U.S. Dept. of Agriculture
Rural
Development
538 Program
Rural Rental Housing
Association o f Illinois
Offering Financial Advice and
Solutions to Health Care, Senior
Living, and Housing Providers.
Brian W. Coate
Vice President
Lancaster Pollard & Co.
Lancaster Pollard Mortgage Company

Table of Contents
Program Purpose
Program Outreach
Program Features
Qualifying Borrowers & Properties
Eligible Uses
Program Fees
Roles & Responsibilities
Lender Incentives
Eligible Lenders
Application Process
Reference Information
GRRHP Flow Chart

Program Purposes
• To encourage economic development in rural areas
• To increase and preserve the supply of affordable multifamily housing in rural areas
• To ensure the availability of housing for rural residents whose incomes are 115% of area median income or less

Program Purposes, cont .
• Foster risk-sharing partnerships with public and private lenders
• Increase moderately-priced housing in rural America
• Facilitate affordability for low and moderate income rural residents

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Program Features
• Covers 90% of outstanding principal and interest
• Offered for construction and permanent loans or permanent loans

Creating Affordability
• Flexible tool that works well with 9% and 4% tax credits, as well as other sources of financing.
• Rents are restricted to 115% of adjusted area median income (or less, depending on funding source).
• Average project rent may not exceed 30 percent of 100 percent of AMI.

Qualified Borrowers and Properties
Qualified Borrowers
• Non-profit corps. or partnerships
• Public entities
• Indian Tribes
• For-profit comps.
• Individuals
• Trusts
Qualified Properties
• New construction
• Substantial rehab. of at least
$6,500 per unit for acquisition or to create new units.
• Can be used with acquisition and rehab. or a rehab. with no change of ownership.

3565.205 Eligible uses of loan proceeds.
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3565.206 Ineligible uses of loan proceeds
•
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Government’s
• Approval and issuance of loan guarantee and interest assistance
• Oversight of lender and program
• Process and reimburse losses
Lender’s
• Originate, service, close and monitor loans
• Oversight of borrower for compliance with program regulations
• Liquidation of property for collection

• Notice of Funding Availability
(NOFA) in Federal Register.
• Continuous review and selection of lender responses to NOFA until published deadline.
• Review and selection continues until funds exhausted
• Submission of proof of lender eligibility and documentation for lender approval
• Completion of National
Environmental Protection Act
(NEPA) requirement
• Submission of complete application

• Obligation of FY Funds and Issuance of
Conditional
Commitment
• Issuance of Loan Note
Guarantee
• Lender Monitoring and
Servicing
• Construction Phase
• Loan Closing

Flow Chart of Processes
Issuance of NOFA
(National Office)
Selection of NOFA Responses / Invitation to Proceed with Processing
(National Office)
Meeting with All Parties (Pre-Construction or Planning Session)
(State Office)
Lender Eligibility / Lender Application / Lender Approval
National Office Receipt of Lender Application
State Office input in GLS / National Office Lender Approval in GLS
GRRHP Application Development
Lender Underwrites Loan Application / State Office Reviews Application
Obligation of FY Funds & Issuance of Conditional Commitment
(National Office in GLS) (State Office Issues Commitment)
Construction Phase
(State Office Oversight)
Loan Closing
(Lender)
Issuance of Loan Note Guarantee
(State Office Issuance)
Lender Monitoring & Servicing
(State Office)
How do I juggle the meetings, calls, and paperwork?

The Players, Process, and Money Flow
TC
Syndicator
Equity
Tax Credits
Developer Debt Lender
Application
State Allocating
Agency
USDA Loan
Guarantee

Program Fees
•
Initial guarantee fee equal to 1% of the total loan guarantee due when guarantee is issued
• Annual guarantee fee equal to 0.5% of the total outstanding principal and interest of the loan.

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Reference Information http://rdinit.usda.gov/regs/
HB-1-3565 - Guaranteed Rural Rental Housing Program
Origination and Servicing Handbook
7 CFR part 3565 - Program Regulations found in
Appendix 1 of HB-1-3565.
7 CFR part 1940, subpart G - National Environmental
Protection Act

What Does a Typical Sec. 538 Property Look
Like?
Port Byron Apartments
Port Byron, Illinois
(Case Study)

Project Overview
Project: Port Byron Apartments
Location: Port Byron, Illinois
Financing: LIHTC (9%) and Sec. 538 GRHP Loan
TDC: $8,300,000
538 Loan: $1,555,000
LTV: 22.1%
Type:
Rents:
Family Property
Range from $ 590 - $680

A Perfect Sec. 538 Candidate
72 units
•
40 1-bedroom units
•
32 2-bedroom units
Population of 1,396
Proposed rehab of approx. $40k/unit
Addition of
•
Library
•
Walking trail with benches
•
Garden plots
•
Playground
•
Bike racks

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Challenges
Phase I
24 units
20 units of RA
Phase II
24 units
22 units of RA
Phase III
24 units
24 units of PB Sec. 8

Key Players
Borrower: General Capital
•
Extensive real estate development experience but first 538 GRHP
Mgmt. Co.: Oakbrook Corp
Lender: Lancaster Pollard Mortgage Co.
•
USDA-approved lender for Sec. 538 and Community Facilities programs
General Contractor: Schemel-Tarrillion, Inc.
Architect: Tyson and Billy Architects, P.C.
Tax Credit Syndicator: Enterprise

Community Amenities

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Community Amenities

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Pre-Rehab

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Pre-Rehab

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Post Rehab

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Post Rehab Cont.

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Lancaster Pollard
65 East State Street, 16th Floor
Columbus, OH 43215
Phone (614) 224-8800
Fax (614) 224-8805 www.lancasterpollard.com