Rental Assistance Demonstration

HUD Office of Public & Indian Housing

Conference

Meridian, Mississippi, April 23, 2012

Vincent O’DonnellVice President, Affordable Housing Preservation

Local Initiatives Support Corporation

What is LISC?

• Local Initiatives Support Corporation– LISC is dedicated to helping nonprofit community development

organizations transform distressed communities into healthy and sustainable communities of choice- good places to work, do business, and raise children.

– LISC local offices serve 30 urban areas and Rural LISC works with 74 partner CDCs in 36 states nationwide

• LISC’s Preservation Initiative– Provided $80 million in financing since 2002 to preserve 15,000

homes

– Supports LISC local offices and our nonprofit partners with financing, project-specific TA, creation of preservation strategies and partnerships, and policy analysis

– Produces information products: guides, webcasts, trainings

Summary of Types of Section 8 TYPE OF S. 8 ADMINISTRATOR FEATURES

Housing Choice Vouchers

Public Housing Authority (PHA), with HUD PIH Funds

• Portable• Voucher issued to tenant.• Leases and funds renewed annually.

Project-Based Vouchers (PBVs)

Public Housing Authority (PHA), with HUD PIH Funds

• PHA guarantees Owner tenants with vouchers.• New voucher holders referred if tenants leave with original vouchers.• Contracts up to 15 years, renewable at any time for an additional 15 years.• First claim on available PHA voucher funds.• Subject to annual appropriations.

Enhanced Vouchers

Public Housing Authority (PHA), with HUD PIH funds

• Tenant protection measure, after mortgage prepayment or Section 8 opt-out.• Rents set at market level, holding owner harmless.• Portable• Tenant has right to remain, unless use changes to non-rental.

Moderate Rehabilitation

Public Housing Authority (PHA), with HUD PIH Funds

• PHA entered fifteen year project-based contract with Owner.• Not portable: subsidy tied to units.

Project-Based Contracts

HUD Office of Housing • Tool for production and stabilization of existing FHA-insured stock.• Owner has 5-40 year Housing Assistance Payments (HAP) contract directly with HUD, not PHA.• MAHRA establishes HAP renewal rules.

Homeownership Vouchers

Public Housing Authority (PHA), with HUD PIH Funds

• Minimum income, employment and counseling requirements• First-time homebuyers only• 10-15 year term limit on assistance• Assistance payment made to family or to mortgage lender

Types of Project-Based Section 8

Types of Project-Based Rental Assistance

Characteristics

Section 8 New Construction – Substantial Rehabilitation (S.8 NC/SR)

• Production mechanism• HUD Office of Housing• 20 year initial HAP terms for FHA-insured; 30-40 years for HFA uninsured. • Fully funded for contract term• Regulatory Agreement requires limited dividend [none for nonprofits]

Section 8 Loan Management Setaside (LMSA)

• Retrofit for FHA-insured properties, for economic stability and tenant protection.• HUD Office of Housing• Initial 5 year term, renewable for total of 15 years.• No independent dividend limitation beyond existing FHA requirements.

Section 8 Moderate Rehabilitation (Mod Rehab)

• Modest rehabilitation mechanism• HUD Office of Public & Indian Housing (PIH)• 15 year fully-funded initial HAP terms• HAP is between owner and participating PHA• Rental Assistance Demonstration provides some options.

Property Disposition • Provided at sale of foreclosed Formerly Assisted multifamily properties• HUD Office of Housing• 15 year fully-funded contracts• Cost-based rent increase rules

Preservation • Provided with ELIHPA & LIHPRHA Transactions• Office of Housing• 5 year term, fully funded.• Rents tied to owner incentives• Special renewal rules under MAHRA

“Orphan” Project-based AssistanceTypes of Project-Based Rental Assistance

Characteristics

Rent Supplement • Section 8 precursor• HUD Office of Housing• 40 year fully-funded contracts• Restrictive rent increase rules• Not renewable under MAHRA; temporary one-year extension authority. • Residents get HCVs for tenant protection at expiration.

Section 236 Rental Assistance Program (RAP)

• Section 8 precursor• HUD Office of Housing• 40 year term, fully funded. RAP linked to underlying Section 236 Mortgage• Rents tied to §236 Basic Rent; • Not renewable under MAHRA; temporary one-year extension authority. • Residents get HCVs for tenant protection at expiration.

Section 8 Moderate Rehabilitation (Mod Rehab)

• Modest initial rehabilitation mechanism• HUD Office of Public & Indian Housing (PIH)• 15 year fully-funded initial HAP terms• HAP is between owner and participating PHA• Renewable under MAHRA, but HUD policy limits renewals to one year and MAHRA rent structure is limiting.• Residents get HCVs for tenant protection at expiration.

Section 8 Expiration and Opt-out: MAHRA

• Basic rules for renewal of project-based Section 8 (but not Rent Supplement or §236 RAP)

• Options depend on type of Section 8 and property’s history

• Most renewal rents at or below market level• Exception: non-FHA-insured• If FHA-insured and above market, must

restructure mortgage (OAHP, née OHMAR)

Section 8 Expiration and Opt-out: MAHRA

• Enacted in 1997; amended in 2000, clarifying that “renewal rents no higher than market” can also mean mark up to market (or budget).

• Long-term HAPs permitted, but subject to annual appropriations.

Madison Park IIIMadison Park Development Corporation, Boston MA

• 120 units of nonprofit-controlled family housing.• New Construction in 1975 – dense inner core neighborhood. High Utility, Property Tax, Resident Services and Security

Costs.• Pre-LIHTC Equity Syndication (accelerated depreciation);

Nonprofit parent has purchased investor interests. • Section 236 with Interest Reduction Payments; Mortgage

Matures in 2020.• Section 236 Rental Assistance Payments (RAP); Contract

expires in 2015 (prior to mortgage maturity) and is not renewable.

• Rents are $500 below market.• Well-maintained, but significant capital needs, due to low

Section 236 rents and land settling.• Section 236 mortgage can be prepaid, generating Enhanced

Vouchers.

Project-Based Rental Subsidy Scenarios

SCENARIO 100% PBVs 50% PBVs; 50 EVs

Average Initial PBV Rent $1,593 $1,593

Average Initial EV Rent Not Applicable $2,107

Initial Operating Expense PUY $11,006 $11,153

Subsidy Attrition Not Applicable 20% per year

Rents After Turnover PBV Standard LIHTC Standard

Initial Net Operating Income $856,005 $1,191,005

Initial Cash Flow $74,925 $109,003

Year 10 NOI $890,083 $687,828

Year 10 Cash Flow $529,655 $82,298

SOURCES AND USESSCENARIO 100% PBV 50% PBVs; 50 EVs

SOURCES    

HFA First Mortgage 12,125,000 9,400,000

HFA Second Mortgage   246,500

HFA §236 Decoupling Note 2,158,270 2,158,270

4% LIHTC Equity 11,180,000 11,160,000

Seller Note, Deferred Fee 10,907,730 13,093,730

Total Sources 36,371,000 36,058,500

     

USES    

Acquisition 18,000,000 18,000,000

Construction 9,999,000 9,999,000

Hard Cost Contingency 1,000,000 1,000,000

Soft Costs 2,036,000 2,030,000

Dev. Fee, Overhead & Reserves

4,202,000 4,026,000

Financing Expense 1,134,000 1,003,500

     

TOTAL DEVELOPMENT COST 36,371,000 36,058,500

LISC’s Preservation Resources

www.lisc.org/preservation

LISC’s Green Preservation Resources

www.lisc.org/greenpreservation