lis 217 stemming the tide - LISC

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chapter fourResearching the Property: Towards a Preservation StrategyThis chapter discusses the kinds of informationthat can be collected about a particular project,how to use it, and where to find it. The followingtypes of information will be addressed:1. Regulatory2. Market3. Ownership4. Financial5. Property Condition6. ResidentsIn most cases, the first two issues—regulatoryand market—will determine what strategies areeven possible, but the status and motivations ofthe existing ownership entity are also important.Project finances, property conditions, andresidents will also influence the preservationstrategy.Research into these six areas should be thefoundation of any preservation strategy.Research will help determine whether or not aproperty is at risk of conversion or restructuringand may suggest what the owner is likely to do.Research can help preservation advocates evaluatepotential purchase opportunities anddevelop a preservation plan. The more anorganization learns about the property, the betterits negotiating strategy or purchase plan willbe. Research also focuses community attentionon the project. Project research can be animportant organizing tool, and effective advocatesknow that knowledge is power.This chapter explains how to research each ofthe six issues. Each section begins with a quickreferencechart that summarizes key elementsof the issue area and their implications fordeveloping a preservation strategy, and eachsection concludes with a list of informationsources and where to find them. 421. REGULATORYThe property’s existing regulatory framework isfundamental to determining both the constraintsand opportunities facing owners andprospective preservation purchasers. Many purchaseefforts have stalled because the partiesfailed to assess what was possible, or precluded,given the property's existing contractualand regulatory obligations.REGULATORY ISSUES AT A GLANCEIssueRental SubsidyContract StatusMortgage StatusLimited DividendResidual ReceiptsBond-Financed ProjectsImplications for Preservation StrategyDetermines eligibility for opt-out, owner/ purchaser opportunity to increaseproject income (or obligation to reduce it). Key timing and compliance issues.Indicates prepayment/ preservation status and eligibility;basis for determining owner compliance.Indicates potential conversion risk (or incentive to Mark-Up-To-Market).Indicates potential conversion risk.Potential additional restrictions.32chapter four: Researching the Property: Towards a Preservation Strategy
Rental Subsidy Contract StatusKnowing the status of a project’s rental subsidycontract will help to determine whether theowner might have a chance to opt-out, whetherthere is an opportunity to increase projectincome, or whether there is an obligation toreduce rents—and when these changes are likelyto occur. These variables will also frame theopportunities available to a preservation purchaser.Understanding the contract can alsoprovide a basis for assessing the owner’s compliancewith applicable requirements.Type/Date. Does the property have one or morerental subsidy contracts and, if so, what type—Section 8 Loan Management Set-Aside, Section8 New Construction/Substantial Rehab, Section8 Mod Rehab, Rental Assistance Program orRent 43 Supplement? Is it an original pre-MAHRAcontract or a post-MAHRA contract renewal (i.e.,executed after October 27, 1997)? The type ofcontract and its execution date will determinethe available renewal and rent increase options.Only projects with post-MAHRA contractrenewals, for example, are eligible for Mark-Upto-Market.Expiration. What is the contract expiration date?If expiration is imminent, the property is morelikely to be at-risk. Conversely, there may begreater opportunities for preservation (forexample, Mark-Up-to-Market) at the point ofcontract expiration.Coverage. What percentage of the units is covered—partialor 100 percent? This will determinethe value of any incentives that involveonly the Section 8 units (for example, Mark-Up-To-Market).Renewal Request. If the contract is expiringsoon, has the owner filed a request to renew oropt out? HUD requires this notice be filed atleast four months prior to the contract expirationdate.Opt-Out Notice. Has as an opt-out notice beensent to the tenants? HUD requires this notice atleast one year prior to date of contract termination.Mark-to-Market Status. If the contract is expiring,is the project in the Mark-to-Marketpipeline? If so, what is its status?Mortgage StatusThe nature of the property's first mortgage mayaffect a wide range of variables including theowner's right to prepay, continuation of userestrictions, eligibility for programs such asMark-to-Market, notice requirements, dividendrestrictions, and Residual Receipts status.These factors will influence the owner's decisionsas well as opportunities for a preservationtransaction.Lender Type. Is the mortgage insured or held byHUD? Financed by a state or local agency? By aprivate lender? This could affect eligibility forcertain types of programs (e.g. only projectswith HUD-insured or HUD-held mortgages areeligible for Mark-to-Market). Also, if the mortgageis, or was once, held by HUD, the ownermay be obligated to maintain the originalaffordability for the full mortgage term.Program. If the mortgage is insured or subsidizedby HUD, what is the applicable program?If it is a Section 221(d)(3) BMIR or 236 project,mortgage prepayment may be a concern.Section 221(d)(4) and Section 220 are commontypes of financing for Section 8 NewConstruction/Substantial Rehab projects.Section 202 projects are nonprofit-owned andtypically have no conversion risk.Prepayment Eligibility. If the mortgage is subsidizedunder Section 221(d)(3) BMIR or 236, is itan expiring use project that is eligible to prepay?Does it have any characteristics that mightprohibit or complicate prepayment?For example, if the original owner/mortgagorwas a nonprofit, or if the project is HUD-insuredwith a Rent Supplement contract, prepayment isprohibited without HUD consent. If the projectreceived Flexible Subsidy assistance, it shouldhave a 40-year use agreement and may alsohave a prepayment restriction.If the project is eligible to prepay, when is theprepayment eligibility date? For eligible HUDchapterfour: Researching the Property: Towards a Preservation Strategy33
Page 1 and 2: LOCAL INITIATIVES SUPPORT CORPORATI
Page 3 and 4: STEMMING THE TIDEA Handbook on Pres
Page 5 and 6: CONTENTSIntroductioniChapter One 1S
Page 7 and 8: chapter oneSubsidized Housing Prese
Page 9 and 10: payments where the project would co
Page 11 and 12: The reaction to HUD's proposal was
Page 13 and 14: In addition, there are special rule
Page 15 and 16: Over the past few years, new federa
Page 17: tions. However, the nonprofit purch
Page 20 and 21: may construe the IRP as an "old and
Page 22 and 23: owner converts to non-rental use or
Page 24 and 25: 6. MARK-TO-MARKET INCENTIVESHUD/OMH
Page 26 and 27: PROFORMA 4: NONPROFIT PURCHASE WITH
Page 28 and 29: chapter threeState and Local Preser
Page 30 and 31: after refusing to accept the housin
Page 32 and 33: Owner Assessments. Assessment of th
Page 34 and 35: StrategiesAdvocates brought the own
Page 36 and 37: 3. STATE AND LOCAL FUNDING INITIATI
Page 40 and 41: insured projects, this date is 20 y
Page 42 and 43: 2. MARKETUltimately, the conversion
Page 44 and 45: 3. OWNERSHIPThe owner of a HUD-assi
Page 46 and 47: Phantom Income. If the property is
Page 48 and 49: 4. FINANCIALProject finances will a
Page 50 and 51: FINANCIAL INFORMATION SOURCESProjec
Page 52 and 53: Most HUD-subsidized properties have
Page 54 and 55: Social IssuesWhat is the nature and
Page 57 and 58: EXHIBIT 3OPT OUT SUMMARYSTATETexasO
Page 59 and 60: EXHIBIT 4OMHAR PAE and Assigned Pro
Page 61 and 62: Total Units Assisted Units Program
Page 63 and 64: EXHIBIT 8OPT OUT STATISTICS BY STAT
Page 65 and 66: Owner Phone Agent Name Agent Addres
Page 67 and 68: Amortized Principal Interest Rate H
Page 69 and 70: Intermediary TechnicalAssistance Gr
Page 71 and 72: Tenant-Based Section 8. Rentalassis
Page 73 and 74: 16 For background on the IRP subsid
Page 75 and 76: iographiesEmily P. Achtenberg is a

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