Questions addressed to the Senior Project Manager (Margaret Sheehan) at the Field Office of HUD and her Answers

Pertaining To Senior Housing (Mixed Finance Development, Specifically, Section 202 Housing with Low Income Housing Tax Credits).

Question: Capital advances are only made available to private, non profit corporations. If a private for profit developer wanted to build senior housing, they would necessarily have to join hands with a non profit. AGREE/DISAGREE

Answer: Disagree. A for profit developer could only partner with the non-profit as a member of the investor limited partner. Could not be part of the General Partner.

Question: The sponsor receives a fund on the basis of the level of experience they share and their pledge of financial support to the project-The sponsor can always utilize the pledge of financial support provided by the for profit developer. What form of pledge does HUD need or will accept from the for profit developer?

Answer: Not sure - haven't had this issue raised before. I don't know that there is a role for a pledge from a for-profit developer given my comment above. Funding should be coming from the equity contribution of the limited partner and additional secondary financing from public bodies, foundations, etc.

Question: If the private non profit organization joins hands with a church and the church applies for the fund and pledges financial support to the project, can the church maintain a Right of First Refusal in the Joint Venture structure? In this scenario, the church would not be the owner but have the unvested future potential to become owner.

Answer: The church, as the entity that applied for the Section 202 funds, would be the sole member of the GP, or the church would have created an HDFC which would be the sole member of the GP. Therefore, they are in fact part of the limited partnership ownership entity. Not certain what role the other non-profit org. is playing? Since the Church, or its HDFC affiliate, is the GP, then I would think that they can exercise the right of first refusal.

Question: If a church and a non profit developer were joint venturing, the church would only be able to have the capital advance funds reserved, as opposed to the capital advances being made directly to the religious organization? Are there exceptions to this rule?

Answer: Normally in a non-tax credit deal, the Church, as well as all other non-profit entities that apply for & receive 202 funds, would have to establish a sole asset 501c3 owner corp. However, under tax credits, the capital advance funds can be made available directly to the LP.

Question: The Initial operating deficit escrow needs to be maintained, to ensure the completion of the project. If instead of cash, mere guarantees are given, do they muster?

Answer: No - we have included the HUD required 3 month operating deficit within the project's replacement cost ; being funded by tax credit equity.

Question: In 202 projects, health care must be based in the community, not in the project. If a project envisions having a building wherein 202 housing is provided on the lower floors of the building, Affordable Assisted Living is provided in the higher floors and finally Skilled Nursing Care is provided on the upper most floor and here health care shall be provided in the same premises but on a much higher floor. Will this model work in terms of the requirement that health care shall be based in the community, not in the project?

Answer: Yes, provided that the Assisted Living and Skilled Nursing are in one, or two, separately owned condos.

Question: Could you comment on the following: HUD regulations do not permit revenues from the HUD 811 units to support or pay project debt service. To enable the project to carry hard debt payable to the lender and the state, the various financial partners have to show great flexibility. The HUD mortgage, note and regulatory agreement all may need to be modified in a manner acceptable to the conventional lender and HUD and to cover only the HUD 811 units. How do players play out their roles and how effective do you think they are?

Answer: Based upon the experience to date with 202 mixed finance, proposals in conflict with the current regs can be forwarded by the Hub to Headquarters for a waiver of the regs. Many of the provisions have in fact been waived by Hdqtrs.

Question: What regulatory barriers has HUD removed to ease these mixed finance projects? Have the changes included for instance allowing common amenities such as dishwashers, washers and dryers to be considered as Eligible Costs and allowing for a more objective approach in calculating development costs?

Answer: Per 8/15/07 reg, dishwashers are now permitted. We haven't received reqsts for washers/dryers in units (except 811s) but do have dvlpmnts w. wash/dryers on each floor. Many sponsors consider the laundry room to be a community gathering opportunity. Objective approach in development costs - we really have tried to be as objective as possible, but our sponsors have been constrained by funding availability - both from HUD & other sources. Because of this, hard decisions often have to be made, between building reasonably sized units with limited amenities - or - no development at all..

Question: As rental assistance contracts expire, they are renewed from the same pot of funds that would otherwise be targeted towards development. A large proportion of the appropriation is taken up by rental assistance, making less available for new development. What measures if any, has HUD and/or players made to mitigate the negative effects of these circumstances?

Answer: None immediately. Some have commented on this issue as a part of the pending legislation - the Section 202 Supportive Housing for the Elderly Act of 2008; initial term of PRAC allocations have been reduced from 20, to 7, to five & currently to 3 yrs in order to free up sufficient funds for each year's Capital Advance portion of the NOFA