PRESERVING RURAL RENTAL HOUSING

1. PRESERVING RURAL RENTAL HOUSING Buyers & Sellers Conference April 17, 2008

2. Putting the Deal Together • What Works …….. • Having an Experienced Developer • One point of contact with RD for completing the transaction • One CNA provider will complete all of the capital needs assessment • One Attorney/Title Insurance Company • Was able to do multiple loan closings at one time • One Appraiser 2

3. Putting the Deal Together… • One Application for Portfolio Transfer • Buyer of multiple properties can submit one application • Will have to do separate budgets, market studies, appraisals, etc. for each property – if not consolidating • Can streamline documents required, i.e. only 1 Identity of Interest Disclosure, 1 set of financial reports, 1 commercial credit report, etc. • Use Transfer Checklist and Fillable Forms 3

4. Putting the Deal Together • What Works… • Consolidation of multiple properties located in the same state • Created savings benefit for the properties because only 1 audit will be required, 1 set of recordkeeping, etc. • Rental Assistance could be shared throughout all units, rather than just one property • Marketing for New Tenants & Tenant Placement is improved • Can use same site manager for all properties • Properties are not competing against each other, but working together 4

5. Putting the Deal Together….. • What Works…. • Multi-Preservation and Preservation Program (MPR) • This works well with transfers especially if there are no other funding sources • Debt deferral provides resources for making capital improvements as identified in CNA • Held meetings with Management and Owner to discuss MPR program and responsibilities • Helps them understand the CNA report • Reviewed legal documents and requirements 5

6. Putting the Deal Together • What Did Not Work or Needs Improved… • Timing or Coordination is a challenge • Different funding cycles, different programs, different Agencies • Different closing deadlines due to different funding cycles • Can’t complete underwriting without certain items: • Capital Needs Assessment • Appraisal • Market Study 6

7. Putting the Deal Together • What Did Not Work or Needs Improved… • Legal Issues due to incorrect legal descriptions, easements, etc. • Need to obtain legal survey • Obtain experienced title company and closing attorney to make process go smoother • Understanding RD Regulatory Requirements and Tax Credit Requirements • Developer is a good source for learning more about tax credits • Work with RD personnel, attend State Housing Association training sessions, etc. 7

8. Putting the Deal Together • What Did Not Work or Needs Improved… • Making the Deal Work Without New Funding while still Complying with Regulations • Addressing immediate capital needs at property • Replacement Reserve account has to be resized to meet long term capital needs identified in CNA • Must keep rents affordable • New Owner needs to understand that if reserve is not sufficient for capital improvements or deferred maintenance, they will be ultimately responsible 8

9. Putting the Deal Together • What Did Not Work or Needs Improved… • Paperwork, Paperwork, Paperwork • Different Agencies requires different applications • Different Agencies require different Legal Documents • Recognize that requirements may vary from state to state • RD-11, RD-3, and RD-19 required 2 transfers • This amounts to 66 Transfers, 66 appraisals, Legal Fees for 66 closings, etc. • Simplify if you can 9

10. Putting the Deal Together • What Did Not Work or Needs Improved… • Replacement of Management during the interim • Communication between buyer and seller • Will management currently in place take care of property? • Does new Buyer have experience to manage or do you need non IOI management? • Interim management may need more incentive since management would be temporary • State HFA did offer more incentives to keep their interest • Need more Non Identity of Interest Management Companies • Need Training Program for new Owner’s management company in order for them to be qualified to manage RD financed properties • RD wants New Owner and New Management to be successful, so go slowly and don’t take on too much, too fast! 10

11. Putting the Deal Together.. • Tips • Build on what works and make it work better • Learn from what did not work and address these early on in future deals • Offer suggestions for improvement • Be Understanding & Flexible– know that every deal is not the same • Build a relationship with HFA and RD • Attend as many training sessions as possible to learn as much as possible • Communicate, Communicate, Communicate! 11

12. HFA/RD Partnership • Missouri RD has 200+ properties connected with Missouri Housing Development Commission (MHDC) • LIHTC/HOME Funds/AHAP Credits • RD Subordinated with MHDC in first • MHDC took a second liens on RD properties • RD financed properties with project based Sec. 8 contracts managed by MHDC

13. MHDC/RD Streamlining • Agencies identified tasks that were being duplicated by both agencies • Supervisory Visit/Management Review • Physical Inspections • Budget approval process • Yearend Reviews/Audits • Rent Increases • Reserve request

14. RD/MHDC Streamlining • Partnering Agencies will accept reports/inspections from lender in first lien position • Both Agencies will be flexible when special conditions exist • Borrower will not have to respond to both agencies for most items • Agencies will share reports for monitoring portfolio • Both Agencies will meet with borrower/management agent when there is a joint interest, if there are concerns • Borrower will to comply with most restrictive regulation

15. Don’t miss the boat! Remember that we are all in the same boat; Plan ahead; it wasn’t raining when Noah’s Ark was built; Stay Fit; Don’t listen to critics, just get on with job that needs to be done; Build your future on high ground For safety, travel in pairs; Speed isn’t always an advantage When your stressed; float a while Remember the Ark was built by amatuers; the Titanic was built professionals! Lessons Learned from Noah’s Ark The Woodpecker might have to go!