0 Refinancing Section 95 co-ops - Co-op housing refinancing partnership

1 This workshop  Introductions  Purpose of the Program  How the New Mortgage Works  How to qualify  Lender and CMHC Requirements  How CHF Canada Helps  Manager’s Role  How to Get Started  Questions

2 Introductions and Welcome

3 What will you learn  How does the new program work?  Is my co-op eligible?  What do we do to move ahead?  How does CHF Canada help?  How do we get started?

4 Purpose of the Program  Aging housing co-operatives need new capital for repairs, renovations, modernization  CMHC’s direct lending program is not available to them  Re-financing is common in private sector real estate, and well known in the lending industry Purpose – to provide a member service that helps co-ops borrow the needed capital, by way of a new mortgage, to do repairs/renovations immediately.

5 In plain language  It means taking out a new mortgage, for an amount that pays out the existing mortgage plus an amount for the needed repairs, and extending it for a longer period of time.

6 Example (Actual Co-op)  $28,000/month existing mortgage payment  Existing CMHC mortgage of $1.8 million At 4.5% interest rate, a co-op could borrow $4.5 million Pays out CMHC mortgage of $1.8 million Leaves $2.7 million for repairs (covers 10 years of BCA-identified repairs) Amortized over 25 years New mortgage payment of $27,192/ month

7 Financial advantages  A new mortgage loan has financial advantages for a co-op  existing reserves and future reserve contributions not enough for cost of repairs  reduced future maintenance costs because of new repairs and renovations  economics of scale on renovations

8 Advantages for Co-op  Repairs completed immediately  Less disruption and lower maintenance costs compared to waiting for repairs/waiting for first mortgage to end before new borrowing  Small or no impact on existing mortgage payment  Avoids large housing charge increases to pay for needed repairs  Dealing with a lender that you “own” (credit unions are financial co-operatives)

9 How the New Mortgage Works  Credit Union offers co-op a new mortgage to pay off CMHC mortgage and pay for repairs  CMHC Operating Agreement and subsidies continue until when the CMHC mortgage would normally end – so, nothing changes  Co-op’s auditor will continue to report to the Agency or equivalent until the new mortgage is paid  Co-op must continue memberships in CHF Canada, local CHF Canada member federation and credit union during the new mortgage

10 How the New Mortgage Works  Mortgage Agreement with credit union has four parts  Money for CMHC payout and repairs  Capital plan with annual reserve contribution identified, to be updated every five years  Annual report from CHF Canada to credit union on co-op’s financial performance and capital plan  Co-op agrees to facilitation by CHF Canada at lender’s request if lender becomes concerned about governance or management, or financial performance slips

11 What Your Co-op Will Need to Qualify  Solid financial record  Three years of audited financials  Operating forecasts  Ten Year Capital Plan  “Know Your Buildings”  Agreement with CHF Canada – facilitation and risk monitoring  CHF Canada helps credit union administer loan (reduce risk)  CHF Canada helps co-op report to credit union  The “Paperwork”

12 What Your Co-op Will Need to Qualify (2)  Fit Maximum - 75% Loan to Value  Cash flow to support 1.2x Debt Service Ratio  Pass stress test of a 2% interest rate increase after first five-year term  Pass stress test: Cash Flow When RGI Funding Ends

13 What Lenders Need (the “Paperwork”)  Previous financial statement information  Current property appraisal  Current rent roll / vacancy statistics  Environmental Assessment  Summary of previous, pending and planned capital improvements  Five year financial forecast  Capital Reserve Plan (ten years)  Capital Reserve forecast (loan period)

14 CMHC Requirements  Co-op is financially viable, and will be viable when operating agreement expires (and RGI subsidies end)  Capital investment is required  Ten-year capital replacement plan  Continue operating agreement until its scheduled expiry

15 CHF Canada Support  Help finalize key capital needs/costs  Provide expert financial advice that calibrates:  Borrowing for capital repairs/renovations  Total borrowing (mortgage payout plus capital renewal from borrowing)  Amount of monthly payment  Ongoing repair/replacement needs and reserve contribution

16 CHF Canada Support  Prepare application to credit union  Review credit union’s offer with co-op and negotiate any changes to:  Interest rate  Conditions  Handle the “paperwork” with co-op and credit union

17 CHF Canada Support  Handle Agency and/or provincial government processes, CMHC approval process  Organize three-way agreement between co-op, credit union and CHF Canada for loan monitoring (part of deal, gets better offer from credit union)  Provide annual report to Credit Union, based on co-op’s annual information return  Intervene at lender’s request if financial performance warrants

18 What you have to budget in terms of costs...  CMHC prepayment fees  About 0.5% lenders fees  CHF Canada fee (sliding scale)  Property appraisal at a cost of up to $ 5,000+ for a larger co-op  Legal costs of deal closing and registering mortgage $ 3,500+

19 Co-op Housing Manager’s Role 1.Significant commitment required by refinancing, both in time and energy  Process is 6-8 months, depending on co-op’s decision processes 2.Understand and explain the risk/benefit analysis and identify the major milestones involved (including the unexpected) 3.Ensure the co-op has the necessary technical assessment of its capital repair requirements to properly evaluate its capital funding needs

20 Co-op Housing Manager’s Role 4.Help with the necessary technical, financial, appraisal, income, vacancy, and capital planning information needed to obtain refinancing 5.Assist the Board in explaining refinancing to the membership 6.Assist the board to understand the various refinancing agreements (loan offer, mortgage documents, tripartite agreement, etc.) and facilitate the review of these by the co-op’s lawyer. Also assist the board to understand the not always sequential steps involved in the refinancing process.

21 Next Steps – How to Get Started  Section 95 with CMHC first mortgage? Or no mortgage?  No mortgage or tax arrears?  Board and professional management capacity to arrange loan and undertake major repair projects?  Recent Building Condition Assessment that identifies cost of repairs?  Solid financial track record (vacancy loss, bad debt)?  Consensus on which key repairs and renovations are most wanted

22 To assess preliminary eligibility Call or Nick Sidor or Linda Stephenson at CHF Canada’s Ottawa office /

23 Any questions?