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CPA Question Response rev .pdf 1) When evaluating a proposal, the CPC may consider the applicant’s history of performance and compliance before the CPC (CPC Plan at p. 40). In that regard, please explain the circumstances that led to HAP’s 2008 request for funds associated with its Paradise Pond apartment complex. In particular, your 2008 application materials explain that HAP’s request for gap funding was premised on HAP’s failure to apply for HUD McKinney funds for that year. After CPC awarded the funds, it appears that HAP did not seek reimbursement for any expenses, and after the contract period expired, asked the CPC if the funds could be reprogrammed for other purposes. Please also explain why the funds were never utilized. HAP had a HUD McKinney operating grant for 2007 which was the first year that the property was in operations. There should have been an application for renewal submitted before the end of that grant year. Unfortunately, the renewal deadline was missed. HAP sought ways to fill the gap in the project’s operating income and approached the Northampton CPC for assistance. (The McKinney funds were critical to support the 4 units in the property specially designated for homeless families with a handicapped member. Those units were further restricted to households whose incomes were at or below 30% of median income, and the rents were restricted to 30% of the household’s actual income. As a result, the rental income from these units, which was both unpredictable and significantly lower than the rents for the other units, were not enough to pay the costs of operating the units.) HAP requested assistance from the CPC and was subsequently approved. When the CPC funding documents were received and reviewed, HAP staff learned that project operating costs were not eligible for CPC assistance. Items had to be capital improvement projects to be reimbursable by the grant. Since the project was only recently completed, HAP could not legitimately claim any capital expenses. Having no costs which appeared eligible, HAP did not request any draws on the award. Fortunately, shortly thereafter HAP was able to reapply for McKinney funds and had its grant restored. 2) What is the reason for postponing chemical analyses until after the purchase and sale agreement has been signed? Could HAP undertake these analyses pending CPC review as part of the inspections envisioned under paragraph 10 of the Option? In negotiating the Option Agreement with the seller, the seller’s Attorney specifically requested that HAP not undertake a chemical analysis of the soil during the option period. HAP explained that it was our strong preference to conduct the chemical soil analysis as soon as possible in case something was found that would delay or prevent the deal from proceeding. The seller’s attorney made clear this was not a negotiable matter, as the discovery could subject the Seller to liability for clean-up costs. The Seller was unwilling to take that risk with only an Option in hand, and insisted that this be part of the diligence undertaken once HAP had taken the further step of executing a Purchase and Sale Agreement. HAP reluctantly agreed. HAP is presently proceeding with a geotechnical soil analysis solely for the purpose of designing the building foundation. 3) What work does the $50k+ amount for environmental remediation - listed in the development budget – represent? Is this a contingency, or is there a known issue that needs to be addressed? There is not a known issue to be addressed. The $56,589 for environmental remediation in the development budget is a contingency for removal lead and asbestos containing material in the existing building to be demolished. 4) Please clarify whether the requested CPC funding would be used to reduce the amount to the loan to something less than $1.6 million or whether it is to be used for the annual interest payment of $88k/year/3 years on the full $1.6 million loan. CPC funds will be used to pay a portion of the property acquisition cost at title closing. HAP will sign a $1.6 million agreement with CEDAC. CEDAC loan proceeds not used to pay the seller or other closing costs will be held by CEDAC and used to pay acquisition loan interest in subsequent years. The great value to HAP of CPC funds for acquisition is that we will draw down less CEDAC funds at closing, therefore saving interest expense. 5) Please explain the term “capitalized replacement reserve” and how that relates to the long term maintenance of the development. Capitalized Replacement Reserve will be a reserve funded from the equity contributions of the Low Income Housing Tax Credit investor, most likely after construction completion. The reserve will be held for replacement of major equipment and building systems during the first 15 years of the life of the new building. With the approval of the tax credit syndicator/investor, the owner would use these funds for out of warranty repair or replacement of capital items -- heating/cooling/hot water systems, roofs, windows, paving, and other capital improvements. In that respect, please also explain how HAP plans to fund regular maintenance needs – interior and exterior – over the life of the project. How will funds be generated? And what is the basis for the cost estimates? Regular maintenance needs are from funded from rental income from residential and commercial tenants at the property. The operating budget submitted to the CPC assumes Year 1 rental income of $901,229 and operating expenses before debt service of $479,752. Debt service is $420,172. Operating expenses include staff expenses, repairs, maintenance contracts, landscaping, trash & snow removal, utilities, taxes, insurance, BID fee, and an annual contribution to the replacement reserve. The operating expenses for this project were estimated by HAP staff based on actual costs of managing multi-family rental properties in Northampton and throughout Hampden and Hampshire Counties. Extra- ordinary repair/replacement are funded from the replacement reserve. 6) The projected costs for interior and exterior maintenance (line items) for pre-development and post-development differ. For years 1-3, HAPs estimates a cost of $20k/year. For post- development, with an additional 20 units, it projects a cost of $15k year. Please explain the difference. The $20,000 budget for repairs for the pre-development or interim operating period is part of the total estimated annual maintenance expense of $81,313. The $15,000 for post-development repairs is part of the total estimated annual maintenance expense of $98,000. The various line items within the $98,000 budgeted for maintenance expenses are flexible, as long as the total amount of $98,000 is not exceeded. These budgets assume that upon acquisition, HAP will inherit some deferred repairs that will need attention in Year 1. They further assume that the repairs required in Year 1 of a brand new building will be modest and the general contractor’s one year warranty on workmanship will cover most items. Capital repairs and replacement are covered by the replacement reserve fund discussed in item #4, above. Over time, the total maintenance budget for the new building will be increased. 7) What is the likelihood that you will be able to obtain same relocation specialist that HAP has worked with on other projects? Are relocation services put out to bid? Is it possible that HAP will select an entity with which it is unfamiliar, and one who is unfamiliar with this area? I have confirmed that Ms. Trish Smith is available to work with HAP on the relocation of tenants from 129 Pleasant Street. Please see the attached email form Ms. Smith. A narrative of her professional experience is contained at the end of this document. 8) Please provide a link or summary of applicable law governing HAP’s obligations pertaining to relocation services/costs as well as the repatriation of the new development, if ultimately funded and built. Attached is a primer on the Uniform Relocation Act written by Partners in the law firm of Nixon Peabody. The full text of the URA regulations can be found at 49 CFR Part 24: http://www.ecfr.gov/cgi- bin/retrieveECFR?gp=1&SID=312d4228ef1451e6a200984bdad99320&ty=H TML&h=L&n=49y1.0.1.1.18&r=PART 9) P. 2 of the cover letter to HAP’s application suggests that HAP “will work with local social service providers to offer case management, job development, and a range of counseling and other services to residents.” Does this mean that HAP will play in active role in the counseling process or simply refer residents to other agencies? The budget prospectus shows a line item for resident services that is considerably lower for years 1-3 and the years following redevelopment ($3k/year vs. $25k/year). What do these resident services cover? Given that there will be only a 20 unit increase, please explain the difference in the services provided to residents during those two periods – both qualitatively and quantitatively. During the interim operating period HAP Property Management staff will assess the needs of residents and facilitate service delivery from resources already available in the community. Given the limitations of rental income during the interim operating period, HAP has budgeted $3,000 for additional services. This may be used for a portion of the salary of staff or consultant, or for direct service provision. HAP staff will not be direct service providers, but rather will schedule the availability of service providers at the property, promote attendance, and track follow- up. With increased rental income post-development, HAP intends to fund a portion of a resident service coordinator position to work with tenants at 129 Pleasant Street. Services may include: case management, health and wellness training, mental health services, benefits management/coordination, financial literacy, work-readiness training, job search assistance & job coaching, and various other life skills. 10) Your application materials state that “HAP will not rent any vacant rooms, unless occupancy falls below +/- 40 rooms. “ Please explain what this means and why it is not possible to provide an absolute number of vacant/rented rooms. In its simplest form, one can interpret this to mean that at least 18 if not more individuals of families may be unable to secure housing in the one year interim period, or longer. Real estate development is based on creating assumptions for things that cannot be known with certainty at the various phases of a project. Assumptions are tested and revised at various points in time. HAP greatly appreciates the CPC’s interest in providing financial assistance to this development at an early stage when many things cannot yet be known with certainty. We are proceeding, as we must, based on assumptions created from HAP’s previous experience and development track record. For example, we do not know the number of tenants who will reside at the property at the time HAP takes title. There appear to be some vacancies currently. We do not know the number of years we will operate the building before development funding is obtained. During that time there will be some change in the tenant population, as with all properties. An unknown number will choose to move as their life circumstances change. An unknown number may be asked to move, if they cannot live responsibly in the property. The timing and number of these moves cannot be known in advance. Indeed, it is possible that there will be fewer vacancies, and the number of occupied units will remain above 40. Your question is why we cannot provide an absolute number of rooms we will keep rented. There are a number of factors to be weighed in determining whether and when to fill these vacancies. Balancing and judgment will be required as we proceed. On the one hand, we will need to keep enough units filled that we can meet the property’s operating expenses. This will mitigate in favor of maintaining higher occupancy. On the other hand, once redevelopment funding is secured we will need to relocate the existing tenants. If all units are occupied, all 58 households will need to be relocated, and will face the disruption involved with that. As the number of relocatees increases, the likelihood that we will be able to relocate them to familiar surroundings, with their current access to social supports, medicals services, etc. diminishes. At the same time, the cost of that relocation, which is significant, will increase. There are no separate funding sources for the costs of relocation – the costs are part of the overall development budget, and will need to be redirected from some other use. Finally, as we do not want to economically displace the residents (i.e., offering them a unit in the new building, but at higher rents they cannot afford), the displaced tenants will be housed at grandfathered rents (current rents plus reasonable increases). These reduced rents impact both the debt service that can be supported, and the operating budget of the property. It is simply financially infeasible to construct or operate the property with all 58 units at reduced rents. If for some reason there is significant turnover in the building, and funding appears to be several years out, it is likely that we would refill some of those units, rather than maintain a unit vacant for the duration. If we have indications that funding will be received quickly, our approach to filling vacancies will need to change. One certain point is that HAP cannot build and operate the proposed new building if 58 tenants must be relocated at HAP’s expense and then offered apartments in the new building. The development budget presented to the CPC assumes that HAP will pay for the temporary relocation of 40 residents. All relocated tenants will be offered an apartment in the completed building. The development budget assumes that 23 will opt to move to the new building. See #10, below for a discussion of post-development rental income impacts of returning tenants. In order to control relocation costs and impacts on post- development rental income, HAP must allow occupancy to decline during the interim operating period. 11) The application states that former tenants will be able to return to the redeveloped site “at a comparable rate” or “approximately same rates” plus “any acceptable escalation.” Please explain what if any legal obligation HAP has to reimburse the differential between the old rate and the new rate. Scenario: A tenant pays rent of $525.00 per month at the time he/she is relocated off-site by HAP for 12 months. At the end of 12 months HAP offers the tenant a one-bedroom apartment in the completed building. The tenant applies for an LIHTC apartment and documents one-person household income of $32,000. His/her income exceeds 30% of AMI and exceeds 50% of AMI, but is less than 60% of AMI. The maximum rent HAP could charge a tenant at 60% of AMI is $922. However, since this tenant had been relocated, under the Uniform Relocation Act, an increase from $525.00 per month to $922 may be considered economic displacement. Therefore, this tenant would be charged rent of $525.00 plus a 5% rent escalation of $26.25, for a total of $551.25. HAP sacrifices $375 monthly into the future for the relocated 60% AMI tenant who moves to the new building. By contrast, the LIHTC income tiering includes 16 apartments at for persons with incomes of 30% of AMI. Relocated tenants with incomes at or below 30% of AMI would see their rent decline from $525 to $438 for a one bedroom apartment. All returning tenants will either see their rent decline or HAP will discount the maximum allowed LIHTC rent so that they will not suffer economic displacement. Please also explain whether the “same rate” applies to the time at which HAP were to acquire the property, or at the time of relocation. Please also explain what the term “any acceptable escalation” means. Is this escalation governed by law or at the discretion of HAP? There is no law in MA governing the amount which a property owner can increase rent. All HAP tenants sign a one year lease and so know the amount of their rent payment for the next 12 months. Because HAP is a not-for-profit, mission-driven affordable housing development/manager, rent increases average less than 5%. The same rate is the rate at the time of relocation. 12) The budget prospectus includes a rent increase of 5% in each of the first two years prior to any redevelopment. What has been the rental rate history at Northampton Lodging in the past two years? Since tenant income is currently unknown, please then explain the basis for the statement that a $25/month annual increase for each first two years would not cause a hardship to the tenants. The average monthly rent at 129 Pleasant Street, based on a May 2014 rent roll, was $496.00. The seller has not disclosed to HAP its rental rate history. Rounding up the average monthly rent to $500, a 5% rent increase equals $25 per month. I should not have written that a rent increase of $25 is not a hardship to these tenants. However, HAP believes this to be an appropriate rent increase based on industry practice for similar properties. 13) In HAP’s oral presentation, HAP indicated that the 1-2% rent increase for <80%AMI units in the years following redevelopment is based on what DHCD thinks one could reasonably expect to obtain. Please provide any DHCD guidance that explains this rule of thumb. Is HAP committing to rent increase of no greater than 1-2 percent/year for these units in the initial years as stated in the prospectus? If it is unreasonable to expect more than a 2 % increase in rent after development, why is it reasonable to expect a 5% increase prior to it? HAP is not committing to a 1-2% rent increase post-development. For financial modeling purposes only, DHCD requires applicants to assume a 1% or 2% rent increase. There is no restriction on the amount of rent increase that can be charged. However, a prudent property owner weighs the value of a rent increase against the turnover costs and lower occupancy that will ensue. We believe that the current rents are low for the Northampton market and can be modestly adjusted upwards without causing undue vacancies. 14) Why is it necessary to contemplate the waiver of an affordable housing restriction in the event that HAP is unsuccessful in securing funding for its redevelopment proposal? Why couldn’t a restriction continue to run with the land? If HAP is unable to proceed with the project, the affordability restriction would likely make it impossible for HAP to sell the property for the price we paid. The loss would need to be covered by HAP’s own resources, thus impacting our ability to continue other affordable housing work. With the CPA funds repaid, this result would be counter to the goals of the CPA. 15) What happens to tenants if the property is purchased but for some reason the site is not redeveloped? HAP would seek to sell the property and recoup the sale price and value of design and other costs. Tenant status would be unchanged during HAP ownership. 16) Please explain the relationship between lines 222-226 and 306-308 of the Operating Pro Forma. It appears that the rents to be charged following development are at the near the maximum allowable rents, if not greater. Maximum rents shown on lines 306-308 are hard-wired into the pro-forma by DHCD, but do not accurately reflect maximum LIHTC rents. Attached is a Novogradac & Company Rent & Income Limit report for Hampshire County based on Springfield MSA data. It show the maximum household income and maximum rent for the various LIHTC income tiers and household sizes. We typically show rents in the pro-forma at 90% of maximum for financial modeling purposes only. 17) If possible, please provide the property appraisal secured by HAP, or those portions of that appraisal that are releasable. Attached. 18) Have any other downtown properties with comparable features, or other possible sites been considered? Within the past year, with the assistance of Pat Goggins and David Murphy, HAP staff have toured about a dozen Northampton properties, both on the market and possibly available. In terms of location and development potential, the 129 Pleasant Street site is superior to other properties. 19) Please provide details of the proposed development to the extent possible, including schematic plans and maintenance. All plans completed to date were submitted with the CPC application. Trish P. Smith - Relocation Consultant Trish Smith is self-employed. She is a certified WBE. She is currently working with Haydenville (Hilltown CDC) and the town of Williamstown (The Spruces Mobile Home Park) as a Relocation and Advisory Agent. Trish began her career employed as a Lead Paint Specialist for the development of the Lead Hazard Education and Abatement Research Program for Hampden Hampshire Housing Partnership (HAP, Inc.) in collaboration with the University of Massachusetts, Amherst, and the City of Springfield, Office of Housing. She led a team of individuals to recruit 300 families who had children under the age of six in Western Massachusetts over a period of five years. These families participated in educational sessions and agreed to lead abate their homes. The children were tested before and after . Immediately following her experience with HAP, Trish began working as a consultant and Relocation Specialist for Real Estate and Economic Development firm, MBL Housing and Development now located in Amherst, Mass. And, because of the variety of affordable housing, economic rehab and construction projects that entailed displacement of residents from their homes, Trish became a specialist interpreting the Uniform Relocation Act (URA), Massachusetts General Laws Chapter 79A Relocation Assistance Act (c79A), and the Massachusetts Regulation, 760 CMR 27.00, to eligible residents using state or local funds for a project. Currently, as a housing specialist, Trish continues to collaborate with real estate development professionals to generate new opportunities for affordable housing projects in Massachusetts. Throughout her professional career, Trish has provided consulting services for numerous multi- million dollar real estate development projects for various housing and non-profit organizations seeking to make available decent, safe and sanitary affordable housing in Massachusetts. The natural disaster that occurred in June, 2011 in the City of Springfield, has led her to advocate for families seeking neighborhood revitalization, empowering residents with low to moderate incomes to seek decent and safe housing alternatives, and whose homes were negatively affected by the tornado. Post-tornado, Trish partnered with HAP, Inc., assisting HAP President, Peter Gagliardi, to develop a transitional plan for residents of the Old-Hill community in Springfield, to seek funding assistance to rebuild their homes; collaborating closely with the Office of Housing for The City of Springfield, and with other organizations that provide resources for families. In October of 2011, Trish was appointed as chairwoman and project manager for the Cornerstone Build Team at the historic St. John's Congregational Church, in Springfield, Massachusetts, overseeing a $5.0 million dollar construction project. Trish led the St. Johns' congregation in an effort to build a 22,000 sq. ft. sanctuary and Christian educational center, which seats up to 850 people. Construction began in June 2012, and the new edifice is complete as of June, 2013.