financial statements and budgets and
cost estimates
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The Development Process
An Overview
 Deal Making: Planning and Financing
 Identifying financing sources
 Financial stability of lead applicant
 Project construction
 Planning and managing the construction process
 Operation
 Preparing a long term management plan
 Compliance with federal requirements
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NSP Eligible Activities
 NSP is organized according to the eligible
activities provided in the Housing and
Economic Recovery Act of 2008.
 These activities provide for a wide array of
projects.
 Applicants can combine activities if necessary
to achieve the scope of their project.
 State’s Plan estimated funding by activity
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NSP Residential Financing Program
 “Establish financing mechanisms for purchase and
redevelopment of foreclosed upon homes and
residential properties, including such mechanisms as
soft-seconds, loan loss reserves, and shared-equity
loans for low- and moderate-income homebuyers.”
 The State’s Plan estimated 15% of overall NSP funds
for this activity
 Types of Projects:
 Assist home buyers acquire properties by providing a zero
interest subordinate loan or grant to bring down the purchase
price to an affordable level.
 Loan Loss Reserve
 Revolving Loan Fund
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NSP Homebuyer Program
 “Purchase and rehabilitate homes and residential
properties that have been abandoned or foreclosed
upon in order to sell, rent, or redevelop such homes
and properties.”
 The State’s Plan estimated 20% of NSP funds would
address this activity.
 Possible Project Types:
 Acquire and rehabilitate single family homes
 Acquire and rehabilitate multi-unit properties for sale
(condos, townhomes, etc.)
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NSP Rental Program
 “Purchase and rehabilitate homes and residential
properties that have been abandoned or foreclosed upon
in order to sell, rent, or redevelop such homes and
properties.”
 State’s Plan estimated 30% of NSP funds would address
this activity.
 Intended for permanent housing
 Possible project types:
 Scattered site acquisition and rehabilitation of single family
homes for long term rental
 Scattered site acquisition and rehabilitation of small multi-unit
properties for long term rental
 Larger single site acquisition and rehabilitation for long term
rental
 Rent-to-Own models
 Special needs housing
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NSP Land Bank Program
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“Establish
land banks for homes that have been
foreclosed upon.”
Can not be used for vacant land.
Must have defined geographic area that meets the
CDBG national objective of “benefiting low, moderate,
and middle income persons”.
Homes acquired must be brought to their end use within
10 years.
State’s Plan estimated 5% of NSP funds would address
this activity.
Possible project types:
 Acquire homes for later redevelopment, rehabilitation or
affordable sale or rental
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NSP Demolition Program
 “Demolish blighted structures”
 Properties must meet definition of blight covered later in
this presentation and discussed in State’s Plan.
 State’s Plan estimated 3% of NSP funds would address
this activity.
 The CDBG national objective to “eliminate slum and
blight” is not eligible under NSP.
 All activities must be tied to benefit low-mod-middle income
households.
 Area benefit test would be necessary.
 Possible projects types:
 Demolition of homes to leave as green space to lower the chance
of flooding for surrounding homes.
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NSP Redevelopment of Demolished
or Vacant Property Program
 “Redevelop demolished or vacant properties.”
 Public facilities are eligible but must provide an “area
benefit” to low-mod-middle income households
 New construction only eligible under this activity
 State’s Plan estimated 10% of NSP funds would address
this activity
 Possible Project Types:
 Single site new construction for sale or rental
 Scattered site new construction for sale or rental
 Special needs housing / Supportive housing
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NSP Eligible Properties
The type of property that can be assisted with NSP
funds varies according to the eligible activity undertaken.
Federally required minimum of 25% of all NSP funds
must be used to provide housing for households with
incomes at or below 50% of the area median income
State has set goal of targeting 40% of NSP funds to
assist 50% AMI households.
Properties must be residential and have been
foreclosed or abandoned in order to meet the 25%
requirement, even if that is not required by the activity.
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NSP Eligible Properties Cont’d
 HUD has defined –
 Foreclosed: “A property has been foreclosed upon
at the point under state or local law, the mortgage or
tax foreclosure is complete. Title to the property
must have been transferred.”
 Abandoned: “When mortgage or tax foreclosure
proceedings have been initiated for that property, no
mortgage or tax payments have been made by the
property owner for at least 90 days, AND the
property has been vacant for at least 90 days.”
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NSP Eligible Properties Cont’d
 Homes: “Any type of permanent residential dwelling
unit, such as detached single family structures,
townhouses, condominium units, multifamily rental
apartments (covering the entire property), and
manufactured homes where treated under state law
as real estate (not personal property).”
 Residential Properties: “includes all of the above
plus vacant land that is currently designated for
residential use, e.g. through zoning.”
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NSP Eligible Properties Cont’d
 Blighted Structure: “A structure is blighted
when it exhibits objectively determinable
signs of deterioration to constitute a threat to
human health, safety, and public welfare.”
 Further defined by the State’s NSP Plan.
State’s Plan allows local laws defining blight
to be used or, in the absence of a local
definition to use the State’s definition.
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NSP Eligible Properties Cont’d
 State’s
definition of blight is satisfied by displaying
at least 5 of the following characteristics:
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Dilapidation
Obsolescence
Deterioration
Presence of Structures
below minimum code
Illegal Use of
Individual Structures
Excessive Vacancies
Lack of Ventilation
Inadequate Utilities
 Excessive land coverage and
overcrowding of structures
 Deleterious land layout
 Environmental Clean Up
 Lack of community planning
 Total equalized assessed
value of the proposed
redevelopment has declined
for 3 of the last 5 years
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Eligible Activity
Eligible Property Type
NSP Residential Financing
Program
“Establish financing mechanisms
for purchase and redevelopment
of foreclosed upon homes and
residential properties, including
such mechanisms as softseconds, loan loss reserves, and
shared-equity loans for low- and
moderate-income homebuyers.”
Properties must be both residential
and have been foreclosed upon.
NSP Home Buyer Program/ NSP
Rental Program
“Purchase and rehabilitate homes
and residential properties in order
to sell, rent, or redevelop such
homes and properties.”
Properties must be residential,
have been foreclosed upon or
have been abandoned as defined
by HUD.
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Eligible Activity
Eligible Property Type
NSP Land Bank Program
“Establish land banks for homes
that have been foreclosed upon.”
Properties must be residential and
have been foreclosed upon.
Vacant land can not be acquired
for land banking purposes.
NSP Demolition Program
“Demolish blighted structures.”
Properties do NOT have to be
foreclosed, abandoned, or
residential but must meet local or
State’s definition of blighted as
defined in the NSP Plan
Amendment.
Properties do NOT have to be
foreclosed or abandoned or
residential but MUST be vacant
land or structure. Vacant land
must have been previously
developed.
NSP Redevelopment of
Demolished or Vacant Property
Program
“Redevelop demolished or vacant
properties.”
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Components of NSP Housing
Development: Acquisition
Strategy
Targeting and Site Selection
Areas of Greatest Need
Community Impact
Property Type and End Use
Applicants proposing a single site activity should be
able to able to discuss location, while applicants
proposing a scattered site should be able to discuss
target area, type of properties, and availability of those
properties, at a minimum.
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Components of NSP Housing
Development: Acquisition Strategy
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Should not acquire property before approval from State
Highly recommended to pursue vacant property only
Property sellers and REO (“Real Estate Owned”)
NOT encouraged to consider eminent domain
Acquisition price must be at a minimum 15% discount
from the current appraised value of the property
 Current Appraisal
 Appraisal must be made within 60 days of any offer on the
property
 Must be an independent appraisal – property holder’s
appraisal is not acceptable
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Components of NSP Housing
Development: The End Use
Homeownership Considerations
Market Assessment and Outreach Plan
Qualifying Home Buyers
Housing Counseling
Resale limit
Final sale of home to income eligible household
must be for less than the total cost to acquire and
redevelop the property
Home Purchase Financing
Lending Requirement
http://www.fdic.gov/regulations/laws/rules/5000-5160.html
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Components of NSP Housing
Development: The End Use
Rental Considerations
Market Analysis
Rent Levels
IHDA’s “Schedule of Maximum Monthly
Gross Rents for Most Multifamily Programs”
Tenant Selection Plan and Tenant Outreach
Income Qualifying Tenants
Property Management
Rent-to-Own
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Components of NSP Housing
Development : Per Unit Cost
Limits
 No per-unit limits set by CDBG or HUD rules
 State has established per unit maximum by adopting
Maximum Purchase Price Limits for Non-Targeted
Areas used with IHDA’s first mortgage products
 Using the “1-unit New Construction Limit for Non Targeted
Areas”
 Limit includes all costs of project including acquisition,
rehabilitation, redevelopment
 Cost of rehabilitation must be no more than 75% of the
cost of acquiring the unit
 On a per-unit basis for multi-family developments
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Components of NSP Housing
Development: Construction and
Rehabilitation Plan
 Evaluation of Property Condition
 Establish Construction and Rehab Standards
Cost estimates Construction/Rehab
Davis Bacon applies at 8 units or more
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Components of NSP Housing
Development - Finance
NSP funds will be structured largely as grants
Will require an affordability period
CDBG program income requirements apply
 State will consider providing 100% project financing
from NSP funds
Leverage
Traditional State resources will be difficult to combine with NSP
Bring local resources to the project
Acquisition and Construction Financing
Bank Financing, Local CDBG, HOME
 Proceeds from Resale
 Private and pool financing
 Foundations and local grants
 End buyer financing - IHDA
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Affordability Requirements
NSP Investment Per Unit
Length of Affordability
Period
Less than $14,999
5 Years
$15,000 - $40,000
10 Years
More than $40,000
15 Years
New Construction
20 Years
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Components of NSP Housing
Development - Finance
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Development Budget
 Acquisition costs
 Construction/
Rehabilitation
 Capitalized Reserves
 Holding / Carrying Costs
 Contingency
 Soft Costs
Development Fees
Developer Fees
 Maximum of 12%
Project Delivery
Administrative Fees
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Components of NSP Housing
Development - Finance
Operating Budget
 Projected Income
+ Residential rental income
+ Commercial rental income
- Rental vacancy
 Operating Expenses
 Taxes, insurance, utilities
 Property management, maintenance
 Operating Reserves
 Debt Service
 Feasible projects will be self supporting
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Components of NSP Housing
Development – Property Management
 For Sale developments will need to address
how properties will be managed for holding
period
 Long term rental projects should use
experienced project managers with existing
policies and procedures
 Scattered site projects, likely under NSP are
notoriously difficult and expensive to manage
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