2014 ARHC-AHMA Joint Convention, Yakima, WA
Sarah Nichols, Senior Project Manager
Brian Lloyd, Director of Development

Who is Beacon Development Group?
 Formed in 1999; To date, has developed / preserved 3,129 units valued at over $461 million
 Works with non-profits and housing authorities that are committed to serving low- and moderate-income households
 Acquisition / Rehab
 Farmworker Family Housing
 Green / Sustainable / LEED Certified Buildings
 Historic Rehab
 New Multi-story Construction
 Senior / Special Needs Housing

Preservation Experience
 Recently completed / currently working on 8
HUD housing preservation transactions
 HUD Section 202, Section 236 and RAD (Rental
Assistance Demonstration) projects
 All large, 125-200 unit projects
 Refinances include FHA 223f and 221d4, LIHTC, restructuring of existing subsidy
 Awarded Senior Preservation Rental Assistance
(SPRAC) – one of twelve awards nationwide
 Closed first RAD transaction in Washington
State

Why Preservation? Why Now?
 Many Section 236 and
Section 202 buildings are 40+ years old with maturing mortgages and expiring subsidy
 Recent HUD policies provide new subsidy options with prepayment, refinance and rehabilitation
 Current FHA mortgage rates are low

Key Preservation Elements
1. Existing project subsidy
2. Potential future subsidy / available funding
3. Current rents and occupancy history
4. Project capital needs
5. Tenant services
6. Tenant income mix
7. Project ownership

1. Existing project subsidy
 Section 202 Direct Loan (pre or post 1974)
 Section 236 loan and Interest Reduction Payments
(IRP)
 Multifamily HAP Contract
 Flexible Subsidy Loan
 Rent Supplement or RAP
 Public Housing
 Local PHA Project Based or Housing Choice
Vouchers

2. Potential future subsidy / funding
 Rent increases / HAP contract renewal
 Tenant protection vouchers (regular, enhanced or converted to project based)
 SPRAC
 Deferral of flexible subsidy loan
 RAD PBRA or PBV
 FHA loans
 Tax Credits (4 or 9%)
 Tax Exempt Bonds
 Other local sources (CDBG, State HTF)

3. Current rents and occupancy history
 At or below market rents?
 Assisted rents compared to unassisted rents?
 Local PHA FMR and payment standards
 Current vacancy rate
 Historic occupancy issues
 Demand for unit types (studios vs. one bedrooms)

4. Project capital needs
 Identify both critical and discretionary needs
 HUD form of capital needs assessment (PCNA,
RAD SOW) may be required
 Encourage clients to complete an owner directed
CNA outside of HUD requirements
 Prioritize

5. Tenant services
 Meal program
 Service coordinator
 Wellness and activity programs (limitations on what can be funded by a HAP contract)
 Assisted living
 Additions or changes to existing services

6. Tenant income mix
 Current snapshot of income mix
 # of rent burdened tenants
 Expected or desired future income mix / demand
 Income qualification for new funding varies
 SPRAC eligibility <80% of MI
 SPRAC funding preference <50% of MI
 Tax credits <60% of MI
 Flexible subsidy deferral <80% of MI
 Preservation vouchers
 PHA voucher eligibility
<95% of MI
<50% of MI

7. Project ownership
 Section 202 and 236 require single asset entities
 Often only housing project associated with the sponsoring organization
 Typically non-profit, volunteer boards
 May not have the skill, experience or desire for a refinance transaction
 Limited financial resources for predevelopment funding

 Located in North
Seattle
 198 studios and onebedroom units
 8 stories
 Built in 1972

1. Northaven existing project subsidy
 Section 236 loan and Interest Reduction Payments
(IRP) – $3MM original mortgage maturing in 2012;
8.5% interest rate written down to 1% with IRP
 Multifamily HAP Contract – 61 units
 Flexible Subsidy Loan - $2.9MM, 1%

2. Northaven potential future subsidy/funding
 HAP Contract rent increases/renewal
 Increase HAP rents to support new debt service
(HAP Renewal Guide Ch. 15, Option 2)
 20 year HAP contract with rents reset to market at Yr. 6, 11 and 16
 Allowable 10% across the board increase prior to refinance
 Deferral of flexible subsidy loan – Requested; payments from surplus cash
 Tenant protection vouchers triggered by prepayment
 All tenants <95% of MI eligible for enhanced vouchers
 Potential to project base enhanced vouchers
 FHA loans – 223f; 35 year amortization

3. Northaven current rents and occupancy history
 Section 236 basic and HAP contract rents 45-60% of market rents
 No vacancy issues
 Occupancy at or above
97% for past three years
 Section 236 “market rents”
– 50-70% of true market rents
 Content with current mix of 70% studios; 30% one bedroom units
 50-80% of Seattle Housing
Authority Voucher Payment
Standards (which are slightly below market)

4. Northaven project capital needs
 $3MM ($15K per unit) in hard cost repairs identified (223f limit $17.6K per unit)
 Additional $450K in hard cost contingency and $300K in soft costs
 Unit cabinetry, roof, call system and standard
GFCI and ADA improvements considered HUD critical and non-critical repairs – approximately $400K
 $2.6MM of discretionary repairs

5. Northaven tenant services
 Meal program
 Requested waiver under FHA program; mandatory program, self sustaining
 Considered an important element to promote tenant well being and independence
 Commercial kitchen upgrades included in refinance
 Service coordinator
 Continuing eligibility
 Funding subject to annual appropriations

6. Northaven tenant income mix
 70% of tenants below 50% of MI
 40% of tenants below 30% of MI
 11 non-HAP tenants rent burdened even at the severely depressed Section 236 rent levels
 Owner declined opportunity to pursue project based vouchers to preserve income mix of tenants (not all low or extremely low)

7. Northaven project ownership
 Founded by Olympic View Community Church of the
Brethren
 Board committed to remain involved with project
 Constructed an adjacent, related 40 unit assisted living project in 1993
 Separate non-profit, Northaven Foundation able to advance predevelopment funds
 Strong administrator and maintenance staff in support of the refinance transaction

 $4.8MM; 35 year loan; all-in rate <4%
 Over $500K funded into replacement reserves
 Deferral of flex sub loan with repayment from surplus cash
 20 year HAP contract for 61 units; rents still well below market; reset to market in Yr. 6
 64 tenants with preservation vouchers
 Non-HAP / non-voucher tenant rents fixed at closing based on flex sub deferral

 No tenant relocation, only displaced during work hours
 Rehab scope included-
 New roof
 Electrical panels
 Emergency call system
 New storefront/entry
 Unit kitchens, heaters and closet doors
 Commercial kitchen upgrades
 Elevator modernization
 Corridor carpets and maintenance building added out of contingency funds

 Located in Wenatchee
 146 studios and onebedroom units
 6 stories
 Built in two phases
 1970
 1981

1. Garden Terrace - existing project subsidy
 Section 202 loan – $3.5MM original mortgages maturing in 2021 & 2023; 3% and 7.6% interest rates
 Two Multifamily HAP Contracts – 16+70 units
 Flexible Subsidy Loan - $154K, 1%

2. Garden Terrace - potential future subsidy/funding
 HAP Contract rent increases/renewal
 Increased HAP rents to support new debt service
(HAP Renewal Guide Ch. 15, Option 2)
 20 year HAP contract with rents reset to market at Yr. 6, 11 and 16
 Allowable 10% increase prior to refinance
 Deferral of flexible subsidy loan – payments from surplus cash
 Tenant protection vouchers triggered by flex sub deferral
 All tenants <80% of MI eligible for enhanced vouchers
 Potential to project base vouchers – HA declined
 EV’s had no impact because no rent increase
 FHA loans – 223f; 35 year amortization

3. Garden Terrace -- current rents and occupancy history
 Section 202 rents (assisted and non-assisted) were
50-70% of market rents
 Current mix of 35% studios; 65% one bedroom units
 Low vacancy history
 Occupancy at or above
90% for past three years
 Some challenge renting unassisted studios

4. Garden Terrace - project capital needs
 $2.4MM repairs identified in
PCNA
 Initial contractor estimate:
$3.8MM
 VE process and scope reduction
 Final contract: $2.3MM (15,700/unit)
 223(f) limit in this region: 17,500/unit
 Limited by loan amount (rate blip prior to close)
 230K contingency + 356K soft costs

4. Garden Terrace - project capital needs (cont’d)
 Safety: fire sprinkler and alarm systems
 New windows
 Low flow toilets and bath faucets (all)
 Kitchen cabinets, counters, sinks (GT)
 PTAC heat/AC units (GT)
 Accessibility changes
 Add backs: GT boiler, corridor changes, entry improvements

5. Garden Terrace - tenant services
 Meal program
 Requested waiver under FHA program; mandatory program, self sustaining
 Considered an important element to promote tenant well being and independence
 No commercial kitchen upgrades included in refinance; planned for future phase
 Service coordinator
 Continuing eligibility
 Funding subject to annual appropriations

6. Garden Terrace - tenant income mix
 Tenant incomes
 65% below 30% AMI
 20% below 50% AMI
 15% below 80% AMI
 Housing Authority declined opportunity to pursue project based vouchers
 HA screened for households eligible for enhanced vouchers; no rent increase post closing, so no households eligible

7. Garden Terrace - project ownership
 Founded by Brethren Baptist Church of Wenatchee
 Board committed to remain involved with project; very engaged in re-fi process
 Motivated by safety concerns; long-term preservation; needed upgrades and improvements
 Important community asset; largest low income senior housing project in the area
 Administrator and staff critical in making the transaction work:
 Tenant communication
 Budgeting and HUD processing
 Tenant relocation

 $5MM; 35 year loan; all-in rate
= 4.57% (4.12% plus .45%
MIP)
 Consolidated loan structure – single budget going forward
 Deferral of flex sub loan with repayment from surplus cash
 20 year HAP contracts for 86 units
 Unassisted rents still well below market

• Internal tenant relocation for GT units; day-work for GTW
 Significant building improvements
 Safety
 Accessibility
 Sustainability
 Comfort
 Replenished the Replacement Reserve
 Resident concern turned to satisfaction and relief
 20 Year reset

 Sorting out potential funding opportunities based on multiple layers of existing subsidy and conflicting programs
 FHA and Asset Management rules are often not in sync
 Resolving all HUD asset management issues ahead of new
FHA loan (chicken before the egg)
 Securing a source of predevelopment funding (est. $75K-
$100K for 223f program; $400K plus for 221d4 program)
 Tenant relocation to accommodate rehab

 Increasing HUD flexibility and new policies to address preservation
 Without preservation, wave of mortgage and subsidy expirations will result in loss of affordable units
 Low interest rates
 <3.75% for 223f
 <5% for 221d4

Sarah Nichols sarahn@beacondevgroup.com
206-914-3023
Brian Lloyd brianl@beacondevgroup.com
206-860-2491 Ext. 210