| Developer, including, but not limited to, travel, dining,
and courier fees will be considered part of the Developer Fee.
(C) For Housing Tax Credit Developments, Eligible Developer
Fee is multiplied by the appropriate Applicable Percentage depending
on whether it is attributable to acquisition or rehabilitation basis.
(D) For non-Housing Tax Credit Developments, the percentage
can be up to 7.5%, but is based upon Total Housing Development Cost
less the sum of the fee itself, land costs, the costs of permanent
financing, excessive construction period financing described in paragraph
(8) of this subsection, reserves, and any identity of interest acquisition
cost.
(8) Financing Costs. All fees required by the construction
lender, permanent lender and equity partner must be indicated in the
term sheets. Eligible construction period interest is limited to the
lesser of actual eligible construction period interest, or the interest
on one year's fully drawn construction period loan funds at the construction
period interest rate indicated in the term sheet(s). For tax-exempt
bond transactions up to 24 months of interest may be included. Any
excess over this amount will not be included in Eligible Basis. Construction
period interest on Related Party or Affiliate construction loans is
only included in Eligible Basis with documentation satisfactory to
the Underwriter that the loan will be at a market interest rate, fees
and loan terms and the Related Party lender can demonstrate that it
is routinely engaged in construction financing to unrelated parties.
(9) Reserves. Except for the underwriting of a Housing
Tax Credit Development at cost certification, the Underwriter will
utilize the amount presented in the Applicant's Development Cost Schedule
up to twelve months of stabilized operating expenses plus debt service
(up to twenty-four months for USDA or HUD-financed rehabilitation
transactions). Reserve amounts exceeding these limits will be excluded
from Total Housing Development Costs. Pursuant to §10.404(c)
of this title (relating to Operative Reserve Accounts), and for the
underwriting of a Housing Tax Credit Development at cost certification,
operating reserves that will be maintained for a minimum period of
five years and documented in the Owner's partnership agreement or
the permanent lender's loan documents will be included as a development
cost.
(10) Soft Costs. Eligible soft costs are generally
costs that can be capitalized in the basis of the Development for
tax purposes. The Underwriter will evaluate and apply the allocation
of these soft costs in accordance with the Department's prevailing
interpretation of the Code. Generally, the Applicant's costs are used;
however the Underwriter will use comparative data and Third Party
CPA certification as to the capitalization of the costs to determine
the reasonableness of all soft costs. For Tax-Exempt Bond Developments
that do not include a request for Direct Loan or where the Department
is not the bond issuer, the Underwriter will not develop independent
estimates for Building Cost or Soft Costs. The Applicant's Total Housing
Development Cost and Total Eligible Cost will generally be characterized
as reasonable, subject to review for compliance with Underwriting
Rules and Guidelines.
(11) Additional Tenant Amenities. For Housing Tax Credit
Developments and after submission of the cost certification package,
the Underwriter may consider costs of additional building and site
amenities (suitable for the Target Population being served) proposed
by the Owner in an amount not to exceed 1.5% of the originally underwritten
Hard Costs. The additional amenities must be included in the LURA.
(f) Development Team Capacity and Development Plan.
(1) The Underwriter will evaluate and report on the
overall capacity of the Development Team by reviewing aspects, including
but not limited to those identified in subparagraphs (A) - (D) of
this paragraph:
(A) Personal credit reports for development sponsors,
Developer Fee recipients and those individuals anticipated to provide
guarantee(s) in cases when warranted. The Underwriter may evaluate
the credit report and identify any bankruptcy, state or federal tax
liens or other relevant credit risks for compliance with eligibility
and debarment requirements as found in Chapter 2 of this title (relating
to Enforcement);
(B) Quality of construction, Rehabilitation, and ongoing
maintenance of previously awarded housing developments by review of
construction inspection reports, compliance on-site visits, findings
of NSPIRE violations and other information available to the Underwriter;
(C) For Housing Tax Credit Developments, repeated or
ongoing failure to timely submit cost certifications, requests for
and clearance of final inspections, and timely response to deficiencies
in the cost certification process; and
(D) Adherence to obligations on existing or prior Department
funded developments with respect to program rules and documentation.
(2) While all components of the Development plan may
technically meet the other individual requirements of this section,
a confluence of serious concerns and unmitigated risks identified
during the underwriting process may result in an Application being
determined to be infeasible by the Underwriter. Any recommendation
made under this subsection to deny an Application for a Grant, Direct
Loan or Housing Credit Allocation is subject to Appeal as further
provided for in §11.902 of this chapter (relating to Appeals).
(g) Other Underwriting Considerations. The Underwriter
will evaluate additional feasibility elements as described in paragraphs
(1) - (4) of this subsection.
(1) Interim Operating Income. Interim operating income
listed as a source of funds must be supported by a detailed lease-up
schedule and analysis.
(2) Floodplains. The Underwriter evaluates the site
plan, floodplain map, survey and other information provided to determine
if any of the buildings, drives, or parking areas reside within the
100-year floodplain. If such a determination is made by the Underwriter,
the Report will include a condition that:
(A) The Applicant must pursue and receive a Letter
of Map Amendment (LOMA) or Letter of Map Revision (LOMR-F); or
(B) The Applicant must identify the cost of flood insurance
for the buildings within the 100-year floodplain and certify that
the flood insurance will be obtained; and
(C) The Development must be proposed to be designed
to comply with the QAP, Program Rules and NOFA, and applicable Federal
or state requirements.
(3) Proximity to Other Developments. The Underwriter
will identify in the Report any Developments funded or known and anticipated
to be eligible for funding within one linear mile of the subject.
Distance is measured in a straight line from nearest boundary point
to nearest boundary point.
(4) Direct Loans. In accordance with the requirements
of 24 CFR §§92.250 and 93.300(b), a request for a Direct
Loan will not be recommended for approval if the DCR exceeds 1.50
any year during the longer of the term of the Direct Loan or the Federal
Affordability Period, unless the Applicant elects to commit 25% of
annual Cash Flow to a special reserve account, in accordance with §10.404(d)
of this title, for any year the DCR is over 1.50. Annual Cash Flow
will be calculated after deducting any payment due to the DevelopMuer
on a deferred developer fee loan and any scheduled payments on cash
flow loans. The Department will calculate the total special reserve
amount based on the Cash Flow at Direct Loan Closing underwriting.
The deposits into the special reserve account must be made annually
from 25% of remaining annual cash flow until the total special reserve
amount is reached. Alternatively, Applicant may request the Direct
Loan interest rate be increased by Underwriter at Direct Loan Closing
underwriting if financially feasibility is still met. If the Direct
Loan is not recommended for approval, the remaining feasibility considerations
under this section will be based on a revised sources schedule that
does not contain the Direct Loan. This standard will also be used
when the Development Owner is seeking approval for a request for a
subordination agreement or a refinance, except the total special reserve
amount will be based on the Cash Flow reflected in the underwriting
at that time. A special reserve account is not eligible for Developments
layered with FHA financing that is subject to HUD's Multifamily Accelerated
Processing Guide.
(h) Work Out Development. Developments that are underwritten
subsequent to Board approval in order to refinance or gain relief
from restrictions may be considered infeasible based on the guidelines
in this section, but may be characterized as "the best available option"
or "acceptable available option" depending on the circumstances and
subject to the discretion of the Underwriter as long as the option
analyzed and recommended is more likely to achieve a better financial
outcome for the property and the Department than the status quo.
Cont'd... |
