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The Development Process An Overview. Forming the development concept Evaluating your capacity and the needs of your community Evaluating the properties in your community Feasibility Creating an experienced project development team Preparing financial statements and budgets and cost estimates.

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The development process an overview
The Development ProcessAn Overview

  • Forming the development concept

    • Evaluating your capacity and the needs of your community

    • Evaluating the properties in your community

  • Feasibility

    • Creating an experienced project development team

    • Preparing financial statements and budgets and cost estimates


The development process an overview1
The Development ProcessAn Overview

  • Deal Making: Planning and Financing

    • Identifying financing sources

    • Financial stability of lead applicant

  • Project construction

    • Planning and managing the construction process

  • Operation

    • Preparing a long term management plan

  • Compliance with federal requirements


Nsp eligible activities
NSP Eligible Activities

NSP is organized according to the eligible activities provided in the Housing and Economic Recovery Act of 2008.

These activities provide for a wide array of projects.

Applicants can combine activities if necessary to achieve the scope of their project.

State’s Plan estimated funding by activity


Nsp residential financing program
NSP Residential Financing Program

“Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate-income homebuyers.”

The State’s Plan estimated 15% of overall NSP funds for this activity

Types of Projects:

  • Assist home buyers acquire properties by providing a zero interest subordinate loan or grant to bring down the purchase price to an affordable level.

  • Loan Loss Reserve

  • Revolving Loan Fund


Nsp homebuyer program
NSP Homebuyer Program

“Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties.”

The State’s Plan estimated 20% of NSP funds would address this activity.

Possible Project Types:

  • Acquire and rehabilitate single family homes

  • Acquire and rehabilitate multi-unit properties for sale (condos, townhomes, etc.)


Nsp rental program
NSP Rental Program

  • “Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties.”

  • State’s Plan estimated 30% of NSP funds would address this activity.

  • Intended for permanent housing

  • Possible project types:

    • Scattered site acquisition and rehabilitation of single family homes for long term rental

    • Scattered site acquisition and rehabilitation of small multi-unit properties for long term rental

    • Larger single site acquisition and rehabilitation for long term rental

    • Rent-to-Own models

    • Special needs housing


Nsp land bank program
NSP Land Bank Program

  • “Establish land banks for homes that have been foreclosed upon.”

  • Can not be used for vacant land.

  • Must have defined geographic area that meets the CDBG national objective of “benefiting low, moderate, and middle income persons”.

  • Homes acquired must be brought to their end use within 10 years.

  • State’s Plan estimated 5% of NSP funds would address this activity.

  • Possible project types:

    • Acquire homes for later redevelopment, rehabilitation or affordable sale or rental


Nsp demolition program
NSP Demolition Program

  • “Demolish blighted structures”

  • Properties must meet definition of blight covered later in this presentation and discussed in State’s Plan.

  • State’s Plan estimated 3% of NSP funds would address this activity.

  • The CDBG national objective to “eliminate slum and blight” is not eligible under NSP.

    • All activities must be tied to benefit low-mod-middle income households.

    • Area benefit test would be necessary.

  • Possible projects types:

    • Demolition of homes to leave as green space to lower the chance of flooding for surrounding homes.


Nsp redevelopment of demolished or vacant property program
NSP Redevelopment of Demolished or Vacant Property Program

  • “Redevelop demolished or vacant properties.”

  • Public facilities are eligible but must provide an “area benefit” to low-mod-middle income households

  • New construction only eligible under this activity

  • State’s Plan estimated 10% of NSP funds would address this activity

  • Possible Project Types:

    • Single site new construction for sale or rental

    • Scattered site new construction for sale or rental

    • Special needs housing / Supportive housing


Nsp eligible properties

NSP Eligible Properties

The type of property that can be assisted with NSP funds varies according to the eligible activity undertaken.

Federally required minimum of 25% of all NSP funds must be used to provide housing for households with incomes at or below 50% of the area median income

State has set goal of targeting 40% of NSP funds to assist 50% AMI households.

Properties must be residential and have been foreclosed or abandoned in order to meet the 25% requirement, even if that is not required by the activity.


Nsp eligible properties cont d
NSP Eligible Properties Cont’d

HUD has defined –

Foreclosed: “A property has been foreclosed upon at the point under state or local law, the mortgage or tax foreclosure is complete. Title to the property must have been transferred.”

Abandoned: “When mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 90 days, AND the property has been vacant for at least 90 days.”


Nsp eligible properties cont d1
NSP Eligible Properties Cont’d

Homes: “Any type of permanent residential dwelling unit, such as detached single family structures, townhouses, condominium units, multifamily rental apartments (covering the entire property), and manufactured homes where treated under state law as real estate (not personal property).”

Residential Properties: “includes all of the above plus vacant land that is currently designated for residential use, e.g. through zoning.”


Nsp eligible properties cont d2
NSP Eligible Properties Cont’d

Blighted Structure: “A structure is blighted when it exhibits objectively determinable signs of deterioration to constitute a threat to human health, safety, and public welfare.”

Further defined by the State’s NSP Plan. State’s Plan allows local laws defining blight to be used or, in the absence of a local definition to use the State’s definition.


Nsp eligible properties cont d3
NSP Eligible Properties Cont’d

Dilapidation

Obsolescence

Deterioration

Presence of Structures below minimum code

Illegal Use of Individual Structures

Excessive Vacancies

Lack of Ventilation

Inadequate Utilities

Excessive land coverage and overcrowding of structures

Deleterious land layout

Environmental Clean Up

Lack of community planning

Total equalized assessed value of the proposed redevelopment has declined for 3 of the last 5 years

State’s definition of blight is satisfied by displaying at least 5 of the following characteristics:


Components of nsp housing development acquisition strategy

Components of NSP Housing Development: Acquisition Strategy

Targeting and Site Selection

Areas of Greatest Need

Community Impact

Property Type and End Use

Applicants proposing a single site activity should be able to able to discuss location, while applicants proposing a scattered site should be able to discuss target area, type of properties, and availability of those properties, at a minimum.


Components of nsp housing development acquisition strategy1
Components of NSP Housing Development: Acquisition Strategy

  • Should not acquire property before approval from State

  • Highly recommended to pursue vacant property only

  • Property sellers and REO (“Real Estate Owned”)

  • NOT encouraged to consider eminent domain

  • Acquisition price must be at a minimum 15% discount from the current appraised value of the property

  • Current Appraisal

    • Appraisal must be made within 60 days of any offer on the property

    • Must be an independent appraisal – property holder’s appraisal is not acceptable


Components of nsp housing development the end use

Components of NSP Housing Development: The End Use

Homeownership Considerations

Market Assessment and Outreach Plan

Qualifying Home Buyers

Housing Counseling

Resale limit

Final sale of home to income eligible household must be for less than the total cost to acquire and redevelop the property

Home Purchase Financing

Lending Requirement

http://www.fdic.gov/regulations/laws/rules/5000-5160.html


Components of nsp housing development the end use1

Components of NSP Housing Development: The End Use

Rental Considerations

Market Analysis

Rent Levels

IHDA’s “Schedule of Maximum Monthly Gross Rents for Most Multifamily Programs”

Tenant Selection Plan and Tenant Outreach

Income Qualifying Tenants

Property Management

Rent-to-Own


Components of nsp housing development per unit cost limits
Components of NSP Housing Development : Per Unit Cost Limits

  • No per-unit limits set by CDBG or HUD rules

  • State has established per unit maximum by adopting Maximum Purchase Price Limits for Non-Targeted Areas used with IHDA’s first mortgage products

    • Using the “1-unit New Construction Limit for Non Targeted Areas”

    • Limit includes all costs of project including acquisition, rehabilitation, redevelopment

  • Cost of rehabilitation must be no more than 75% of the cost of acquiring the unit

  • On a per-unit basis for multi-family developments


Components of nsp housing development construction and rehabilitation plan

Components of NSP Housing Development: Construction and Rehabilitation Plan

Evaluation of Property Condition

Establish Construction and Rehab Standards

Cost estimates Construction/Rehab

Davis Bacon applies at 8 units or more


Components of nsp housing development finance

Components of NSP Housing Development - Finance Rehabilitation Plan

NSP funds will be structured largely as grants

Will require an affordability period

CDBG program income requirements apply

State will consider providing 100% project financing from NSP funds

Leverage

Traditional State resources will be difficult to combine with NSP

Bring local resources to the project

Acquisition and Construction Financing

Bank Financing, Local CDBG, HOME

Proceeds from Resale

Private and pool financing

Foundations and local grants

End buyer financing - IHDA


Affordability requirements
Affordability Requirements Rehabilitation Plan


Components of nsp housing development finance1

Development Budget Rehabilitation Plan

Acquisition costs

Construction/ Rehabilitation

Capitalized Reserves

Holding / Carrying Costs

Contingency

Soft Costs

Components of NSP Housing Development - Finance

  • Development Fees

    • Developer Fees

      • Maximum of 12%

    • Project Delivery

    • Administrative Fees


Components of nsp housing development finance2

Components of NSP Housing Development - Finance Rehabilitation Plan

Operating Budget

Projected Income

+ Residential rental income

+ Commercial rental income

- Rental vacancy

Operating Expenses

Taxes, insurance, utilities

Property management, maintenance

Operating Reserves

Debt Service

Feasible projects will be self supporting


Components of nsp housing development property management
Components of NSP Housing Development – Property Management

  • For Sale developments will need to address how properties will be managed for holding period

  • Long term rental projects should use experienced project managers with existing policies and procedures

  • Scattered site projects, likely under NSP are notoriously difficult and expensive to manage