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1.HPI Beyond 9thInitiativeAcquisition and Rehabilitation of 201 Vacant and AbandonedSingle Family HomesNeighborhood Redevelopment at ScaleData DrivenStrategic Resource Alignment: Acquisition/DevelopmentLease Purchase/Credit Reporting/Credit CounselingAndrew HawesPresident/CEOThe Housing Partnership, Inc.1512 Crums Lane, Suite 401Louisville KY [email protected] Mortgages with DPA
2.NeighborhoodHomeownership RatesPORTLANDPortland – Less than 24%Russell – Less than 24%California – Less than 24%76% of the singleRUSSELLCALIFORNIAfamily homes are rental!Essentially no homeownersales to homebuyers.Real estate transfers arefrom investor to investor.
3.Representation of thedispersion of Section 8 TBR
4.Evaluatinghomeownership ratesat the census blocklevel for eachneighborhood showsthat there arepockets of stability.
5.Overlaying HPI owned andacquired homes to the mapshows that many of ourhomes are in areas ofstability based on the censusblock homeownership rates.HPI will be able tostrategically target whichhomes to sell to contributeto measurable increases inhomeownership rates at thecensus block level.
6.It gets even better!Homeownership ratesare strong in a goodpercentage of censusblocks. 41-80%homeownership rateslooks less scary.
7.HPI’s future acquisitionsin 2019 are shown onthis map.Clearly, these propertiesare well suited forconversion tohomeownership withthe high concentrationin stablehomeownership censusblocks.
8.Overlaying all vacant landparcels, LMG vacantbuildings and vacant lots weable to see the opportunityfor strategic redevelopmentand infill new construction.Focusing on areas thatcontribute to increasingcensus block levelhomeownership rates.Individual plans can becreated for each censusblock that contains HPIassets, vacant lots andvacant homes.
9.HPI will use the data to driveour redevelopment efforts atscale. We will be able tostrategically increasehomeownership rates on acensus block level through acombination of newconstruction infill,acquisition and rehabilitationof vacant properties andselling HPI owned homes toresidents.
10.HPI Scale: Existing Single Family Home Inventory –approximately 400 homesNew Market Tax Credit ProgramHPI Opportunity Zone Fund - 4.5M• 62 homes in one yearHPI is evaluating if it can create an opportunity zone business,with the purpose of the business being single familydevelopment. ( 3,600,000 OZ Investor - 900,000 HPI)70% of the OZ funds have to meet the substantial rehab test.30% of the OZ funds do not have to meet the substantial rehabtest.HPI has the portfolio to meet the 10 year flow of housing to theOZ business.HPI has formed a collaborative coalition of local nonprofits tosupport an at scale neighborhood revitalization implementation.• Can be used for Rehab, or Infill new construction• Sourcing the leverage loan is key• Philanthropic resources• NSP Funding• Opportunity Zone FundsGAP funding will be needed to set up the fund at scale!• Sources of GAP• NMTC program• Other local or federal resources
11.New Market Tax Credit / OZ Fund StructureInvestment Fund 7,110,431 2,610,431 Investor 4,500,000 Lev. Ln.OZ Investor 3,600,00080%THPI-GP 900,00020%THPI-OZFund, LP 4,500,000Leverage LoanLenderTHPI-SingleFamily 4,500,000THPI-SingleFamily NMTCRevitalizationI, LLCAKA QALICBTHPI Manager 7,110,431 flows back to THPISingle Family NMTC Revitalization Ito cover the TDCSub-CDE 7,110,431 IFCashTHPI-Single FamilyNMTC Revitalization 4,500,000 Loan Funds 2,610,431 EquityNMTC Investor 2,610,431HPN – NMTCAllocatee CDE 7,110,431NMTC
12.HPI Single Family NMTC with OZFundsSources 7,110,431OZ Funds 4,500,000NMTC Equity 2,610,431Uses: 7,110,431Acquisition/Rehab 4,741,878 – 62 SF HomesNMTC Fees 1,110,738Other costs 1,257,815GAP 0Sales Revenue: 4,960,000 (average SP 80K)Return of OZ Funds 4,500,000Profit: 460,000Average Acquistion Cost 35,000.00Units62Cost to acquire 2,170,000Average Rehab Per Unit 41,482Total Construction 2,571,878Start up soft costs 2,368,553Total Project Start Up Cost 7,110,431Return of Capital from previous years salesDifference (Cash on Hand)Sales InformationSoft Costs Per UnitHard Cost Per UnitAverage Sales Price Per UnitNumber of Units SoldTotal Sales RevenueTotal Development CostProfit/Loss 0 76,482 80,00062 4,960,000 7,110,431- 2,150,431New Market Tax Credit Equity 2,610,431Profit 460,000
13.Average Acquisition Cost 35,000Units62Cost to acquire 2,170,000Average Rehab Per Unit 41,482Total Construction 2,571,878Start up soft costs 2,368,553Total Project Start UpCost 7,110,431Return of Capital from previous yearssalesDifference (Cash onHand)Sales InformationSoft Costs Per UnitHard Cost Per UnitAverage Sales Price PerUnitNumber of Units SoldTotal Sales RevenueTotal Development CostRevenueNew Market Tax CreditEquityProfit 0 76,482 80,00062 4,960,000 7,110,431- 2,150,431 2,610,431 460,000RevenueNMTC EquitySales RevenueTotal 2,610,431 4,960,000 7,570,431ExpenseTDCProfit 7,110,431 460,000Reconciliation to Net ProfitGross Profit 460,000Less Soft CostLess Contingency 2,368,553 241,878Add:NMTC Equity 2,610,431Net Profit 460,000
14.Years 2 - 10THPI-GP 900,000THPI-SingleFamily NMTCRevitalizationI, LLCAKA QALICBOZ Investor 3,600,000THPI-OZFund, LP 4,500,000THPI-Single FamilyNMTC Revitalization I,LLCCapital - 4,960,000OZ Business# of HomesYear 1 - 4,500,00062Year 2 - 4,960,00060Year 3 - 4,860,00060Year 4 - 4,908,60060Year 5 - 4,957,68660Year 6 - 5,056,84060Year 7 - 5,157,97761Year 8 - 5,348,82262Year 9 - 5,545,23764Year 10 - 5,838,59866Total615
15.Acquisition of 65 SF Homes to convert tohomeownershipAverage Acquistion CostUnitsCost to acquireAverage Rehab Per UnitTotal ConstructionStart up soft costs / On goingoperatingTotal Project Start Up CostReturn of Capital from previous yearssalesDifference (Cash on Hand)Sales InformationSoft Costs Per UnitTDC Per UnitAverage Sales Price Per UnitNumber of Units SoldTotal Sales RevenueTotal Development CostTotal Anticipated Profit/LossProfit/LossNew Market Tax Credit EquityProfit Yr 1Year 1Year 2 35,000 35,0006260 2,170,000 2,100,000 41,482 35,000 2,571,878 2,100,000Year 3 35,350Year 4 35,703Year 5 36,060Year 6 36,421Year 7 36,785Year 8 37,153Year 9 37,524Year 10 37,8996060606061626466 2,121,000 2,142,210 2,163,632 2,185,268 2,243,906 2,303,499 2,401,583 2,501,399 35,350 35,704 36,061 36,421 36,785 37,153 37,525 37,900 2,121,000 2,142,210 2,163,632 2,185,268 2,243,906 2,303,499 2,401,583 2,501,399 2,368,554 7,110,431 630,000 636,300 642,663 4,830,000 4,878,300 4,927,083 649,090 4,976,354 655,581 5,026,117 673,172 5,160,985 691,050 5,298,047 720,475 5,523,641 750,4205,753,218 4,960,000 4,860,000 4,908,600 130,000 111,700 93,217 4,957,686 74,549 5,056,840 105,272 5,157,977 102,263 5,348,822 153,038 5,545,237 174,634 5,838,598260,014 5,000 81,482 80,000 62 4,960,000 7,110,431- 2,150,431 0- 2,150,431 2,610,431 460,000Year 10 OZ Investor ExitYR 10 Sales Proceeds: 6,141,476Cash on Hand: 260,014Developer Contribution 388,258Total: 6,789,7485,100 75,10081,00060 4,860,000 4,830,00030,000 30,000 5,202 75,902 81,81060 4,908,600 4,878,300 30,300 30,300 5,306 5,412 5,520 5,631 5,743 5,858 5,975 76,713 77,533 78,363 79,202 80,050 80,908 81,775 82,628 84,281 85,966 87,686 89,439 91,228 93,05360606061626466 4,957,686 5,056,840 5,157,977 5,348,822 5,545,237 5,838,598 6,141,476 4,927,083 4,976,354 5,026,117 5,160,985 5,298,047 5,523,641 5,753,218 30,603 80,486 131,859 187,837 247,190 314,957 388,258 30,603 80,486 131,859 187,837Total: 6,789,748OZ Investor – 80% 5,431,798THPI – 20% 1,357,950Initial OZ investment: 3,600,0005% annualized return to investor 1,831,798 247,190 314,957 388,258
16.Challenges with NMTC and OZ1) NMTC funds must be fully deployed within 12 months of closing.2) There may be a conflict with the OZ program because OZ funds cannot be classified as loanfunds. The NMTC structure requires a Leverage Loan, which may prohibit the use of the OZequity.3) Any profits generated from the homes sales will subject the OZ investor to additional taxresponsibility.Legislative Suggestions:1) Extend the 15% inventive beyond 12/31/2019 – The final rules were slow to come out2) Write into the legislation an affordable housing provision:• Homes under a certain market price, as set in each market across the Country, that arecreated and sold through a nonprofit developer, the profits generated would becompletely tax free if:• Constructed in an Opportunity Zone• Improves existing homes (using the aggregate of the substantial rehab test forscattered site revitalization initiatives)• Provide additional tax incentive to investors who invest in affordable housing• The risk/reward to do the investment is not there for national investors3) Eliminate the substantial rehab test for vacant or foreclosed properties4) New construction qualifies
17.New ThinkingHow the FHA Nonprofit Mortgagor Program can be a tool tohelp address GENTRIFICATION!
18.The Housing Partnership,Inc.New NP Holding CompanyNonprofit MortgagorContract for Deed
19.The New StructureHPISung Ju ParkCDOHPIAndrew HawesCEOHPIPatrick CornettCFOHPILisa DeSpainCOONew NP Holding CompanyNonprofit MortgagorContract for DeedLMGBoardMemberNDHC –CEOBoardMemberLHOME –CEOBoardMemberHPI BoardChairMemberCommunityBoardMember
20.Buyer obtains acontract for deedfrom holdingcompanyBuyerHolding Company obtainsFHA 203(b) financing fromSYB. Loan Sold to KHC forservicing.New NP Holding CompanyNonprofit MortgagorContract for DeedFHA LenderStock YardsBankHPI/NDHC sells house toholding company at marketvalueHPI or NDHCHome Sale - 80,000KentuckyHousingCorporationServicer
21.Buyer obtains acontract for deedfrom holdingcompanyHolding Company obtainsFHA 203(b) financing fromSYB. Loan Sold to KHC forservicing.New NP Holding CompanyNonprofit MortgagorContract for DeedBuyerBuyer pays Holding Company 550 monthly. Paymentincludes property maintenancefee.Buyer can opt out of thecontract for deed term byassuming the remainingbalance of the FHA loan. Theequity built up in the home willtransfer to the buyer. Transferof the property into the buyersname will trigger propertytaxes.Example 1 at 4.5% fixed for 30 yearsSales Price: 80,000Loan to Value: 96.5%Base Loan Amount: 77,200Financed MIP: 1,351Total Loan Amount: 78,551Cash to Close: 6,128Payment:Principal & Interest: 398.01Hazard Insurance: 36.62Mortgage Insurance: 58.04Total: 491.67FHA LenderStock YardsBankHolding company pays KHC 398.01 monthly and payshazard insurance separately.KentuckyHousingCorporationServicer
22.Section 8 Example:Holding Company obtainsFHA 203(b) financing fromSYB. Loan Sold to KHC forservicing.New NP Holding CompanyNonprofit MortgagorContract for DeedBuyerBuyer pays Holding Company 991 monthly.Tenant Portion: 340HAP Payment: 571Property management andmaintenance will be provided.At the end of the 15 yearamortization period, monthlyrent will be reduced to thetenant portion.Example 2: S8 - at 4.5% fixed for 15 yearsSales Price: 80,000Loan to Value: 96.5%Base Loan Amount: 77,200Financed MIP: 1,351Total Loan Amount: 78,551Cash to Close: 6,128Payment:Principal & Interest: 600.91Hazard Insurance: 36.62Mortgage Insurance: 58.04Total: 724.17FHA LenderStock YardsBankHolding company pays KHC 398.01 monthly and payshazard insurance separately.KentuckyHousingCorporationServicer