1. U.S. Dept. of Agriculture Rural Development 538 Program Offering Financial Advice and Solutions to Health Care, Senior Living, and Housing Providers. Brian W. Coate Vice President Lancaster Pollard & Co. Lancaster Pollard Mortgage Company Rural Rental Housing Association o f Illinois

2. Table of Contents Program Purpose Program Outreach Program Features Qualifying Borrowers & Properties Eligible Uses Program Fees Roles & Responsibilities Lender Incentives Eligible Lenders Application Process Reference Information GRRHP Flow Chart

3. Program Purposes To encourage economic development in rural areas To increase and preserve the supply of affordable multifamily housing in rural areas To ensure the availability of housing for rural residents whose incomes are 115% of area median income or less

4. Program Purposes, cont. Foster risk-sharing partnerships with public and private lenders Increase moderately-priced housing in rural America Facilitate affordability for low and moderate income rural residents

5. Program Features Covers 90% of outstanding principal and interest Offered for construction and permanent loans or permanent loans 5

6. Creating Affordability Flexible tool that works well with 9% and 4% tax credits, as well as other sources of financing. Rents are restricted to 115% of adjusted area median income (or less, depending on funding source). Average project rent may not exceed 30 percent of 100 percent of AMI.

7. Non-profit corps. or partnerships Public entities Indian Tribes For-profit comps. Individuals Trusts New construction Substantial rehab. of at least $6,500 per unit for acquisition or to create new units. Can be used with acquisition and rehab. or a rehab. with no change of ownership. Qualified Borrowers and Properties Qualified Borrowers Qualified Properties

8. 3565.205 Eligible uses of loan proceeds. New construction costs of the project; Acquisition with rehabilitation of at least $6,500 per unit; Sales Proceeds; Developer’s Fee; Refer to Sec. 3565.205 for more specifics

9. 3565.206 Ineligible uses of loan proceeds Housing in military impact areas; Housing that serves primarily temporary and transient residents; Institutional type homes that require licensing as a medical care facility; Refinancing existing debt

10. Roles and Responsibilities Government’s Approval and issuance of loan guarantee and interest assistance Oversight of lender and program Process and reimburse losses Lender’s Originate, service, close and monitor loans Oversight of borrower for compliance with program regulations Liquidation of property for collection

11. Application Process Notice of Funding Availability (NOFA) in Federal Register. Continuous review and selection of lender responses to NOFA until published deadline. Review and selection continues until funds exhausted Submission of proof of lender eligibility and documentation for lender approval Completion of National Environmental Protection Act (NEPA) requirement Submission of complete application

12. Application Process, cont. Obligation of FY Funds and Issuance of Conditional Commitment Construction Phase Loan Closing Issuance of Loan Note Guarantee Lender Monitoring and Servicing

13. How do I juggle the meetings, calls, and paperwork?

14. The Players, Process, and Money Flow Developer LenderUSDA Tax Credits Application EquityDebt Loan Guarantee State Allocating Agency Tax Credits TC Syndicator

15. Program Fees Initial guarantee fee equal to 1% of the total loan guarantee due when guarantee is issued Annual guarantee fee equal to 0.5% of the total outstanding principal and interest of the loan.

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19. Reference Information http://rdinit.usda.gov/regs/ HB-1-3565 - Guaranteed Rural Rental Housing Program Origination and Servicing Handbook 7 CFR part 3565 - Program Regulations found in Appendix 1 of HB-1-3565. 7 CFR part 1940, subpart G - National Environmental Protection Act

20. What Does a Typical Sec. 538 Property Look Like? Port Byron Apartments Port Byron, Illinois (Case Study)

21. Project Overview Project:Port Byron Apartments Location: Port Byron, Illinois Financing: LIHTC (9%) and Sec. 538 GRHP Loan TDC: $8,300,000 538 Loan:$1,555,000 LTV: 22.1% Type: Family Property Rents: Range from $ 590 - $680

22. A Perfect Sec. 538 Candidate 72 units 40 1-bedroom units 32 2-bedroom units Population of 1,396 Proposed rehab of approx. $40k/unit Addition of Library Walking trail with benches Garden plots Playground Bike racks

23. Challenges Phase IPhase IIPhase III 24 units 20 units of RA22 units of RA24 units of PB Sec. 8 23

24. Key Players Borrower: General Capital Extensive real estate development experience but first 538 GRHP Mgmt. Co.: Oakbrook Corp Lender: Lancaster Pollard Mortgage Co. USDA-approved lender for Sec. 538 and Community Facilities programs General Contractor: Schemel-Tarrillion, Inc. Architect: Tyson and Billy Architects, P.C. Tax Credit Syndicator: Enterprise

25. Community Amenities

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27. Pre-Rehab 27

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30. Post Rehab Cont. 30

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37. www.lancasterpollard.com QUESTIONS? Lancaster Pollard 65 East State Street, 16th Floor Columbus, OH 43215 Phone (614) 224-8800 Fax (614) 224-8805