1. Imagine a World without HUD: A look at Alternative Financing Options Presented by Gates Dunaway and Amy Schectman LeadingAge Annual Meeting Nashville, Tennessee October 19, 2014

2. Topics to be covered….  What were/are the HUD progams?  LIHTCs as a strategy  Strategies without LIHTCs  Preservation and Portfolio restructuring as a strategy  FHA Loans as a tool  Case Study 2 THE GATES DUNAWAY GROUP

3. What are the HUD Programs? Subsidized Financing: The following programs no longer offer new awards:  HUD and State insured Section 236 Loan Program (ended 1970’s)  HUD 202 Direct Loan Program (ended 1990)  HUD 202/PRAC (ended 2012) Subsidized Rents: The following programs no longer offer new awards:  Section 8 Rental Subsidy  Rental Assistance Payment (RAP)  Rent Supplement  HUD 202/PRAC 3 THE GATES DUNAWAY GROUP The following HUD programs created the bulk of housing for low and extremely low income seniors from the 1960’s through the 1990’s.

4. The end of the last program… HUD’s 202/PRAC program was the last to target extremely low income seniors. It is being redesigned as a 202 pilot program to provide rental subsidy only.  Critical elements of 202/PRAC program... o Long term project-based rental subsidy allowed program to serve Extremely Low Income (ELI) seniors, and o Capital Grant allowed developers to avoid the more complicated and costly LIHTC program.  The end of the 202/PRAC program means… …end of specifically targeted rental subsidy, and …need to utilize existing capital programs for development. 4 THE GATES DUNAWAY GROUP

5. BIG IDEA Without a robust HUD program that provides project-based rental subsidy, we have to use alternate sources of funding to serve extremely low income seniors. In doing so we will address the needs of the moderate and low income seniors, who are already served by the LIHTC program and other subsidized capital funding programs. THE GATES DUNAWAY GROUP 5

6. Conventional Loans FHA 223(f) Loans FHA 221(d)4 Loans Tax Exempt Bonds with 4% LIHTCs 9% LIHTCs SOURCES OF CAPITAL Universe of properties that can be financed with this type of financing Level of rehab/construction that can be afforded Wildcard: GRANTS

7. LIHTC as a Strategy Overview of LIHTCs basics  Experienced owner/developer is a requirement  Ownership is new LP or LLC (General Partner =.01% owner typically)  Competitive 9% LIHTC program = more equity, more difficult to get  Non-competitive 4% LIHTC/TE Bond program = less equity, but no competition.  Gap funding needed  Typical Competitive 9% LIHTC timeline  4-6 months to assemble application ($40k to $100k in predev costs);  4-6 months to receive an award;  6-9 months to close;  12-24 months to build/renovate 7 THE GATES DUNAWAY GROUP

8. LIHTC as a Strategy How can LIHTCs can serve our low and moderate income senior population? Increased equity Reduced debt Reduced need for rent  Typical rents targeted to 50% - 60% AMI (low income)  Set-asides for senior population  Can set-aside market rate units for “over income” seniors (mod income)  Reduction in equity for market-rate units = disincentive  Need to advocate for more priority for seniors in the state QAPs Does not necessarily address needs of ELI seniors! 8 THE GATES DUNAWAY GROUP

9. LIHTC as a Strategy for ELI seniors How can LIHTCs can serve the ELI senior population? (1)Owner voluntarily elects to reduce rents for proportion of units to be affordable to 30% AMI senior residents. To better afford this, look for these features to increase equity …  DDA, QCT and state designated boost areas = 130% equity  9% over 4% LIHTC program  Historic Tax Credits  Grants and subsidized loans: AHP, CDBG, HOME Loan, PSHP Loan 9 THE GATES DUNAWAY GROUP

10. LIHTC as a Strategy for ELI seniors …. and look for features to decrease expenses :  Favorable property tax treatment  Historic property tax abatement  Green building practices 10 THE GATES DUNAWAY GROUP

11. LIHTC as a Strategy for ELI seniors (2)Find the rare Project Based Rental Subsidy :  Local Housing Authority  State and city rental subsidy  Purchase existing property with Section 8 contract  202 demo program 11 THE GATES DUNAWAY GROUP

12. Strategies without LIHTCs Owners not experienced with LIHTCs may want to avoid the partnership requirements and are looking for other methods to create new housing for low income seniors:  Replace LIHTC equity with 100% grants (local, state, federal)  Layer in project-based subsidy to address ELI residents  End result is likely more layers of financing, smaller projects, but without the strings and legal relationships found in LIHTC projects. 12 THE GATES DUNAWAY GROUP

13. Preservation as a Strategy Look for ways to restructure existing portfolio to extract cash for new developments:  New 202 Direct Loan rules (HUD Notice H 2013-17)  Allows developer fee  Cash-out possible in refinancing  Sell and keep proceeds for other projects  LIHTC refinancing on better scoring existing deal might net cash for a non-LIHTC deal for a new development. 13 THE GATES DUNAWAY GROUP

14. FHA Loans as a tool New developments can include FHA financing as the debt vehicle. Advantages include:  Non-recourse debt  Favorable underwriting for affordable projects  Can be combined with LIHTC and grants and subsidy  Higher fees, but lower rates and longer terms 14 THE GATES DUNAWAY GROUP

15. CASE STUDY

16. For more information contact: Gates Kellett Dunaway Managing Principal, The Gates Dunaway Group (404) 274-1957 gates@gatesdunawaygroup.com Amy Schectman President and CEO, Jewish Community Housing for the Elderly (617) 912-8401 aschectman@jche.org 16