Development 101

Holly Denniston

Senior Program Manager

Corporation for Supportive Housing

June 13, 2011

www.csh.org

Our Mission

CSH is a national non-profit organization and

Community Development Financial

Institution that helps communities create permanent housing

with services to prevent and end homelessness.

Founded in 1991, CSH advances its mission

by providing advocacy, expertise, leadership,

and financial resources to make it easier to create and operate supportive housing.

Types of Permanent

Supportive Housing

Types of PSH

Single-Site, Single-

Purpose Development

Projects

Master Leased Housing

Projects

Scattered-Site Housing

Projects

Single-Site, Integrated

Supportive Housing

Development Projects

Types of PSH

All units in a property are required to be

dedicated to PSH with an extended use or similar

agreement

Developed either through new construction or

acquisition/rehabilitation

Size of such projects varies widely

Many CSH-sponsored projects fit this model

Sin

gle

-Sit

e, S

ing

le P

urp

ose

Types of PSH

Projects with a mix of units dedicated for

supportive, affordable and/or market rate

housing as secured by an extended use or

similar agreement

Developed either through new construction or

acquisition/rehabilitation activities

The size of such projects varies widely

CSH prioritizes working with projects that

dedicate at least 10% of the units as supportive

housing for CSH’s target or priority populations

Sin

gle

-Sit

e, In

teg

rate

d H

ou

sin

g

Types of PSH

Under this strategy, supportive housing

providers lease several units within a

development, a floor within a building, an entire

building or development, or units in a number of

buildings, from the owner(s) in order to provide

PSH

The supportive housing provider then subleases

the units to eligible tenants, and serves as the

landlord for the tenants.

Ma

ste

r L

eased

Ho

usin

g P

roje

cts

Types of PSH

Households (usually using tenant-based

subsidies) directly lease individual units from

landlords

Units are not dedicated to PSH through any

extended use or similar agreements

Sca

tted

Sit

e H

ou

sin

g P

roje

cts

Scattered versus Single Site

Pros Cons

Sin

gle

Sit

e

Enhances ability to provide

centralized, intensive

services

Sponsor has control over

housing environment

Community-building activities

are easier to organize

Community opposition

Certain clients may prefer more

integration

Tenants may be less likely to form

relationships outside the building

Sca

tte

red

Sit

e Developer and

property/asset management

skills are not needed

Easier to achieve geographic

diversity

Lack of space to deliver services

Lack of control over where tenants

rent units

Neighbors can display a negative

attitude toward client

Isolation of client

Types of

Development

Types of Development

Acquisition

Acquisition/Rehabilitation

New Construction

Development Options

Turnkey

Master Leasing Service Contract

Co-Development

Ownership versus Leasing

Pros Cons

Ow

ners

hip

Extended Use Agreement

Sponsor controls budgets

New construction enables control

over how the building is designed

Acquisition and rehabilitation may

be positively received in

community

Developers Fee

Time, money and dedicated

staff

Need for housing development

and property/asset manager

expertise

Le

as

ing

Units can quickly be brought

online

Developer and property/asset

management skills are not

needed

Easier to achieve geographic

diversity

Leases will be short-term

Tenancies can be jeopardized

if rental subsidy amount

doesn’t keep pace with market

rents

May be difficult to find quality

vacant units

Role of Owner,

Developer, Property

Manager and Service

Provider

Development Team Roles

Owner

Service Provider

Developer

Property Manager

Roles and Responsibilities:

Memorandum of Understanding

Supportive service plan

Target population and tenant selection plan

Roles and responsibilities of partners

Ongoing communication

Project policies and procedures

Property management plan

Two Key Project Goals:

Recruiting supportive housing tenants:

Tenant Selection plan stipulates how property manger

will market to potential tenants and will vet tenants with

credit and background checks to ensure that homeless

households are screened in.

Embracing goal of housing stability:

Property management plan includes system of

coordination between property manager and service

provider to promote housing stability

Three Types of

Budgets:Capital, Operating and Services

Capital Operating

Funding Differences between

Supportive Housing and Affordable

Affordable

Capital Operating

PSH

Services

Three Types of Budgets:

Capital

Land, buildings,

new

construction,

soft costs of

development,

capitalized

reserves.

Operating

Property

operations such

as management

staff,

landscaping,

utilities,

reserves.

Services

Delivery of

supportive

services to

tenants.

Capital Financing

Predevelopment

Construction

Permanent

Development Sources

Grants Soft Debt

Low Income

Housing Tax

Credit Equity

BondsConventional

Debt

Developing PSH

Frequently require longer development timeline

Sponsors are often a partnership of agencies

Projects typically have little or no hard debt

Desire to see committed operating and services

funding

Need for early stage financing

Sources and Uses

Combines costs with the financing sources

Total $

Amount Trust Fund HOME

Historic Tax

Credit Equity AHP

Tax Credit

Equity

Deferred

Developer

Fee

Acquisition $1,200,000 $1,200,000

Construction $8,000,000 $750,000 $1,800,000 $5,450,000

Soft Costs $2,250,000 $600,000 $1,650,000

Reserves $250,000 $250,000

Developer’s

Fee $1,200,000 $800,000 400,000$

Other $0

Total $12,900,000 $750,000 $1,200,000 $1,800,000 $600,000 $8,150,000 400,000$

80

$161,250

Total # of development units

Total Development Cost per Development Unit

Fifteen Year Operating Budget

2012 Per

12 Rates Unit 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

1 BR 2.00% 8,400 672,000 685,440 699,149 713,132 727,394 741,942 756,781 771,917 787,355 803,102 819,164 835,548 852,258 869,304 886,690

Gross Residential Income 2.00% 672,000 685,440 699,149 713,132 727,394 741,942 756,781 771,917 787,355 803,102 819,164 835,548 852,258 869,304 886,690

Gross Income 2.00% 0 672,000 685,440 699,149 713,132 727,394 741,942 756,781 771,917 787,355 803,102 819,164 835,548 852,258 869,304 886,690

Vacancy/Collection Loss (7.00%) (47,040) (47,981) (48,940) (49,919) (50,918) (51,936) (52,975) (54,034) (55,115) (56,217) (57,341) (58,488) (59,658) (60,851) (62,068)

Effective Gross Income 2.00% 0 624,960 637,459 650,208 663,213 676,477 690,006 703,806 717,883 732,240 746,885 761,823 777,059 792,600 808,452 824,621

Administration 3.00% 350 28,000 28,840 29,705 30,596 31,514 32,460 33,433 34,436 35,470 36,534 37,630 38,759 39,921 41,119 42,353

Management Fee 2.30% 750 60,000 61,380 62,792 64,236 65,713 67,225 68,771 70,353 71,971 73,626 75,320 77,052 78,824 80,637 82,492

Payroll 3.00% 3,000 240,000 247,200 254,616 262,254 270,122 278,226 286,573 295,170 304,025 313,146 322,540 332,216 342,183 352,448 363,022

Taxes & Insurance 3.00% 800 64,000 65,920 67,898 69,935 72,033 74,194 76,419 78,712 81,073 83,505 86,011 88,591 91,249 93,986 96,806

Maintenance 3.00% 1,200 96,000 98,880 101,846 104,902 108,049 111,290 114,629 118,068 121,610 125,258 129,016 132,886 136,873 140,979 145,209

Utilities 3.00% 500 40,000 41,200 42,436 43,709 45,020 46,371 47,762 49,195 50,671 52,191 53,757 55,369 57,030 58,741 60,504

Reserves 3.00% 300 24,000 24,720 25,462 26,225 27,012 27,823 28,657 29,517 30,402 31,315 32,254 33,222 34,218 35,245 36,302

Total Expenses 2.93% 6,900 552,000 568,140 584,755 601,858 619,464 637,588 656,245 675,451 695,222 715,575 736,526 758,095 780,298 803,156 826,686

Net Operating Income 72,960 69,319 65,454 61,355 57,013 52,419 47,562 42,432 37,019 31,311 25,296 18,964 12,302 5,297 (2,064)

Total Principal

Total Interest

Total Loan Payments 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Debt Coverage Ratio #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Cash Flow 72,960 69,319 65,454 61,355 57,013 52,419 47,562 42,432 37,019 31,311 25,296 18,964 12,302 5,297 -2,064

Show projection of income and expenses

Service Budget Components

Personnel – Majority of Budget

Other Expenses to support staff and office

Permanent

Supportive Housing: An Operating Cost

Analysis101

Is Permanent Supportive

Housing a Good Investment?

Enterprise Community Partners and CSH conducted study to look at property level information to provide analysis of individual operating costs.

The major finding of this report confirms that permanent supportive housing is financially solid.

Methodology

Study analyzed 10 affordable and 10

permanent supportive housing projects from Enterprise’s portfolio.

CSH analyzed annual revenue, expenses and cash flow for

each project in 2007, 2008 and 2009.

CSH conducted interviews with

representatives from permanent supportive

housing projects.

Key Findings

1. Occupancy was strong for both sets of projects.

• The primary difference in revenues is attributable to rental income, including subsidy, which is higher in affordable properties.

• Vacancy loss in general comparable

Key Findings

2. Although operating expenses are 11 percent higher for supportive housing projects, they are able to secure operating subsidies to cover the

difference.

• Legal, administration, security payroll/contract and property management expenses averaged 53% higher in supportive housing compared with affordable housing.

• Accounting/bookkeeping, real estate taxes and insurance expense averaged 37% lower in supportive housing compared with affordable housing.

Key Findings

3. Cash flow after debt service and replacement reserve deposit is higher for supportive housing projects. The net

operating income is 46 percent lower for supportive housing projects than for affordable projects. This is offset by the

structure of having lower debt service.

• Summary Comparison Supportive Housing Affordable Housing

• Total Revenue $7,686 $8,360

• Total Expenses $6,180 $5,567

• Net Operating Income $1,506 $2,793

• Annual Replacement Reserve Deposit $ 327 $ 356

• Annual Must Pay Debt Services $ 171 $1,790

• Cash Flow $1,008 $ 647

Key Findings

4. Permanent supportive housing projects successfully maintain operating subsidies

and offer services over time.

• Funding agencies are invested in the long term success of their projects.

• Permanent supportive housing owners and service providers often have the infrastructure in place to secure additional funding from philanthropy.

Conclusion

This survey provides powerful evidence that permanent supportive housing is a safe investment.

“These projects are complicated and layered, but they are with the investment.”

Bill Hobson, Executive Director, Downtown Emergency Service Center, Seattle, Washington

Housing Credit

Policies in 2011 that

Promote Supportive

Housing

Why Should I Care?

QAP: Qualified Allocation

Plan

54% of projects

use LIHTCs

$945 million

Current Trends

Set Asides: In 2011 Alaska and Arizona added set-asides for supportive

housing projects. Now 18 QAPs have set-asides for

supportive housing.

Integrated Housing: Continued growth in

threshold, set-asides and scoring incentives for

projects that mix affordable and supportive housing.

Basis Boost: Six QAPs allow basis boost for either

permanent supportive housing projects or

projects dedicating units to very low-income tenants.

Keys to Successful Use of the Credit

Creation and stabilization of sufficient operating and service reserves.

Assurance of coordination between owner, property manager, and service provider.

Tracking of supportive housing units over time.