Rental Assistance Demonstration HUD Office of Public & Indian Housing Conference Meridian, Mississippi, April 23, 2012 Vincent O’Donnell Vice 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. 8ADMINISTRATORFEATURES 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 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; 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 Assistance Types 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 III Madison 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 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 SCENARIO100% PBVs50% PBVs; 50 EVs Average Initial PBV Rent$1,593 Average Initial EV RentNot Applicable$2,107 Initial Operating Expense PUY$11,006$11,153 Subsidy AttritionNot Applicable20% per year Rents After TurnoverPBV StandardLIHTC 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 USES SCENARIO100% PBV50% PBVs; 50 EVs SOURCES HFA First Mortgage12,125,0009,400,000 HFA Second Mortgage 246,500 HFA §236 Decoupling Note2,158,270 4% LIHTC Equity11,180,00011,160,000 Seller Note, Deferred Fee10,907,73013,093,730 Total Sources36,371,00036,058,500 USES Acquisition18,000,000 Construction9,999,000 Hard Cost Contingency1,000,000 Soft Costs2,036,0002,030,000 Dev. Fee, Overhead & Reserves 4,202,0004,026,000 Financing Expense1,134,0001,003,500 TOTAL DEVELOPMENT COST36,371,00036,058,500

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