Rural Mixed Use Development

1. Rural Mixed Use Development Doug LaBounty, President Community Housing Initiatives, Inc. Spencer, Iowa

2. CHI Typical Project • Historic downtown building • Multiple story • Ground Floor- commercial/retail • Upper Floors- affordable rental housing • Critical Financing Sources: • Low Income Housing Tax Credits (residential) • State/Federal Historic Tax Credits

3. Ground Floor Commercial Space • Size range from 3,500 sq. ft. to 36,000 sq ft.

4. Residential Units • 14 to 48 units • Up to 25% market rate units • 1 and 2 bedroom units

5. Call Terminal- Sioux City

6. Van Allen Building- Clinton

7. Van Allen Building- Historic

8. Van Allen Before and After

9. Van Allen Before and After

10. Rural Iowa/Midwest Historical Backdrop (1970-1990) • Demographics • Rural population losses • Exodus to Sunbelt states • Economic Development Trends • Rural to urban • Downtown to Town’s Edge

11. Current Environment • Numerous Downtown Mixed Use Opportunities in Rural Iowa • Many Downtowns have successful downtown revitalization

12. CHI Pre-Development Rehabilitation Considerations • Rental Housing Market • Is the building too large for the market? • Is the building location/layout conducive to the type of housing needed? • Commercial Space • Identify and involve potential “partners” immediately • Commitment/letter of intent before submitting financing/funding applications • Parking Availability for residential and commercial components.

13. Mixed Use Structures • Lease Commercial Space • Direct lease to user of space • Master lease to commercial real estate developer • Lease Arrangements- Pros and Cons • Easier to negotiate, amend and prepare document • Can end lease with cause • Default risk

14. Mixed Use Structures • Commercial Space under separate ownership • Condominium Agreement • Condominium- Pros and Cons • Preparation/negotiation more time consuming and costly • Long-term/permanent financial risk minimal

15. Risk Mitigation Measures- Lease Structures • Long Term leases only (15 year preferred) • Financial strength of lease • Lease guarantees • Personal guarantee of owner • Letter of credit securing lease • Fund separate/additional reserves for commercial space (capital and operating) • Require approval of all subleases (master lease arrangements) • Disallow Subleases (direct lease arrangements • Clearly and thoroughly outline common area/facilities financial responsibilities

16. Common Facilities Tenants Obligation. As additional rent, Tenant shall reimburse Landlord for the Common Facilities Costs incurred by Landlord in the percentages set forth on Exhibit “B”. Tenant’s share of common facilities costs shall be prorated to the Commencement Date of the term. Definition of Common Facilities Costs. Means the costs incurred by the Landlord for obtaining all insurance on the Common Facilities in compliance with this Lease and maintaining, repairing, cleaning, lighting, heating, cooling, landscaping and removing the snow and ice from the Common Facilities in compliance with this Lease and otherwise managing the Common Facilities. Common Facilities costs shall not include real estate taxes, capital expenditures, financing or interest charges or underlying lease payments, the cost of any modifications to the Common Facilities by the landlord as a result of Landlord’s Work or work performed in connection with entering into other leases, costs covered by a guarantee or warranty or reimbursed by insurance proceeds or otherwise, office overhead or salaries for persons whose functions extend beyond the care and management of the Common Facilities, costs incurred in the initial construction of the Common Facilities or repair thereof within five years of their construction (whether directly incurred or as amortization or depreciation or otherwise) or any costs for environmental testing or compliance. The Common Facilities Costs shall be allocated to each calendar quarter in accordance with generally accepted accounting principals. Payment of Common Facilities Costs. As additional rent, Tenant shall pay Tenant’s Share of Common Facilities Costs quarterly within thirty days after receipt of a statement containing (a) a breakdown of the Common Facilities Cost (b) a computation of Tenant’s Share of Common Facilities Costs and (c) the manner in which Tenant’s Share of Common Facilities Costs was calculated.

17. Cost Sharing • Tenant’s share of the costs include • One Hundred Percent of the Common Facilities costs for the following: • First floor atrium and lobby, including but not limited to any improvements located in the First Floor atrium and lobby such as a water fountain. • The north elevator • All hallways and stairwells located on the first and second floor of the building • The following hallways, stairwells and lobbies on the third floor of the building as shown on Exhibit A3- • Sixty Percent of the Common Facilities Costs for the following: • Any parking facilities • Fifty Percent of the Common Facilities Costs for the following: • Skylight over the Atrium • Fifty Percent of all other Common Facilities Costs which are reasonably attributable to the Premises but are provided by Landlord as a service to the Building as a whole.

18. Risk Mitigation Measures- Lease Structures • Clearly and thoroughly outline repairs and maintenance responsibilities. • Historic Integrity Provisions

19. Risk Mitigation Measures- Condo Arrangements • Commercial owner- successful track record • Right of first refusal if sale contemplated • Usage restrictions on commercial space • In no even shall Unit A be leased to or used for business activities which are not appropriate for families, including, but not limited to business involving the sale or distribution of pornography. The sale of liquor and tobacco is limited to tenants whose food or merchandise sales exceed 50% of total gross sales, with the exception that is shall be permissible for a convenience store to sell tobacco, wine, beer and liquor, even if convenience store sales of food or merchandise do not exceed 50% of total gross sales of the convenience store. • Clearly outline common area cost responsibilities • Clearly outline all easements needed for infrastructure access.

20. Miscellaneous Financing Considerations • Historic Tax Credits • Incorporate commercial space work into scope of work to insure historic credits are obtained on this work. • Depreciation • 40 year depreciation period if over 35% of net rentable space area is leased to tax exempt entity • If 20% or more of gross rental income is from non-residential sources, 40 year depreciation is required.

21. Sample Lease Amount Calculation Commercial Costs:  Acquisition Costs Allocated to Commercial $ 40,000 Rehabilitation Costs $ 325,000   Soft Costs Allocated to Commercial $ 30,000 Capitalized Commercial Operating Reserve $ 25,000   Total Commercial Costs $ 420,000    Sources of Financing:   Equity from Sale of Historic Tax Credits $ 65,320 State/local Allocated to Commercial $ 45,000 Bank Debt $ 309,680   Total Commercial Sources $ 420,000    Lease Payment:   Monthly Debt Service on Loan $ 2,214   Add Debt Coverage (1.20) $ 443   Replacement Reserve Funding $ 500   Minimum Monthly Lease Amount $ 3,157