REFINANCING AGING RHS HOUSING

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(No Transcript)
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2008 Real Estate Update Affordable Housing in
Todays Market

• Ritz Carlton, San Juan Hotel, Spa Casino
• 6961 Avenue of the Governors
• Isla Verde
• Carolina, Puerto Rico 00979
• December 10-12, 2008
• WASHINGTON UPDATE
• Stephen J. Wallace, Esq.
• Monica Hilton Sussman, Esq.
• Nixon Peabody LLP

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PRESERVATION LEGISLATION

• In March, a draft of an affordable housing
  preservation bill from the U.S. House of
  Representatives designed to prevent the loss of
  affordable housing dwelling units was circulated
  to a few stakeholders for comments. Many of this
  bills provisions relate to on-going issues that
  have been a source of frustration for preserving
  existing affordable housing.
• Congressman Frank held hearings in June not
  likely to have legislation this year.

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PRESERVATION LEGISLATION(continued)

• Key issues contained in the draft bill include
• Conversion of Rental Assistance Payment and Rent
  Supplement contracts to project-based Section 8
  contracts.
• Inclusion of new debt service in budget-based
  rent increases.
• Expansion of enhanced vouchers to cover
  termination events.

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PRESERVATION LEGISLATION(continued)

• Provision for ELIHPA and LIHPRHA properties to
  utilize any rent adjustment process allowed under
  MAHRA (typically LIHPRHA is eligible only for
  OCAF adjustments and ELIHPA is eligible only for
  AAF or a budget-based rent increase).
  Mark-to-Market properties would also be eligible
  for MAHRA rent increases.

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PRESERVATION LEGISLATION(continued)

• Allowance for owners to receive project-based
  vouchers in lieu of enhanced vouchers.
• Prohibition of HUDs practice of limiting sales
  proceeds to non-profit owners/sellers.
• Allowance for state agencies to limit Section 8
  rents at LIHTC rents (but not HUD).
• Incorporation of proposed changes to the Mark
  to-Market program (i.e., allows below market
  properties to go through Mark to-Market even
  though rents are below market). And 5 yrs for
  Non Profit transfers.

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PRESERVATION LEGISLATION(continued)

• Potential issues of concern may include
• Preference for non-profit owners to acquire a
  property when the seller is opting out of the
  Section 8 HAP contract or when other assistance
  programs terminate.
• A 9-month notice to tenants, HUD, and the
  state/local government when the owner is opting
  out of the Section 8 HAP contract or when other
  assistance program terminates.
• Creation of a HUD national data base on each HUD
  property.

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PRESERVATION LEGISLATION(continued)

• Tenant and non-profit access to certain
  correspondence/data of project owners.
• Statutory recognition of tenants as 3rd party
  beneficiaries in Section 8 contracts.
• Allowance for non-profits to assume flexible
  subsidy loans so that HUD never receives
  payments.
• Funding to non-profit and tenant groups for
  various organizational and preservation efforts.
• Various increased HUD enforcement authority
  provisions.

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Whats Missing

• Using new equity to compute distributions
• Issues on replacement reserves for new reg HAPs
  when FHA paid off

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Housing and Economic Recovery Act (HERA)HUD
and LIHTC Program Coordination

• HUD given 6 months to implement the law
• Objective is to improve efficiency, simplify and
  establish time deadlines, and request additional
  funding for staff, if needed
• Required to consult with IRS as well as industry
  and provide a report to Congress within 9 months

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FHA Mortgage Insurance and LIHTC

• Elimination of the subsidy layering process for
  projects with FHA insurance
• Exempt FHA projects with LIHTCs from HUD cost
  certification, if at the time of firm commitment
  the loan-to-cost ratio is below 80
• HUD issued a memo in July addressing the need for
  escrowing LIHTC equity The law eliminates the
  requirement for escrow and/or letter of credit
  altogether.

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FHA Mortgage Insurance and LIHTC(continued)

• Exempts FHA-insured projects if tax credit agency
  is doing inspections (presumably from REACS).
  As to other compliance monitoring, if HUD
  determines the HFA monitoring is sufficient to
  ensure compliance with HUDs requirements, then
  it too need not be performed (for MORS ?)
• Pilot for streamlined reviews for FHA loans where
  LIHTCS are being used (instructions to be issued
  within 180 days of enactment)

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Project Based Vouchers (PBV)

• Increases the term of a PBV contract from 10 to
  15 years and allows public housing agencies
  (PHAs) to commit to unlimited renewals
• The PBV per-building limitation (no more than 25
  of the units unless it is elderly or there are
  family self-sufficiency services provided) is now
  calculated on a project-wide basis
• PBVs are permitted for elevator and coop buildings

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Project Based Vouchers (PBV)(continued)

• Subsidy layering is not required for existing
  building or if the HFA has conducted SLR
• Environmental review is not required before PHA
  enters into a HAP for existing buildings, unless
  otherwise required by law or regulation

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Project Based Vouchers (PBV)(continued)

• Rent floor is established
• Rents for units in LIHTC projects need not go
  through rent reasonableness test if the PBV rent
  does not exceed the LIHTC unit rents, but also is
  not in excess of the PHA payment standard for the
  unit size
• The law codifies HUD policy that for determining
  rent reasonableness voucher rents are to be
  compared with the private, unassisted market, up
  to the greater of the tax credit rents for
  comparable units or the housing authority
  established payment standard. (Seems not to
  apply to PBVs)

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Section 202

• Provides for delegated processing to state or
  local agencies with underwriting experience (not
  limited to LIHTC mixed finance transactions)
• HUD retains approval on rents and development
  costs and will issue commitment within 60 days of
  receipt of commitment from delegated agency

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SEVRA ( Voucher reform )

• Passed House (HR 1851) now in Senate (S 2684)
• Reduce frequency of inspections
• Expand PBVs
• Renewals are based on actual recent costs
• House Bill would allow tenants of a non profit
  owned 236 to get EVs

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202 Legislation

• House Passed in Dec. Introduced in Senate (S
  2736)
• Annual adjustment of PRAC
• Delegated underwriting to states
• Project based rental assistance for old 202
• Unit reconfiguration
• National non profits can have local advisory
  Board in lieu local governing boards for each
  property
• Addresses non profit sales proceeds

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HUD Policies

• Memo of the Month
• January Defer Flex Subsidy Payoff
• January 9, 2008 John Garvin Memo addresses
  policies and procedures for the review of
  requests to defer repayment of flexible subsidy
  loans.
• HUD will not defer repayment of HELP loans,
  which were provided with flexible subsidy
  assistance in cases of earthquake damage.
• Significant justification for deferral will be to
  bring in new ownership with new capital to
  reposition and preserve the property, and to
  address non-compliance issues.

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HUD Policies(continued)

• February Unit Reduction
• Convert Studios to 1s (not 2s)
• Rents equal combined 2 studios or the 1 BR rents
• HAP rents not to exceed LIHTC rents
• Agree to renew HAP
• IRPs reduce IRP prorate by of units (not taking
  into account BR size)
• Not limited to elderly
• No 1 for 1 replacement
• Notice so can be waived?

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HUD Policies(continued)

• March Pass thru leases for NMTC and HTC and FHA

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Whats Not Addressed

• NP sales proceeds (in draft legislation)
• 2530 regs
• Distributions

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Opportunities

• Post mtm
• 202 prepay, preserve, reposition
• 318 now 215
• Unknown LIHTC market appetite for HUD properties
• FHA may be of renewed interest because of credit
  crunch