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Affordable Housing

Finance Presentation 102


Hosted by

Bronx Institute for Urban Systems:

GIS Education and Sustainable Solutions

www.bxius.org info@bxius.org
Developing Affordable
Housing: A Three Part Series

Free learning material to build


residents understanding of how
affordable housing is developed.

Over the course of three


workshops we will educate on the
influences and limitations of
subsidized rents.
Developing Affordable
Housing: A Three Part Series
Part One: Bronx Housing Affordability Outlook -
Introduction to Terms, Concepts, and Policy History

Part Two: Understanding Affordable Development


Financing - Loan Underwriting and Term Sheets

Part Three: Zoning and Alternative Models of Housing


Affordability - Rezoning Process and Housing Alternatives
Session 2:
Understanding Affordable
Development Financing
Loan Underwriting and Term Sheets
BIUS Introduction
The mission of the Bronx Institute for Urban Systems is to use GIS
Education and Systems Planning Principles to improve Bronx
neighborhoods.

The goal of the Bronx Institute for Urban Systems is to do innovative


research in thermodynamic architecture, landscape design, and
gathering spatial information using Systems Theory. Educate and
advocate for under privilege communities through spatial education
and Geographic Information System services.

Overview
1. The 411 on Community Development Corporations

2. Financing New Construction and Rehabilitation

3. Understanding Key Concepts; LIHTC and 421a

4. Term Sheets and Pro Formas Basics

5. Via Verde Case Study


Community
Development
Corporations
CDCs are not-for-profit, community
based, mission driven organizations that
focus on providing programs and services
to neighborhoods that have historically
suffered from economic disinvestment
Key programs and services are;
advocacy, education, community
organizing, workforce training, housing.
The History of
CDCs in The U.S.
The Housing and Community Development Act of 1974
was signed into law by President Ford for the Department
of Housing and Urban Development (HUD) as a response
to President Nixon’s 1973 funding moratorium which put
an end to funds for the development of public housing.

Ford’s plan was to transfer the


responsibility of developing
affordable housing from the
federal government to local
private sector partners.
The History of
CDCs in The U.S.
The Housing and Community Development Act of 1974
created the Community Development Block Grant (CDBG).
This is a funding mechanism that funnels federal money to
cities and urban areas for local municipalities to award
CDCs and similar nonprofits funds for housing rehabilitation,
infrastructure improvements and other services.
The CDBG is currently the longest running
program from HUD for preserving affordable
housing. Mostly all CDCs were created in
order to qualify for these federal grants.
Affordable Housing
Is Expensive!
All things to consider:
• Rising hard costs (materials and construction)

• Rising soft costs (permits, insurance, legal fees)

• Scarcity of developable land

• Satisfying environmental regulations

• Operational costs per unit

• Developer fee (return on investment)


New Construction and Preservation
Both Receive Government Assistance To
Maintain Affordability

New Affordable
Housing

Is Different
Than Old Rent
Stabilized
Subsidies For
New Construction
• NYS Homes and Community Renewal (HCR) - Low Income
Housing Tax Credit (LIHTC), Low Income Housing Trust Fund
(HTF), Housing Finance Agency (HFA) subsidized mortgages

• NYC Housing and Preservation Department (HPD) - Capital


funds for opting into affordability programs, Extremely Low &
Low Income Affordability (ELLA), Mixed Income Program,
Neighborhood Construction Program (NCP)

• NYS Energy Research & Development (NYSERDA) - Low


Rise Residential New Construction, Multifamily Performance
Program.
Affordable Housing
Rehabilitation
Preservation of affordable housing is just as important and uses a
slightly different toolkit. Some methods may include refinancing
mortgages and opting back into expiring tax incentives.

Another major component of preservation comes in the form of


physical rehabs or retrofitting. A term you may hear a lot of in the
affordable housing conversation is Third Party Transfer (TPT).

TPT is a mechanism that allows the City to transfer physically


distressed and tax-delinquent properties taken through an in rem
action to responsible owners such as non-profit CDCs who will
address the properties’ physical needs.
Low Income Housing
Tax Credit (LIHTC)
Pronounced (Lie-Tech)
1. CDCs and housing non profits are granted tax credits by their
state government.

2. Although non profits do not pay taxes they are able to raise initial
funds for development by selling tax credits to banks or private
developers.

3. This process brings the two entities together as partners on the


development project.

4. In order to qualify for tax credits, buildings must comply with


rental guidelines also determined by the state.
421-a Tax Abatement
• Also known as Affordable New York, renewed by the Governor.

• Statewide program implemented on the city level.

• Tax program that allows developers to construct new multiple


dwellings buildings while paying a portion of taxes.

• There are different options available with varying exemption


periods and terms.

• In order to qualify for the tax incentive developers must also


comply with affordability guidelines. Generally providing 20% of
units to affordability.
Intro to Term Sheets
Term Sheets are the guidelines provided to developers informing them
of the requirements necessary in order for them to qualify for a
specific incentive program. Each program has different terms.

Term Sheets in our city are created by HPD and HDC and outline not
only loan requirements but also expected rents

Common Terms Definitions:

• Loan to Value: A percentage set to determine the maximum mortgage that can
be offered based on the property’s assessed worth

• Debt Service Coverage Ratio: Measures a projects ability to pay debt


obligations; Net operating income divided by annual mortgage payments.

• Area Median Income: Percentages of AMI that dictate levels of affordability


that the development will target
HPD Mix Income Design and Construction

Term Sheet
Rent and Marketing Bands

Different components of
actual HPD Term Sheet

Current Term Sheets


can be found at:
www.nyc.gov/site/hpd/
developers/term-sheets.page

Loan Terms
What is a pro forma?
• Pro forma is a term you will hear often used by developers
when referring to their ability to meet term sheet
requirements.

• A pro forma is basically a projection over the loan period.

• An Operating pro forma is an estimate of the revenue and


expenses that the proposed project should produce upon
completion covering all costs and expected cash flow.

• Includes; Gross potential rent, taxes and insurance,


management fee, operations and maintanence, mortgage
payments, cash flow
Via Verde Case Study
Financing Sources -- Affordable Rental Units Construction Permanent
Debt

- HDC first mortgage (taxable bonds, floated during construction with a JP Morgan Chase line of credit, at 7.7 percent 33,690,000 4,370,000
fixed interest rate)

- HDC second mortgage 12,835,000 12,835,000

- HPD capital subsidy 9,767,756 9,767,756

- HPD HOME 2,516,580 2,516,580

- FHLBNY Affordable Housing Program (HSBC member) 1,900,000 1,900,000

- NYS Affordable Housing Corp. 2,117,500 2,117,500

NYSERDA 380,000 380,000

LIHTC equity (Federal at $0.82, state at $0.49; equity investment from Chase) 3,122,165 32,083,651

Co-op sales proceeds—equity -- 10,852,165

Developer equity 1,000,000 1,000,000

Deferred developer fee 4,763,651 2,000,000

Total $66,852,987 $66,852,987


Reported by Urban Land Institute
Conclusion
• The Bronx Institute for Urban Systems will continue to
host presentations regarding complex policy issues
including housing, in order to breakdown information
and educate local residents so that they can go back
to their communities and share their knowledge.

• There is one more parts in this series that will focus on


Zoning as a tool to spur development and affordable
housing alternatives as long term solutions.

• Please complete a presenter review sheet so that we


can attempt to make our program stronger in the
future.
Questions
&
Suggestions