U.S. Dept. of Agriculture

Rural Development538 Program

Offering Financial Advice and Solutions to Health Care, Senior Living, and Housing Providers.

Brian W. CoateVice PresidentLancaster Pollard & Co.Lancaster Pollard Mortgage Company

Rural Rental Housing Association o f Illinois

Table of Contents

Program Purpose

Program Outreach

Program Features

LIHTC

Qualifying Borrowers & Properties

Roles & Responsibilities

Application Process

Updates

Case Study

Reference Information

GRRHP Flow Chart

3

4

5

6

• Non-profit corps. or partnerships

• Public entities• Indian Tribes• For-profit comps.• Individuals• Trusts

• New construction• Substantial rehab. of at least

$6,500 per unit for acquisition or to create new units.

• Can be used with acquisition and rehab. or a rehab. with no change of ownership.

Qualified Borrowers and Properties

Qualified Borrowers Qualified Properties

Roles and Responsibilities

Government’s• Approval and issuance of

loan guarantee and interest assistance

• Oversight of lender and program

• Process and reimburse losses

Lender’s• Originate, service, close and

monitor loans• Oversight of borrower for

compliance with program regulations

• Liquidation of property for collection

Program Purposes

• To encourage economic development in rural areas • To increase and preserve the supply of affordable

multifamily housing in rural areas

• To ensure the availability of housing for rural residents whose incomes are 115% of area median income or less

Program Purposes, cont.

• Foster risk-sharing partnerships with public and private lenders

• Increase moderately-priced housing in rural America

• Facilitate affordability for low and moderate income rural residents

11

Program Features

• Covers 90% of outstanding principal and interest

• Offered for construction and permanent loans or permanent only loans

• Use with 9% tax credits, 4% tax credits & other gap financing

Program Fees

• Initial guarantee fee equal to 1% of the total loan guarantee due when guarantee is issued

• Annual guarantee fee equal to 0.5% of the total outstanding principal and interest of the loan.

• Lender Fees• Third Party Reports• Other Funding Source Fees

13

LIHTC

• What you get• Sophisticated partner• ~6% Return Equity• Devoted partner for 15 yrs• Ongoing cash flows• Substantial repairs• Replacement reserves• Developer’s fee• Like new asset

• What you give up• Ownership, not control• The property… in default

The Players, Process, and Money Flow

Developer Lender

USDA

Tax C

redi

tsApplication

Equity

Debt

Loan Guarantee

State Allocating Agency

Tax Credits

TC Syndicator

15

Updates

• Loan to cost limit increased to 70% from 50%• New 515 transfer template• 2010 census, what?• Refocus on preserving the portfolio

16

Case Study

• 515 Transfer• Rental Assistance• Rehab Loan on existing property• HUD Section 8 HAP contract

17

18

19

Keys to the Financing

• Mark up to post rehab market rent levels• Rents below market rate• Savings from existing high interest rates

20

Updates:

• kitchen cabinets and countertops• sinks & faucets• range hoods • bathroom fixtures and accessories• remove the bath tub and install shower pan• shower surround with bench• valves and trim• install exhaust fans• lighting throughout apartment (LED)• HVAC systems

21

Updates continued

• New flooring• paint the units• Accessibility modifications to current standards• Common area improvements include

• corridor and stair lighting (LED)• redesign of the public toilets• laundry facility for ADA access, paint walls, paint doors and frames,

• remove and replace the mailbox• Site improvements include redesign of the dumpster pad

and enclosure to provide ADA access.

22

Partridge

Tree

www.lancasterpollard.com

QUESTIONS?Brian W. Coate, Vice PresidentLancaster Pollard65 East State Street, 16th FloorColumbus, OH 43215Phone (614) 224-8800Fax (614) 224-8805