| (iii) On-site staffing or pro ration of staffing for
coordination of services only, and not the provision of services,
can be included as a supportive services expense without permanent
lender documentation.
(L) Total Operating Expenses. The total of expense
items described in subparagraphs (A) - (K) of this paragraph (relating
to Operating Feasibility). If the Applicant's total expense estimate
is within 5% of the final total expense figure calculated by the Underwriter,
the Applicant's figure is characterized as reasonable in the Report;
however, for purposes of calculating DCR, the Underwriter's independent
calculation will be used unless the Applicant's first year stabilized
pro forma meets the requirements of paragraph (3) of this subsection.
(3) Net Operating Income (NOI). The difference between
the EGI and total operating expenses. If the Applicant's first year
stabilized NOI figure is within 5% of the NOI calculated by the Underwriter,
the Applicant's NOI is characterized as reasonable in the Report;
however, for purposes of calculating the first year stabilized pro
forma DCR, the Underwriter's calculation of NOI will be used unless
the Applicant's first year stabilized EGI, total operating expenses,
and NOI are each within 5% of the Underwriter's estimates. For Housing
Tax Credit Developments at cost certification, actual NOI will be
used as adjusted for stabilization of rents and extraordinary lease-up
expenses. Permanent lender and equity partner stabilization requirements
documented in the loan and partnership agreements will be considered
in determining the appropriate adjustments and the NOI used by the
Underwriter. 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 of
EGI, Total Operating Expenses, or NOI. The Applicant's NOI will generally
be characterized as reasonable, subject to review for compliance with
Underwriting Rules and Guidelines.
(4) Debt Coverage Ratio. DCR is calculated by dividing
NOI by the sum of the debt service payments on all permanent or foreclosable
lien(s) with scheduled and periodic payment requirements, including
any required debt service on a Direct Loan subject to the applicable
Notice of Funding Availability (NOFA) or other program requirements,
and any on-going loan related fees such as credit enhancement fees
or loan servicing fees. If executed loan documents do not exist, loan
terms including principal and interest payments are calculated based
on the terms indicated in the most current term sheet(s). Otherwise,
actual terms indicated in the executed loan documents will be used.
Term sheet(s) must indicate the minimum DCR required by the lender
for initial underwriting as well as for stabilization purposes. Unusual
or non-traditional financing structures may also be considered.
(A) Interest Rate. The rate documented in the term
sheet(s) or loan document(s) will be used for debt service calculations.
Term sheets indicating a variable interest rate must provide the base
rate index or methodology for determining the variable rate index
and any component rates comprising an all-in interest rate. The term
sheet(s) must state the lender's underwriting interest rate assumption,
or the Applicant must submit a separate statement from the lender
with an estimate of the interest rate as of the date of such statement.
At initial underwriting, the Underwriter may adjust the underwritten
interest rate assumption based on market data collected on similarly
structured transactions or rate index history. Private Mortgage Insurance
premiums and similar fees are not included in the interest rate but
calculated on outstanding principal balance and added to the total
debt service payment.
(B) Amortization Period. For purposes of calculating
DCR, the permanent lender's amortization period will be used if not
less than 30 years and not more than 40 years. Up to 50 years may
be used for federally sourced or insured loans. For permanent lender
debt with amortization periods less than 30 years, 30 years will be
used. For permanent lender debt with amortization periods greater
than 40 years, 40 years will be used. For non-Housing Tax Credit transactions
a lesser amortization period may be used if the Direct Loans will
be fully amortized over the same period as the permanent lender debt.
(C) Repayment Period. For purposes of projecting the
DCR over a 30 year period for Developments with permanent financing
structures with balloon payments in less than 30 years, the Underwriter
will carry forward debt service based on a full amortization at the
interest rate stated in the term sheet(s).
(D) Acceptable Debt Coverage Ratio Range. Except as
set forth in clauses (i) or (ii) of this subparagraph, the acceptable
first year stabilized pro forma DCR must be between a minimum of 1.15
and a maximum of 1.35 (maximum of 1.50 for Housing Tax Credit Developments
at cost certification).
(i) If the DCR is less than the minimum, the recommendations
of the Report may be based on a reduction to debt service and the
Underwriter will make adjustments to the financing structure in the
priority order presented in subclauses (I) - (IV) of this clause subject
to Direct Loan NOFA requirements and program rules:
(I) A reduction to the interest rate of a Direct Loan;
(II) An increase in the amortization period of a Direct
Loan;
(III) A reduction in the principal amount of a Direct
Loan; and
(IV) An assumed reduction in the permanent loan amount
for non-Department funded loans based upon the rates and terms in
the permanent loan term sheet(s) as long as they are within the ranges
in subparagraphs (A) and (B) of this paragraph.
(ii) If the DCR is greater than the maximum, the recommendations
of the Report may be based on an increase to debt service and the
Underwriter will make adjustments to the assumed financing structure
in the priority order presented in subclauses (I) - (III) of this
clause subject to Direct Loan NOFA requirements and program rules:
(I) an increase to the interest rate of a Direct Loan
up to the lesser of the maximum interest rate pursuant to a Direct
Loan NOFA or the interest rate on any senior permanent debt or if
no senior permanent debt a market rate determined by the Underwriter
based on current market interest rates;
(II) or a decrease in the amortization period on a
Direct Loan but not less than 30 years; and
(III) an assumed increase in the permanent loan amount
for non-Department proposed financing based upon the rates and terms
in the permanent loan term sheet as long as they are within the ranges
in subparagraphs (A) and (B) of this paragraph.
(iii) For Housing Tax Credit Developments, a reduction
in the recommended Housing Credit Allocation Amount may be made based
on the Gap Method described in subsection (c)(2) of this section as
a result of an increased debt assumption, if any.
(iv) For Developments financed with a Direct Loan subordinate
to FHA financing, the combined DCR will be calculated using 75% of
the Surplus Cash after the senior debt service is deducted from Net
Operating Income. The combined DCR must meet a minimum 1.0 DCR to
demonstrate financial feasibility.
(v) The Underwriter may limit total debt service that
is senior to a Direct Loan to produce an acceptable DCR on the Direct
Loan and may limit total debt service if the Direct Loan is the senior
primary debt.
(5) Long Term Pro forma. The Underwriter will create
a 30-year operating pro forma using the criteria provided in subparagraphs
(A) to (C) of this paragraph:
(A) The Underwriter's or Applicant's first year stabilized
pro forma as determined by paragraph (3) of this subsection.
(B) A 2% annual growth factor is utilized for income
and a 3% annual growth factor is utilized for operating expenses except
for management fees that are calculated based on a percentage of each
year's EGI.
(C) Adjustments may be made to the long term pro forma
if satisfactory support documentation is provided by the Applicant
or as independently determined by the Underwriter.
(e) Total Housing Development Costs. The Department's
estimate of the Total Housing Development Cost will be based on the
Applicant's Development cost schedule to the extent that costs can
be verified to a reasonable degree of certainty with documentation
from the Applicant and tools available to the Underwriter. For New
Construction Developments, the Underwriter's total cost estimate will
be used unless the Applicant's Total Housing Development Cost is within
5% of the Underwriter's estimate. The Department's estimate of the
Total Housing Development Cost for Rehabilitation Developments or
Adaptive Reuse Developments will be based on the estimated cost provided
in the SCR for the scope of work as defined by the Applicant and §11.306(a)(5)
of this chapter (relating to SCR Guidelines); the Underwriter may
make adjustments to the SCR estimated costs. If the Applicant's cost
estimate is utilized and the Applicant's line item costs are inconsistent
with documentation provided in the Application or program rules, the
Underwriter may make adjustments to the Cont'd... |
