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Home My WebLink AboutF.1 Community Housing Fund Request - HRDC Preservation of Boulevards Apartments and Darlinton Manor August 28, 2020 Ms. Tanya Andreasen Community Housing Program Manager City of Bozeman 20 E Olive Street Bozeman, MT 59715 Dear Ms. Andreasen: HRDC and Good Housing Partnership seek City support to assist with the preservation and rehabilitation 141 subsidized rentals in the Boulevards Apartments and Darlinton Manor. Preservation of subsidized rentals is a critical strategy to meeting the objectives of the City’s Community Housing Action Plan. The Boulevards Apartments a 41-unit subsidized building is in the heart of downtown, just across the street from HRDC’s Bozeman offices. The building serves very low-income people with disabilities and elderly members of our community. The proximity to HRDC housing counselors, service navigators and other supportive services, along with a subsidy that ensures that tenants only pay 30% of their income toward rent, has helped many tenants exit long-time homelessness and achieve housing stability. Unfortunately, this prime downtown location, and the nature of the annually-renewing mod-rehab subsidy placed the building at high redevelopment risk. In August 2019, HRDC worked with the property owner to acquire the building using a temporary financing structure, with the long- term intent to apply for Low Income Housing Tax Credits (LIHTC) to acquire and rehabilitate the apartments. HRDC is also working with HUD’s Rental Assistance Demonstration (RAD) program to convert the annually-renewing mod-rehab contract to a 20-year Housing Assistance Payment Contract. To assist with the RAD conversion and LIHTC process, HRDC is partnering with a national expert in RAD conversions, Good Housing Partnership (GHP). The RAD conversion will both preserve the subsidy for the units, while extending the contract period beyond the current annual period, making market conversion difficult. The LIHTC will also allow for a substantial renovation of the building. Built in 1914, the apartments need extensive systems and accessibility upgrades, in addition to full renovation of the units. Darlinton Manor is a 100-unit subsidized property targeted to low-income seniors and people with disabilities. HRDC’s subsidiary corporation, Darlinton Apartments, Inc. acquired this property in July 2020. This property currently has a HUD Housing Assistance Payment contract, which guarantees that residents only pay 30% of their income toward rent, on 88 of the 100 units. HRDC plans to add place- based Section 8 Housing Vouchers to the remaining units to expand subsidy to all 100 units. While the scope of work needed at Darlinton Manor is not as extensive as the Boulevards, the units are in need of renovation and ADA upgrades. Combining the LIHTC application for acquisition and rehabilitation of the Boulevards and Darlinton allows for the scale required to apply through the non-competitive 4% LIHTC program. Under the non-competitive program, all applications meeting threshold requirements are funded. This results in a more rapid tax credit commitment, and allows HRDC to forgo the risks of the competitive funding process. While the LIHTC 4% application process is non-competitive, the constraints of the program limit the percentage of seller note and deferred developer fee allowed. Additionally, the rehabilitation proposes $1 million in funding from the Housing Trust Fund, which is a competitive funding process. One critical component of HTF application ranking is local financial participation. As such, the loss of funds from the City would adversely impact both the LIHTC and HTF applications and the feasibility of the project in general, possibly risking loss of subsidized units in our community. The Community Housing Needs Assessment notes that the community is already in desperate need of additional housing units for people at all income levels. An estimated 1,460 units are needed just to meet current demand; to meet the needs of Gallatin County’s growth rate, over 3,000 below- market rate units are needed. As this community continues to grow, the preservation of affordable housing like the Boulevards and Darlinton Manor is critical. At this time, only 5% of the City’s rentals are affordable to households earning less than 60% AMI, however 45% of renters fall below this income level, and only 1% of units are affordable to very low income households earning less than 30% AMI. Our community is already in an extreme housing crisis; the loss of these units would be staggering, and the subsidy irreplaceable. Preserving these homes is the most cost-effective strategy for ensuring that our most vulnerable community members are able to maintain housing affordability. We sincerely hope that the City of Bozeman will agree to assist with this effort. Sincerely, Tracy Menuez Associate Director Online Community Housing Fund Application 1. Organization Seeking Funding Organization Name Human Resource Development Council of District IX, Inc. Address 32 South Tracy Contact Name Not answered Contact Phone Number (406) 585-4890 Contact Email Address tmenuez@thehrdc.org 2. Project Information Project Name Boulevards/Darlinton Preservation Location of Project 6 W. Babcock and 606 N. 5th Project Description The proposed project will rehabilitate and preserve 141 subsidized rental units in Bozeman. The two properties, The Boulevards Apartments, and Darlinton Manor are described in detail below. The Boulevards Apartments provide 41 units of subsidized housing in the heart of downtown, just across the street from HRDC’s Bozeman offices. The building serves very low-income people with disabilities and elderly members of our community. The proximity to HRDC housing counselors, service navigators and other supportive services, along with a subsidy that ensures that tenants only pay 30% of their income toward rent, has helped many tenants exit long-time homelessness and achieve housing stability. Unfortunately, this prime downtown location and the nature of the annually-renewing mod-rehab subsidy placed the building at high redevelopment risk. In August 2019, HRDC worked with the property owner to acquire the building using a temporary financing structure, with the long- term intent to apply for Low Income Housing Tax Credits to acquire and rehabilitate the apartments. Additionally, HRDC is working with HUD’s Rental Assistance Demonstration (RAD) program to convert the annually-renewing mod-rehab contract to a 20-year Housing Assistance Payment Contract. The RAD conversion will both preserve the subsidy for the units, while extending the contract period beyond the current annual period, making market conversion difficult. The building, constructed in 1914, is in desperate need of rehabilitation. Like many older buildings, it needs improvements to systems, accessibility upgrades, and full renovation. Darlinton Manor is a 100-unit subsidized property targeted to low-income seniors and people with disabilities. HRDC’s subsidiary corporation, Darlinton Apartments, Inc. acquired this property in July 2020 through a right of first refusal. This property currently has a HUD Housing Assistance Payment contract, which guarantees that residents only pay 30% of their income toward rent, on 88 of the 100 units. HRDC plans to add place-based Section 8 Housing Vouchers to the remaining units to expand subsidy to all 100 units. While the scope of work needed at Darlinton Manor is not as extensive as the Boulevards, the units are in need of renovation and ADA compliance upgrades. Combining the LIHTC application for acquisition and rehabilitation of the Boulevards and Darlinton allows for the scale required to apply through the non-competitive 4% LIHTC program. Under the non-competitive program, all applications meeting threshold requirements are funded. This results in a more rapid tax credit commitment, and allows HRDC to forgo the risks of the competitive funding process. In total, the properties have a combined acquisition cost of $12.5 million with rehabilitation demands of approximately $7.5 million. The Affordable Housing needs assessment notes that the community is already in desperate need of additional housing units for people at all income levels. An estimated 1,460 units are needed just to meet current demand; to meet the needs of Gallatin County’s growth rate, over 3,000 below-market-rate units are needed. As this community continues to grow, the preservation of subsidized housing is critical. At this time, only 5% of the City’s rentals are affordable to households earning less than 60% AMI, however, 45% of renters fall below this income level. Only 1% of units are affordable to very low-income households earning less than 30% AMI. Our community is already in an extreme housing crisis; the loss of these units would be staggering, and the subsidy irreplaceable. Project Timing 2021-2022 Which Community Housing Action Plan Strategy/Action Item Does This Project Address? Preservation of Subsidized Rentals # of Affordable Dwelling Units to be Generated/Renovated 141 Area Median Income % Targeted less than 60% AMI Project Partners (if applicable) Good Housing Partnership 3. Indicate how this project ensures permanent or long term affordability [×] Deed Restriction Please Explain Both properties will be subject to renewed HUD Housing Assistance Payment (HAP) contracts, with a 20- year term, and a 41-year Land Use Restriction Agreement (LURA) for the Low Income Housing Tax Credit Program. The LURA is filed as a deed restriction on the property. Page 2 4. Project Funding (Please attach budget at the end of the application) Total Project Budget $29,525,127 5. Primary Project Funding Sources 1. Permanent Debt $ Amount $16,277,508 2. Tax Credit Equity $ Amount 7,380,932 3. Seller Note/other sources (please see budget) $ Amount 5,866,687 Amount Requested From Community Housing Fund $500,000.00 6. Which Project Elements Will Funds Be Used For? (attach line item budget if needed) 1. Rehabilitation $ Amount $500,000.00 2. Not answered $ Amount Not answered 3. Not answered $ Amount Not answered 7. Type of Funding Requested (○) Grant 8. If you selected Grant, would you consider a Loan if Grant was not available? (○) Yes 9. Would you accept 50% of your requested amount? (○) Yes 10. Would you accept 25% of your requested amount? (○) Yes 11. Could the Grant / Loan be split among multiple years? (○) Yes 12. When would the funds requested need to be received in order to optimize the benefit of the funds requested for the project? 06/30/2021 13. Have you received community housing funding assistance in the past 5 years? (○) Yes Page 3 14. Additional Information What is the level of urgency behind the funding request? High level If Community Housing Funds are not allocated to this project, how does impact the project? While the LIHTC 4% application process is non-competitive, the constraints of the program limit the percentage of seller note and deferred developer fee allowed. Additionally, the rehabilitation proposes $1 million in funding from the Housing Trust Fund, which is a competitive funding process. One critical component of HTF application ranking is local financial participation. As such, the loss of funds from the City would adversely impact both the LIHTC and HTF applications and the feasibility of the project in general, possibly risking loss of subsidized units in our community. Milestone Date Acquire Interest in Darlinton Jul-20 Submit Tax Credit and Bond Applications Darlinton and Blvd Aug-20 HTF, City Funds, Risk Share Loan Submit Application for HTF Sep-20 Submit Application for City Funds Aug-20 Request to MBOH for Risk Share Loans Sep-20 Order Third Party Reports Appraisals Environmental Phase 1/Radon Lead/Asbestos Rent Comparability Studies Market Studies Survey Design and Engineering Architectural Drawings Engineering Scope Finalization Aug-20 Plan Check Submission Sep-20 Permit Nov-20 Contractor Select Contractor Sep-20 Finalize Scope Oct-20 Review subcontractor Bids Sep-20 Finalize Schedule of Values Oct-20 Finalize Construction Contract Oct-20 Finance and Legal Select Investor and Lender Aug-20 Due Diligence Process Aug-Oct 2020 Underwriting Aug-Oct 2020 Partnership Oct-20 Loan Documents Oct-20 Bond Documents Oct-20 HUD Documents Oct-20 HTF Documents Risk Share Loan Documents HUD Process Submit Applications for MUTM Aug-20 Submit Application for Mod/Rehab Aug-20 Complete HUD Legal Review Sep-20 Receive HUD Approval Oct-20 Close on the Financing Nov-Dec-20 Issue Notice to Proceed Dec-20 Construction Mobilization Dec-20 Begin Unit Renovations/Relocation Jan-21 Construction Completion Mar-22 Temporary Certificate of Occupancy Jan-22 Certificate of Occupancy Mar-22 Stabilization - 90/90 Test Jul-22 Process 8609 Final Cost Cert May-22 Submit PIS Application to MBOH May-22 Receive 8609 Aug-22 Blvd/Darlinton Schedule Uses Acquisition 12,500,000 Rehabilitation 7,484,750 Furnishings 245,217 Contingency 741,000 Relocation 775,500 Architect and Engineering 381,000 Construction Financing Fees and Interest 2,186,511 Permanent Financing Costs 318,177 Legal 130,000 Reserves 760,776 LIHTC Syndication Costs 462,679 Permitting 61,304 Developer Fee 3,478,213 TOTAL USES 29,525,127 Construction Sources Construction Loan 21,000,000 LIHTC Equity 1,845,233 Developer Note 2,568,948 Housing Trust Fund 1,000,000 City of Bozeman 500,000 Deferred Developer Fee 2,610,946 TOTAL CONSTRUCTION SOURCES 29,525,127 Permanent Sources Permanent Loan 16,277,508 LIHTC Equity 7,380,932 Developer Note 2,568,948 Housing Trust Fund 1,000,000 City of Bozeman 500,000 Rehab NOI 571,852 Deferred Developer Fee 1,225,887 TOTAL PERMANENT SOURCES 29,525,127 Boulevards/Darlinton Budget