Portfolio Strengthening

Indiana State Housing Conference

09/19/12

Introductions

• Larry Gautsche – President (July 2001)

• Alan Greaser – Director Asset & Property Management (April 2008), VP Real Estate (February 2012)

• Jim Davis – VP Finance (March 2007)

Who Is LaCasa, Inc.?• Located in Elkhart County, Indiana• 41-year history, 31 staff• Primary lines of business:

– Homeownership Center – IDA’s, pre/post purchase, foreclosure, HECM, lending, financial fitness training

– Community Building & Organizing – neighborhood development, quality of life planning, leadership development

– Resident Services – Immigration, VAWA, Deferred Action– Real Estate Development – Acq/Rehab, OOR, Permanent

Supportive Housing, NSP, Tax Credit projects– Property & Asset Management – 267 units under management– Development – fundraising, volunteer management, brand

management

Pre-Portfolio Strengthening - The Properties as of 1/1/07

Scattered Site Family Homes

• 33 units of single family/duplex homes, owned 15+ years

Arbor Ridge Apartments• 72 units of new construction on one site incl. one

commercial space, 1999-2000

Pre-Portfolio Strengthening - The Properties 2007-2008

The Game Changers

• Lincoln Ave. – critical rehabs to maintain two historic buildings and improve near-downtown neighborhood

• Roosevelt Center, Water Tower Place, State & Main – rescue existing or in-flight projects from a failed CDC in the County’s major city

• Build critical mass in second community

Lincoln Ave. Redevelopment• 28 unit historic rehab of hotel and commercial

building including one commercial space, May/December 2007

Roosevelt Center

• Roosevelt Center – 35 units historic rehab of elementary school including commercial condo, December 2008

Water Tower Place Apartments• 52 units of new construction senior housing in

one building, May 2008

Elkhart Properties• Acquisition of 20 units in two buildings including

one commercial space, December 2008

Before And After

• January 2007 – 105 units with one Tax Credit property and 33 scattered site units primarily in one community

• January 2009 – 240 units with four Tax Credit properties, two multi-family properties and 33 scattered site units in two communities

Pre-Portfolio Strengthening - The Environment

2009 Market Analysis - Occupancy

LaCasa, Inc. Occupancy Graph

2009 Economic Analysis

• Elkhart County has been one of the most recession-impacted counties in the U.S. The year-over-year increase in the County unemployment rate was among the three highest in the country. The absolute unemployment rate peaked at nearly 20% and remains at nearly 17%. In addition, the area has experienced a very high rate of foreclosure. This has created a combination of job losses as well as an increase in the availability of single-family homes for rent. A majority of the job losses were due to business closure, so recovery will be slow as is depends on the creation of new businesses, not just rehiring. Accordingly, the local recovery is expected to take several years as opposed to a more traditional 12-18 month recovery.

Organizational Focus• Primarily focused on day-to-day operations • Struggling with recent portfolio growth• Did not have a strategic approach to Asset

Management• Did not have good performance tracking tools• Could identify several problems but had no

formal approach to prioritize and address them• Many staff involved in various elements but no

real “team” approach

Portfolio Strengthening Clinic

Portfolio Strengthening Clinic• Team approach – CEO, Director Asset/Property

Management, CFO, Board member (ex-NEF employee)• Required a rigorous examination of each property and

the portfolio as a whole (pre-work is critical)• Developed quadrant analysis of mission vs. profit by

property – brutally honest assessments• Identified and prioritized improvement opportunities• Agreed on roles and responsibilities• Set timeline for action steps• Developed framework for NWA grant application

Portfolio Quadrant Analysis

1 32

4

5 6

t u

Low Mission

High Missionp

p

High Profitability

Low

Pro

fitab

ility

1

2

3

4

5

6

Mission - save senior housing projectCash flow - acceptable but accumulated $95k in intercompany payablesIssues - need strategy to pay intercompany balance from poor start-up cash flow

Issues - missing DSCR ratio & reduced cash flow due to high vacancy rates

Lincoln Avenue Redevelopment - 2007

Elkhart Properties - 2008

Scattered Site RentalsMission - meet need for affordable housing & neighborhood improvementCash flow - acceptably positiveIssues - plan to sell properties as grant restrictions expire and the market will allow

Sponsor investment - accumulated $36k in inter-company payablesMission - set the standard for affordable housing in Goshen, IN

Issues - high operating costs compared to pro-formaSponsor investment - accumulated $40k in inter-company payablesMission - neighborhood stabilization

Roosevelt Center - 2008

Water Tower Place Apartments - 2008

Issues - looking to refinance mortgage to pay Lacasa for $90k construction advanceSponsor investment - $90k project cost overruns but good operating cash flowMission - downtown redevelopment & city center affordable housing

Mission - city redevelopment & save affordable housingCash flow - good operating cash flow after lease-upIssues - need commercial tenant to make cash flow work

Arbor Ridge Apartments - 1999

Targeted Improvement Goals• Arbor Ridge/ Roosevelt Center

– Establish consistent property valuation methodology and permanently reduce tax burden

– Reposition hard debt to sustainable levels at favorable long-term rates

– Provide cost structure that can be supported by rent structure below LIHTC levels if needed to be competitive

– Assure cash availability to fund mgt fees and other inter-company payables

– Develop portfolio-wide approach to managing core operational costs: cleaning, maintenance, etc.

• Organizational Impact

– Complete banking strategy to partner with locally/regionally managed financial institutions

– Improve consistency and total $ value of payments from properties

– Assure asset and property mgt is a sustainable/profitable line of business

– Develop a defined approach to portfolio management and screening of new opportunities

Portfolio Strengthening - The Outcomes

Arbor Ridge Action Steps• Declining occupancy – completed rent analysis, set “special

rents” until achieve 95% occupancy, developed tenant incentives, created “Rent Assist” fund

• High insurance costs – moved risk management program to legitimate commercial insurer

• High property tax burden – appealed assessment methodology

• High operating costs – identified “targeted” per unit operating cost and improvement opportunities

• High debt burden – negotiated principal concession in exchange for complete refinancing, identified lower cost debt options, obtained grants for additional principal reduction

Arbor Ridge Results

Occupancy Change Operating costs ChangeOccupancy rate at 12/31/08 80% Per unit operating expenses in 2008 5,558$ Occupancy rate for 2009 86%

Per unit operating expenses in 2011 4,386$ -21.1%Occupancy rate for 2011 91% 13.8%Occupancy rate YTD 7/31/12 93.3% 16.6%

Net Operating IncomeNet operating income in 2008 40,659$

DebtMortgage balance at 12/31/08 957,991$ Net operating income in 2011 143,428$ 102,769$ Interest rate at 12/31/08 7%Annual debt service in 2008 87,816$ DSC ratio for 2008 .41:1 Net Cash Flow (after debt service and replacement reserve funding)

Net cash flow in 2008 (58,049)$ Mortgage balance at 12/31/11 693,996$ (263,995)$ Interest rate at 12/31/11 3.78% -46% Net cash flow in 2011 24,512$ 82,561$ Annual debt service in 2011 63,912$ (23,904)$ Note: Funded three years worth of replacement reserves in 2011DSC ratio for 2011 2.12:1 517%

Roosevelt Center Action Steps• Declining occupancy – completed rent analysis,

“special rents” until achieve 95% occupancy

• High property tax burden – appealed assessment methodology

• High utility costs – replaced all common lighting with LED’s/occupancy sensors, installed limited solar array

• High operating costs – identified “targeted” per unit operating cost and improvement opportunities

• High debt burden – reduce principal and refinance at lower interest rate

Roosevelt Center ResultsOccupancy ChangeOccupancy rate for 2009 (lease up year) 77%

Occupancy rate for 2011 82% 6.5%Occupancy rate YTD 7/31/12 91% 18.2%

DebtMortgage balance at 12/31/09 379,817$ Interest rate at 12/31/09 6.29%Annual debt service in 2009 35,448$

Mortgage balance at 12/31/11 146,942$ (233,325)$ Interest rate at 12/31/11 5.46% -13.3%Annual debt service in 2011 14,544$ (20,904)$

Utility CostsUtility costs in 2009 56,476$

Utility costs in 2011 50,023$ -11.4%

Utility costs YTD 6/30/12 23,644$ -16.30%

Improved Performance Tracking• Weekly

– Cash flow– Occupancy rates

• Monthly– Vacancy/concessions analysis– Operating cost per unit tracking– Net operating income– Debt coverage ratio

• Quarterly– Collections/bad debt analysis– NeighborWorks Multi-Family Initiative reporting

Cash Status By Project

WaterArbor Lincoln Roosevelt TowerRidge Ave. Center Place

Cash balance (net of remaining monthly mortgage)

Tenant receivables (net of allowance for bad debts)

8/31/2012

Accounts payable - vendors

Intercompany payable to LaCasa (Account # 2025) Change from 8/31/2012 Change from year end

Security deposits - payable (Account # 2120)Security Deposits - cash (Account # 1050)

(Over) underfunded security deposits 0.00 0.00 0.00 0.00

Replacement reserve requirement as of 12/31/12Replacement Reserve balance (Account # 1120)

(Over) underfunded replacement reserve 0.00 0.00 0.00 0.00

Operating reserve balance (Account # 1110)

Tax Reserve Account (#1060)

LaCasa, Inc.Tax Credit Subsidiary Financial Summary

September 14, 2012

Occupancy Tracking| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

70.0 0 70 70 70

73.0 0 73 73 7395.9% 0% 96% 96% 96%

2012 Y.T.D. 93.6%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

26.7 0 26 27 27

29.0 0 29 29 2992.0% 0% 90% 93% 93%

2012 Y.T.D. 97.6%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

30.0 0 30 29 31

35.0 0 35 35 3585.7% 0% 86% 83% 89%

2012 Y.T.D. 90.4%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

51.0 0 51 51 51

52.0 0 52 52 5298.1% 0% 98% 98% 98%

2012 Y.T.D. 98.4%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

177.7 0 177 177 179

189.0 0 189 189 18994.0% 0% 94% 94% 95%

2012 Y.T.D. 94.9%Combined Occupancy

Total Occupied Units

Total Units

Total Units Combined Occupancy

Total Tax Credit Properties

Water Tower PlaceTotal Occupied Units

Total Units Combined Occupancy

Combined Occupancy

Roosevelt CenterTotal Occupied Units

Arbor Ridge ApartmentsTotal Occupied Units

Total Occupied Units

Total Units

Total Units Combined Occupancy

Lincoln Avenue

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

30.3 0 30 30 31

34.0 0 34 34 3489.2% 0% 88% 88% 91%

2012 Y.T.D. 88.6%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

15.0 0 15 15 15

15.0 0 15 15 15100.0% 0% 100% 100% 100%

2012 Y.T.D. 95.4%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

22.0 0 22 22 22

29.0 0 29 29 2975.9% 0% 76% 76% 76%

2012 Y.T.D. 86.9%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

67.3 0 67 67 68

78.0 0 78 78 7886.3% 0% 86% 86% 87%

2012 Y.T.D. 89.2%

| 39 38 37 36

Sep 2012 Sep 24 Sep 17 Sep 10 Sep 3

245.0 0 244 244 247

267.0 0 267 267 26791.8% 0% 91% 91% 93%

2012 Y.T.D. 93.3%

Total Occupied Units

Total Units Combined Occupancy

Total LaCasa, Inc. PropertiesTotal Occupied Units

Total Units Combined Occupancy

Scattered Site RentalsTotal Occupied Units

Total Units Combined Occupancy

Lincoln West Apartments

Total PortfolioTotal Occupied Units

Total Units Combined Occupancy

Total Units Combined Occupancy

Elkhart PropertiesTotal Occupied Units

Operating Costs Per Unit

MFI Performance Tracking - Vacancy

Improved Organizational Visibility

• Board Asset Management Committee– Project oversight – from ideation to completion– Portfolio operating performance review

• Board Finance Committee– More purposeful cash flow focus– Targeted financial performance metrics– Organizational debt management

• Extensive graphing of performance metrics for staff, Management and the Board

Summary• The NWA Portfolio Strengthening Clinic

was a very valuable process – a “watershed event” for LaCasa, Inc.

• The subsequent funding NWA and others provided helped to take our targeted improvements from ideas to reality

• The MFI process is a valuable discipline and continuous improvement tool

Questions??

202 N. Cottage Ave.

Goshen, IN 46528

www.lacasainc.net