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TRANSCRIPT
The Big Four
HOME Investment Partnerships Program
HOME ProgramHOME regulations are located in:Title 24 – Housing & Urban Development of the
Code of Federal RegulationsPart 92 – HOME Investment Partnerships
Program
The Big Is…….2
24 CFR §92.250 (b)(2)1. An assessment, at minimum, of the current
market demand in the neighborhood in which the project will be located
2. The experience of the developer
3. The financial capacity of the developer
4. Firm written financial commitments for the project
AND…..
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24 CFR §92.250 (b)(2)
Let’s break it down.
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24 CFR §92.250 (b)(2)
An assessment, at minimum, of the
current market demand in the neighborhood in which the project will
be located . . .
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How can the market demand be proven?
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Submit a market assessment documenting the demand foradditional affordable rental housing in the location proposed, the
supply of affordable rental housing, and other pertinent informationsuch as the location of employment opportunities and schools. If
your organization maintains a waiting list of individuals interested inleasing a unit from your organization, indicate how many families are on the waiting list. Explain the marketing plan and indicate who will
be responsible for marketing and leasing the units.
For projects requesting HOME funds with 1 to 4 units:
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Suggested sites to aid in the determination of market demand:
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FFIEC (Federal Financial Institutions Examination Council)
Provides Census Tract information
https://geomap.ffiec.gov/FFIECGeocMap/GeocodeMap1.aspx
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USA Location Information
Provides state, county, city statistical information
http://www.usa.com/west-virginia-state.htm
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West Virginia Statewide Housing Needs Assessment
Provides State statistical informationhttp://www.wvhdf.com/Housing-Needs-Study
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The burden of proof is on the developer.
Do not copy and paste statistical information to prove the market demand.Assimilate the statistical information in a logical format to prove the project will achieve full occupancy in a timely manner.
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How can the market demand be proven?
For projects requesting HOME funds with 5 or more units:
Submit a professionally prepared, Project specific market analysis.
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Why prove market demand?§92.252. . . If the housing is not occupied by eligible tenants
within six months following the date of project completion, HUD will require the participating jurisdiction to submit marketing information and, if appropriate, submit a marketing plan. HUD will require the participating jurisdiction to repay HOME funds invested in any housing unit that has not been rented to eligible tenants 18 months after the date of project completion.
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24 CFR §92.250 (b)(2)
. . . the experience of the developer
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92.300(a)(3) . . . To be the “developer,” the CHDO must be in sole charge of all aspects of the development process, including obtaining zoning, securing non-HOME financing, selecting architects, engineers and general contractors, overseeing the progress of the work and determining the reasonableness of costs. At a minimum, the CHDO must own the housing during development and for a period at least equal to the period of affordability in §92.252.
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92.252 Rental Housing Activity
Rehabilitation or acquisition of existing Housing per unit amount of HOME funds:
AFFORDABILITY PERIODS
Under $15,0005 years
$15,000 to $40,00010 years
Over $40,000 or rehabilitation involving Refinancing15 years
New construction or acquisition of newly Constructed housing20 years
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Does the Developer have the bandwidth to see the project from application to completion and through the affordability period?
Does the Developer have paid employees with housing development experience who work on projects assisted with HOME funds?
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Assessment of Developer Experience
• Performance of previous projects
• Timeliness of submissions
• Accuracy of submissions
• Includes review of CHDO Operating Expense Grant performance
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• Tenure and experience of development staff
• Time organization has been established
• Time Executive Director has been with the organization
• Time Executive Director has served in current position
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• Number of programs organization operates
• Successfully completed projects?
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Why confirm developer experience?92.205(e)(2)If a participating jurisdiction does not complete
a project within 4 years of the date of commitment of funds, the project is considered to be terminated and the participating jurisdiction must repay all funds invested in the project to the participating jurisdiction's HOME Investment Trust Fund in accordance with §92.503(b).
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24 CFR §92.250 (b)(2)
. . . the financial capacity of the developer
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General considerations forfinancial capacity include
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Budgeting: Theorganization should
conduct annualbudgeting of its
operations, all activities,and programs. It should
track report budgetversus actual income and
expenses.28
Reporting: Financial reporting should be regular, current and sufficient for the board to forecast and monitor the financial status of the organization.
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Cash Flow Management: The organization should know its current cash position and maintain controls over expenditures.
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Internal Controls: The organization should have adequate internal controls to ensure separation of duties and safeguarding of its assets. There should be sufficient oversight of all financial activities.
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Procurement/Conflict of Interest: The organization should have a conflict of interest policy governing board members, employees, and development activities, particularly in the procurement of contract services and the award of housing units for occupancy.
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Insurance: The organization should maintain adequate insurance, including liability, fidelity, bond, workers’ compensation, property hazard, and project.
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Financial Stability: The current balance sheet and budget should indicate a sufficient, diversified, and stable funding base to support essential operations.
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Portfolio Financial Condition: If the organization has a portfolio of properties, they should be in stable physical and financial condition.
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Strategic Plan: The developer needs to provide the 3-5 year strategic plan.
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Will the proposed project add to the financial stability of the Developer?
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Liquidity: Consideration is given to:• Are there liquid assets available to cover
current expenses?• Are funds available for predevelopment
expenses?
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Audited Financial Statement Review
The Fund will evaluate financial capacity by reviewing the three most recent annual audited financial statements, which must include 2 CFR 200, if required.
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An ongoing concern or qualified opinion will automatically disqualify an organization from further consideration for funding until the financial situation is corrected and the organization obtains an unqualified opinion.
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Consideration will be given to the number and/or severity of findings. Significant weaknesses in internal controls relating to federal funds management that remain uncorrected will disqualify an organization from further consideration until all findings have been corrected.
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Trends in financial statements will be reviewed, and a request may be made to explain any fluctuations.
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Review of Debt Service Coverage RatioMinimum DSCR of 1.20 = Fiscal SoundnessDSCR < 1.20 = Can a reasonable explanation be
provided?
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Financial Ratios will be calculated to provide insight of the Developer’s Financial Capacity.
Do the ratios indicate a healthy capacity?How are the ratios trending?
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Financial Ratios
Current Ratio Return on SalesDays Cash on Hand Return on AssetsDebt to Equity Ratio Return on EquityAcid Ratio
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Financial Capacity of DeveloperCurrent Ratio
Current Assets / Current Liabilities
Ratio indicates amount of current assets for every $1 of current liabilities.
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Financial Capacity of DeveloperDays Cash on HandCash & Short-term Investments / Daily Cash
Required[DCR: (Total Expenses less depreciation, non-
cash expenses, and pass-through expenses) / 365]
Ratio indicates number of days that expenses can be paid out of current cash.
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Financial Capacity of DeveloperDebt to Equity Ratio
Total Liabilities / Total Unrestricted Net Assets
Ratio indicates amount of liabilities compared to unrestricted net assets.
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Financial Capacity of DeveloperAcid Ratio
Cash + A/R + Short-Term Investments / Current Liabilities
Ratio indicates amount of liquid assets (not inventory) compared to current liabilities.
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Financial Capacity of DeveloperReturn on Sales (aka Operating Profit Margin)
Net Income (add back interest expense & non-cash items) / Total Revenue
Ratio indicates percentage of profit that is being produced from total revenue.
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Financial Capacity of DeveloperReturn on Assets
Net Income (add back interest expense & non-cash items) / Total Assets
Ratio indicates amount of annual income compared to total company assets.
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Financial Capacity of DeveloperReturn on Equity
Net Income (add back interest expense & non-cash items) / Total Equity
Ratio indicates amount of annual income compared to total company equity.
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Financial Capacity of DeveloperMitigating Factors
There can be mitigating factors for a less than ideal financial statement.
The Developer has the burden of proof to provide mitigating factors and reasonable explanations.
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Financial Capacity of DeveloperWhy confirm Financial Capacity of Developer?Limited cash flow can be an indicator of limited
ability to successfully complete project.
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24 CFR §92.250 (b)(2)
. . . and firm written financial commitments for the project.
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There must be firm financial commitments – written – from all project funding sources prior to the commitment of HOME funds.
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AnticipatePlanIntendGoing toSubject toOr any word other than
NOTFirm financial commitments
FIRM57
Firm financial commitments must be:• Fully executed • Dated
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Upon confirmation of Firm financial commitments, project underwriting will commence.
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Sources = Uses?Project Costing: Reasonable and necessary?Accurate Rent Restrictions?Accurate Utility Allowances?Net Tenant Paid Rent properly calculated?
Project underwriting involves:
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Project Annual Expenses: Reasonable and necessary?
Replacement Reserves: Adequate?Any debt service? Properly calculated?
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Pro forma will be completed for the HOME Affordability Period.
Does the project cash flow?On paper: Is the project viable?
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§92.210 Troubled HOME-assisted rental housing projects.
(a) The provisions of this section apply only to an existing HOME- assisted rental project that, within the HOME period of affordability, is no longer financially viable.
Why confirm Firm Financial Commitments?
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24 CFR §92.250 (b)(2)
An assessment, at minimum, of the current market demand in the neighborhood in which the project will be located, the experience of the developer, the financial capacity of the
developer, and firm written financial commitments for the project.
Reminder of the Big Four:
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24 CFR §92.250 (b)(2)The Big Four IS NOT a Fund
mandate.The Big Four IS NOT a HOME
Department directive.The Big Four IS NOT a
management rule.The Big Four IS a HUD
regulation.
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The Big FourComments?
Questions?
Discussion?
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The Big FourCathy ColbyManaging Director of the HOME Program
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