| (B) Miscellaneous Income. All ancillary fees and miscellaneous
secondary income, including but not limited to, late fees, storage
fees, laundry income, interest on deposits, carport and garage rent,
washer and dryer rent, telecommunications fees, and other miscellaneous
income, are anticipated to be included in a $5 to $30 per Unit per
month range. Projected income from tenant-based rental assistance
will not be considered. Exceptions may be made at the discretion of
the Underwriter and must be supported by either the normalized operating
history of the Development or other existing comparable properties
within the same market area.
(i) The Applicant must show that a tenant will not
be required to pay the additional fee or charge as a condition of
renting a Unit and must show that the tenant has a reasonable alternative.
(ii) The Applicant's operating expense schedule should
reflect an itemized offsetting line-item associated with miscellaneous
income derived from pass-through utility payments, pass-through water,
sewer and trash payments, and cable fees.
(iii) Collection rates of exceptional fee items will
generally be heavily discounted.
(iv) If an additional fee is charged for the optional
use of an amenity, any cost associated with the construction, acquisition,
or development of the hard assets needed to produce the amenity must
be excluded from Eligible Basis.
(C) Vacancy and Collection Loss. The Underwriter uses
a normalized vacancy rate of 7.5% (5% vacancy plus 2.5% for collection
loss). 100% project-based rental subsidy developments (not including
employee-occupied units) may be underwritten at a combined 5% vacancy
rate.
(D) Effective Gross Income (EGI). EGI is the total
of Collected Rent for all Units plus Miscellaneous Income less Vacancy
and Collection Loss. If the Applicant's pro forma EGI is within 5%
of the EGI independently calculated by the Underwriter, the Applicant's
EGI is characterized as reasonable in the Report; however, for purposes
of calculating the underwritten DCR the Underwriter's pro forma will
be used unless the Applicant's pro forma meets the requirements of
paragraph (3) of this subsection.
(2) Expenses. In determining the first year stabilized
operating expense pro forma, the Underwriter evaluates the reasonableness
of the Applicant's expense estimate based upon the characteristics
of each Development, including the location, utility structure, type,
the size and number of Units, and the Applicant's management plan.
Historical, stabilized and certified financial statements of an existing
Development or Third Party quotes specific to a Development will reflect
the strongest data points to predict future performance. The Underwriter
may review actual operations on the Applicant's other properties monitored
by the Department, if any, or review the proposed management company's
comparable properties. The Department's database of properties located
in the same market area or region as the proposed Development also
provides data points; expense data from the Department's database
is available on the Department's website. Data from the Institute
of Real Estate Management's (IREM) most recent Conventional Apartments-Income/Expense
Analysis book for the proposed Development's property type and specific
location or region may be referenced. In some cases local or project-specific
data such as PHA Utility Allowances and property tax rates are also
given significant weight in determining the appropriate line item
expense estimate. Estimates of utility savings from green building
components, including on-site renewable energy, must be documented
by an unrelated contractor or component vendor.
(A) General and Administrative Expense. (G&A)--Accounting
fees, legal fees, advertising and marketing expenses, office operation,
supplies, and equipment expenses. G&A does not include partnership
related expenses such as asset management, accounting or audit fees.
Costs of tenant services are not included in G&A.
(B) Management Fee. Fee paid to the property management
company to oversee the operation of the Property and is most often
based upon a percentage of EGI as documented in an existing property
management agreement or proposal. The Underwriter will use the Applicant's
proposed Management Fee if it is within the range of 4% to 6% of EGI.
A proposed fee outside of this range must be documented.
(C) Payroll Expense. Compensation, insurance benefits,
and payroll taxes for on-site office, leasing and maintenance staff.
Payroll does not include Third-Party security or tenant services contracts.
Staffing specific to tenant services, security or other staffing not
related to customary property operations should be itemized and included
in other expenses or tenant services expense.
(D) Repairs and Maintenance Expense. Materials and
supplies for the repairs and maintenance of the Development including
Third-Party maintenance contracts. This line-item does not include
costs that are customarily capitalized that would result from major
replacements or renovations.
(E) Utilities Expense. Gas and electric energy expenses
paid by the Development. Estimates of utility savings from green building
components, including on-site renewable energy, must be documented
by an unrelated contractor or component vendor.
(F) Water, Sewer, and Trash Expense (WST). Includes
all water, sewer and trash expenses paid by the Development.
(G) Insurance Expense. Cost of Insurance coverage for
the buildings, contents, and general liability, but not health or
workman's compensation insurance.
(H) Property Tax. Includes real property and personal
property taxes but not payroll taxes.
(i) An assessed value will be calculated based on the
capitalization rate published by the county taxing authority. If the
county taxing authority does not publish a capitalization rate, a
capitalization rate of 10% or a comparable assessed value may be used.
(ii) Other assessed values or property tax estimates
may be used based on development specific factors as determined by
the Underwriter.
(iii) If the Applicant proposes a property tax exemption
or Payment in Lieu of Taxes (PILOT) agreement the Applicant must provide
documentation in accordance with §10.402(d) of this title (relating
to Documentation Submission Requirements at Commitment of Funds).
At the underwriter's discretion, such documentation may be required
prior to Commitment or Determination Notice if deemed necessary.
(I) Replacement Reserves. Periodic deposits to a reserve
account to pay for the future replacement or major repair of building
systems and components (generally items considered capitalized costs).
The Underwriter will use a minimum reserve of $250 per Unit for New
Construction and Reconstruction Developments and $300 per Unit for
all other Developments. The Underwriter may require an amount above
$300 for the Development based on information provided in the Scope
and Cost Review (SCR) or, for existing USDA developments, an amount
approved by USDA. The Applicant's assumption for reserves may be adjusted
by the Underwriter if the amount provided by the Applicant is insufficient
to fund capital needs as documented by the SCR during the first fifteen
(15) years of the long term pro forma. Higher reserves may be used
if documented by a primary lender or syndicator.
(J) Other Operating Expenses. The Underwriter will
include other reasonable, customary and documented property-level
operating expenses such as audit fees, security expense, telecommunication
expenses (tenant reimbursements must be reflected in EGI) and TDHCA's
compliance fees. For Developments financed by USDA, a Return to Owner
(RTO) may be included as an operating expense in an amount consistent
with the maximum approved by USDA or an amount determined by the Underwriter.
This category does not include depreciation, interest expense, lender
or syndicator's asset management fees, or other ongoing partnership
fees.
(K) Resident Services. Resident services are not included
as an operating expense or included in the DCR calculation unless:
(i) There is a documented financial obligation on behalf
of the Owner with a unit of state or local government to provide resident
supportive services at a specified dollar amount. The financial obligation
must be identified by the permanent lender in their term sheet and
the dollar amount of the financial obligation must be included in
the DCR calculation on the permanent lender's 15-year pro forma at
Application. If the term sheet has an expiration date, the term sheet
must have been signed by the Applicant prior to the expiration date;
or
(ii) The Applicant demonstrates a history of providing
comparable supportive services and expenses at existing affiliated
properties within the local area. Except for Supportive Housing Developments,
the estimated expense of supportive services must be identified by
the permanent lender in their term sheet and included in the DCR calculation
on the 15-year pro forma; and
Cont'd... |
