Preserving Existing HUD Subsidized Housing

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. Existing project subsidy Potential future subsidy / available funding Current rents and occupancy history Project capital needs Tenant services Tenant income mix 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. 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 Preservation Challenges

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