1. 1 The Development Process An Overview Forming the development concept Forming the development concept Evaluating your capacity and the needs of your community Evaluating your capacity and the needs of your community Evaluating the properties in your community Evaluating the properties in your community Feasibility Feasibility Creating an experienced project development team Creating an experienced project development team Preparing financial statements and budgets and cost estimates Preparing financial statements and budgets and cost estimates

2. 2 The Development Process An Overview Deal Making: Planning and Financing Deal Making: Planning and Financing Identifying financing sources Identifying financing sources Financial stability of lead applicant Financial stability of lead applicant Project construction Project construction Planning and managing the construction process Planning and managing the construction process Operation Operation Preparing a long term management plan Preparing a long term management plan Compliance with federal requirements Compliance with federal requirements

3. 3 NSP Eligible Activities NSP is organized according to the eligible activities provided in the Housing and Economic Recovery Act of 2008. NSP is organized according to the eligible activities provided in the Housing and Economic Recovery Act of 2008. These activities provide for a wide array of projects. These activities provide for a wide array of projects. Applicants can combine activities if necessary to achieve the scope of their project. Applicants can combine activities if necessary to achieve the scope of their project. States Plan estimated funding by activity States Plan estimated funding by activity

4. 4 NSP Residential Financing Program Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers. Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers. The States Plan estimated 15% of overall NSP funds for this activity The States Plan estimated 15% of overall NSP funds for this activity Types of Projects : Types of Projects : Assist home buyers acquire properties by providing a zero interest subordinate loan or grant to bring down the purchase price to an affordable level. Assist home buyers acquire properties by providing a zero interest subordinate loan or grant to bring down the purchase price to an affordable level. Loan Loss Reserve Loan Loss Reserve Revolving Loan Fund Revolving Loan Fund

5. 5 NSP Homebuyer Program Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties. Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties. The States Plan estimated 20% of NSP funds would address this activity. The States Plan estimated 20% of NSP funds would address this activity. Possible Project Types : Possible Project Types : Acquire and rehabilitate single family homes Acquire and rehabilitate single family homes Acquire and rehabilitate multi-unit properties for sale (condos, townhomes, etc.) Acquire and rehabilitate multi-unit properties for sale (condos, townhomes, etc.)

6. 6 NSP Rental Program Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties. Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties. States Plan estimated 30% of NSP funds would address this activity. States Plan estimated 30% of NSP funds would address this activity. Intended for permanent housing Intended for permanent housing Possible project types: Possible project types: Scattered site acquisition and rehabilitation of single family homes for long term rental Scattered site acquisition and rehabilitation of single family homes for long term rental Scattered site acquisition and rehabilitation of small multi-unit properties for long term rental Scattered site acquisition and rehabilitation of small multi-unit properties for long term rental Larger single site acquisition and rehabilitation for long term rental Larger single site acquisition and rehabilitation for long term rental Rent-to-Own models Rent-to-Own models Special needs housing Special needs housing

7. 7 NSP Land Bank Program Establish land banks for homes that have been foreclosed upon. Establish land banks for homes that have been foreclosed upon. Can not be used for vacant land. Can not be used for vacant land. Must have defined geographic area that meets the CDBG national objective of benefiting low, moderate, and middle income persons. Must have defined geographic area that meets the CDBG national objective of benefiting low, moderate, and middle income persons. Homes acquired must be brought to their end use within 10 years. Homes acquired must be brought to their end use within 10 years. States Plan estimated 5% of NSP funds would address this activity. States Plan estimated 5% of NSP funds would address this activity. Possible project types: Possible project types: Acquire homes for later redevelopment, rehabilitation or affordable sale or rental Acquire homes for later redevelopment, rehabilitation or affordable sale or rental

8. 8 NSP Demolition Program Demolish blighted structures Demolish blighted structures Properties must meet definition of blight covered later in this presentation and discussed in States Plan. Properties must meet definition of blight covered later in this presentation and discussed in States Plan. States Plan estimated 3% of NSP funds would address this activity. States Plan estimated 3% of NSP funds would address this activity. The CDBG national objective to eliminate slum and blight is not eligible under NSP. The CDBG national objective to eliminate slum and blight is not eligible under NSP. All activities must be tied to benefit low-mod-middle income households. All activities must be tied to benefit low-mod-middle income households. Area benefit test would be necessary. Area benefit test would be necessary. Possible projects types: Possible projects types: Demolition of homes to leave as green space to lower the chance of flooding for surrounding homes. Demolition of homes to leave as green space to lower the chance of flooding for surrounding homes.

9. 9 NSP Redevelopment of Demolished or Vacant Property Program Redevelop demolished or vacant properties. Redevelop demolished or vacant properties. Public facilities are eligible but must provide an area benefit to low-mod-middle income households Public facilities are eligible but must provide an area benefit to low-mod-middle income households New construction only eligible under this activity New construction only eligible under this activity States Plan estimated 10% of NSP funds would address this activity States Plan estimated 10% of NSP funds would address this activity Possible Project Types: Possible Project Types: Single site new construction for sale or rental Single site new construction for sale or rental Scattered site new construction for sale or rental Scattered site new construction for sale or rental Special needs housing / Supportive housing Special needs housing / Supportive housing

10. 10 NSP Eligible Properties The type of property that can be assisted with NSP funds varies according to the eligible activity undertaken. The type of property that can be assisted with NSP funds varies according to the eligible activity undertaken. Federally required minimum of 25% of all NSP funds must be used to provide housing for households with incomes at or below 50% of the area median income Federally required minimum of 25% of all NSP funds must be used to provide housing for households with incomes at or below 50% of the area median income State has set goal of targeting 40% of NSP funds to assist 50% AMI households. State has set goal of targeting 40% of NSP funds to assist 50% AMI households. Properties must be residential and have been foreclosed or abandoned in order to meet the 25% requirement, even if that is not required by the activity. Properties must be residential and have been foreclosed or abandoned in order to meet the 25% requirement, even if that is not required by the activity.

11. 11 NSP Eligible Properties Contd HUD has defined – HUD has defined – Foreclosed: A property has been foreclosed upon at the point under state or local law, the mortgage or tax foreclosure is complete. Title to the property must have been transferred. Foreclosed: A property has been foreclosed upon at the point under state or local law, the mortgage or tax foreclosure is complete. Title to the property must have been transferred. Abandoned: When mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 90 days, AND the property has been vacant for at least 90 days. Abandoned: When mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 90 days, AND the property has been vacant for at least 90 days.

12. 12 NSP Eligible Properties Contd Homes: Any type of permanent residential dwelling unit, such as detached single family structures, townhouses, condominium units, multifamily rental apartments (covering the entire property), and manufactured homes where treated under state law as real estate (not personal property). Homes: Any type of permanent residential dwelling unit, such as detached single family structures, townhouses, condominium units, multifamily rental apartments (covering the entire property), and manufactured homes where treated under state law as real estate (not personal property). Residential Properties: includes all of the above plus vacant land that is currently designated for residential use, e.g. through zoning. Residential Properties: includes all of the above plus vacant land that is currently designated for residential use, e.g. through zoning.

13. 13 NSP Eligible Properties Contd Blighted Structure: A structure is blighted when it exhibits objectively determinable signs of deterioration to constitute a threat to human health, safety, and public welfare. Blighted Structure: A structure is blighted when it exhibits objectively determinable signs of deterioration to constitute a threat to human health, safety, and public welfare. Further defined by the States NSP Plan. States Plan allows local laws defining blight to be used or, in the absence of a local definition to use the States definition. Further defined by the States NSP Plan. States Plan allows local laws defining blight to be used or, in the absence of a local definition to use the States definition.

14. 14 NSP Eligible Properties Contd Dilapidation Dilapidation Obsolescence Obsolescence Deterioration Deterioration Presence of Structures below minimum code Presence of Structures below minimum code Illegal Use of Individual Structures Illegal Use of Individual Structures Excessive Vacancies Excessive Vacancies Lack of Ventilation Lack of Ventilation Inadequate Utilities Inadequate Utilities Excessive land coverage and overcrowding of structures Excessive land coverage and overcrowding of structures Deleterious land layout Deleterious land layout Environmental Clean Up Environmental Clean Up Lack of community planning Lack of community planning Total equalized assessed value of the proposed redevelopment has declined for 3 of the last 5 years Total equalized assessed value of the proposed redevelopment has declined for 3 of the last 5 years States definition of blight is satisfied by displaying at least 5 of the following characteristics: States definition of blight is satisfied by displaying at least 5 of the following characteristics:

15. 15 Eligible Activity Eligible Property Type NSP Residential Financing Program Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft- seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers. Properties must be both residential and have been foreclosed upon. NSP Home Buyer Program/ NSP Rental Program Purchase and rehabilitate homes and residential properties in order to sell, rent, or redevelop such homes and properties. Properties must be residential, have been foreclosed upon or have been abandoned as defined by HUD.

16. 16 Eligible Activity Eligible Property Type NSP Land Bank Program Establish land banks for homes that have been foreclosed upon. Properties must be residential and have been foreclosed upon. Vacant land can not be acquired for land banking purposes. NSP Demolition Program Demolish blighted structures. Properties do NOT have to be foreclosed, abandoned, or residential but must meet local or States definition of blighted as defined in the NSP Plan Amendment. NSP Redevelopment of Demolished or Vacant Property Program Redevelop demolished or vacant properties. Properties do NOT have to be foreclosed or abandoned or residential but MUST be vacant land or structure. Vacant land must have been previously developed.

17. 17 Components of NSP Housing Development: Acquisition Strategy Targeting and Site Selection Targeting and Site Selection Areas of Greatest Need Areas of Greatest Need Community Impact Community Impact Property Type and End Use Property Type and End Use Applicants proposing a single site activity should be able to able to discuss location, while applicants proposing a scattered site should be able to discuss target area, type of properties, and availability of those properties, at a minimum. Applicants proposing a single site activity should be able to able to discuss location, while applicants proposing a scattered site should be able to discuss target area, type of properties, and availability of those properties, at a minimum.

18. 18 Components of NSP Housing Development: Acquisition Strategy Should not acquire property before approval from State Should not acquire property before approval from State Highly recommended to pursue vacant property only Highly recommended to pursue vacant property only Property sellers and REO (Real Estate Owned) Property sellers and REO (Real Estate Owned) NOT encouraged to consider eminent domain NOT encouraged to consider eminent domain Acquisition price must be at a minimum 15% discount from the current appraised value of the property Acquisition price must be at a minimum 15% discount from the current appraised value of the property Current Appraisal Current Appraisal Appraisal must be made within 60 days of any offer on the property Appraisal must be made within 60 days of any offer on the property Must be an independent appraisal – property holders appraisal is not acceptable Must be an independent appraisal – property holders appraisal is not acceptable

19. 19 Components of NSP Housing Development: The End Use Homeownership Considerations Homeownership Considerations Market Assessment and Outreach Plan Market Assessment and Outreach Plan Qualifying Home Buyers Qualifying Home Buyers Housing Counseling Housing Counseling Resale limit Resale limit Final sale of home to income eligible household must be for less than the total cost to acquire and redevelop the property Final sale of home to income eligible household must be for less than the total cost to acquire and redevelop the property Home Purchase Financing Home Purchase Financing Lending Requirement Lending Requirement http://www.fdic.gov/regulations/laws/rules/5000-5160.html http://www.fdic.gov/regulations/laws/rules/5000-5160.html

20. 20 Components of NSP Housing Development: The End Use Rental Considerations Rental Considerations Market Analysis Market Analysis Rent Levels Rent Levels IHDAs Schedule of Maximum Monthly Gross Rents for Most Multifamily Programs IHDAs Schedule of Maximum Monthly Gross Rents for Most Multifamily Programs Tenant Selection Plan and Tenant Outreach Tenant Selection Plan and Tenant Outreach Income Qualifying Tenants Income Qualifying Tenants Property Management Property Management Rent-to-Own Rent-to-Own

21. 21 Components of NSP Housing Development : Per Unit Cost Limits No per-unit limits set by CDBG or HUD rules No per-unit limits set by CDBG or HUD rules State has established per unit maximum by adopting Maximum Purchase Price Limits for Non-Targeted Areas used with IHDAs first mortgage products State has established per unit maximum by adopting Maximum Purchase Price Limits for Non-Targeted Areas used with IHDAs first mortgage products Using the 1-unit New Construction Limit for Non Targeted Areas Using the 1-unit New Construction Limit for Non Targeted Areas Limit includes all costs of project including acquisition, rehabilitation, redevelopment Limit includes all costs of project including acquisition, rehabilitation, redevelopment Cost of rehabilitation must be no more than 75% of the cost of acquiring the unit Cost of rehabilitation must be no more than 75% of the cost of acquiring the unit On a per-unit basis for multi-family developments On a per-unit basis for multi-family developments

22. 22 Components of NSP Housing Development: Construction and Rehabilitation Plan Evaluation of Property Condition Evaluation of Property Condition Establish Construction and Rehab Standards Establish Construction and Rehab Standards Cost estimates Construction/Rehab Cost estimates Construction/Rehab Davis Bacon applies at 8 units or more Davis Bacon applies at 8 units or more

23. 23 Components of NSP Housing Development - Finance NSP funds will be structured largely as grants NSP funds will be structured largely as grants Will require an affordability period Will require an affordability period CDBG program income requirements apply CDBG program income requirements apply State will consider providing 100% project financing from NSP funds State will consider providing 100% project financing from NSP funds Leverage Leverage Traditional State resources will be difficult to combine with NSP Traditional State resources will be difficult to combine with NSP Bring local resources to the project Bring local resources to the project Acquisition and Construction Financing Acquisition and Construction Financing Bank Financing, Local CDBG, HOME Bank Financing, Local CDBG, HOME Proceeds from Resale Proceeds from Resale Private and pool financing Private and pool financing Foundations and local grants Foundations and local grants End buyer financing - IHDA End buyer financing - IHDA

24. 24 Affordability Requirements NSP Investment Per Unit Length of Affordability Period Less than $14,999 5 Years $15,000 - $40,000 10 Years More than $40,000 15 Years New Construction 20 Years

25. 25 Components of NSP Housing Development - Finance Development Budget Development Budget Acquisition costs Acquisition costs Construction/ Rehabilitation Construction/ Rehabilitation Capitalized Reserves Capitalized Reserves Holding / Carrying Costs Holding / Carrying Costs Contingency Contingency Soft Costs Soft Costs Development Fees Development Fees Developer Fees Developer Fees Maximum of 12% Maximum of 12% Project Delivery Project Delivery Administrative Fees Administrative Fees

26. 26 Components of NSP Housing Development - Finance Operating Budget Projected Income Projected Income + Residential rental income + Residential rental income + Commercial rental income + Commercial rental income - Rental vacancy - Rental vacancy Operating Expenses Operating Expenses Taxes, insurance, utilities Taxes, insurance, utilities Property management, maintenance Property management, maintenance Operating Reserves Operating Reserves Debt Service Debt Service Feasible projects will be self supporting Feasible projects will be self supporting

27. 27 Components of NSP Housing Development – Property Management For Sale developments will need to address how properties will be managed for holding period For Sale developments will need to address how properties will be managed for holding period Long term rental projects should use experienced project managers with existing policies and procedures Long term rental projects should use experienced project managers with existing policies and procedures Scattered site projects, likely under NSP are notoriously difficult and expensive to manage Scattered site projects, likely under NSP are notoriously difficult and expensive to manage