CPA Questions and Answers - Lease Purchase Pilot and CIF - 10.17.22.pdf1
Two-Family Lease Purchase Pilot to Kickstart a Homeownership Community
Investment Fund
CPA Grant Request Follow-Up Questions
1. Please note that if CPA funds are utilized for acquisition of a home, a permanent affordable housing
restriction is required to be placed on the property. Acquisition of a property without a restriction is
not legally allowable. Can the project be re-structured to utilize CPA funds for direct assistance or
repairs, or to include an AHR?
We believe that the project could be restructured to utilize some or all of the requested CPA funds for
other uses than Acquisition. Uses other than Acquisition include Repairs and Improvements ($25,000);
Closing Costs at Purchase & Sale ($5,500 – not $7,000 because ~$1,500 in legal closing fees will be
provided by the attorney pro bono); legal fees for the Community Investment Fund offering, now
added to a revised (attached) budget ($20,000); misc. soft costs ($5,000) and Reserves (in the event
that a major repair were to be needed). There are also costs on the Operating side of the project (see
Operating Proforma, p.2) that could be paid by CPA funds (so that the expenses would not be paid by
the rental revenues, and those unspent operating funds would become part of the accruing down
payment assistance instead) – the total operating expenses over three years (property taxes,
insurance, utilities, repairs and maintenance) is projected to be ~$34,000.
In addition, please see the attached, revised budget (submitted for ARPA grant funding) that explicitly
values in-kind project management and property management services to be provided to the project
by Pioneer Development members. Would it be possible for CPA funds to be paid to Pioneer
Development members for those services, and then for the individual partners of Pioneer
Development to make a donation in that amount (or a tax-adjusted amount, if necessary) to the
nonprofit that is holding the property, to be used toward Acquisition and other project costs?
Finally, we were under the impression based on a meeting with two city counselors that while CPA
funds could not be GRANTED to a non-deed-restricted project, they could be LOANED to non-deed-
restricted housing projects. One counselor mentioned a particular past CPA funded project for which
CPA granted a loan in order to avoid deed restriction. It sounds like perhaps this is not the case. That
was our motivation for requesting the funds as a loan instead of a grant. If it makes sense and is
allowable to switch the loan request to a grant request, we would want to do that, and the initial
funds, instead of being returned at the end of the project, could instead be used to seed the
Community Investment Fund.
2. A list of resources that participants might utilize for financial literacy and other assistance is
provided, how will the project ensure that selected residents take advantage of these
resources? Do you have a formal agreement with any of them?
As with Habitat for Humanity, we will have a ‘Willingness to Partner’ contract with the
tenant/purchaser outlining their obligations in order to remain eligible to purchase the building. They
would need to complete the required trainings in order to close on the property. This requirement will
be incorporated into the Willingness to Partner agreement.
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As far as we are aware, the only local organizations that are HUD approved housing counselors are
Valley CDC and Wayfinders. As a result, to avoid recreating the wheel, we intend to utilize their
existing services to support residents in our program. We have already been in contact with both
groups and both have expressed strong support for including residents from our program into their
training. We do not have a formal agreement with Valley CDC or Wayfinders. If necessary, we can
create one, but we do not think it will be necessary. We have had a number of discussions with Valley
CDC that their homeownership courses can be made available to project participants free of charge,
and that additional one-on-one support can be provided through Valley CDC free of charge as well. We
hope to come to a similar understanding with Wayfinders. Alternatively, there is also room in the
project budget for soft costs that may arise, such as course fees.
3. Please tell us more about the proposed new non-profit.
Ideally, at least for the Pilot Project period, a non-profit would only be formed if necessary. We’ve
been connected to the Broad Brook Coalition in hopes that they will be willing to hold the property.
Or, we can make a request to Valley CDC to hold the property once the funding is obtained to move
the project forward. Based on earlier discussions with Valley CDC, it is something they would consider.
If we cannot find an existing non-profit to hold the property, a new non-profit will be formed for this
purpose. It is important for the property owner to be a non-profit so that all of the funds generated
can go toward down payment assistance and not taxes, which would lengthen the lease purchase
period.
In the long run, either a permanent existing non-profit home would need to be identified for the
project, or a new non-profit would need to be formed. That non-profit would hold and manage the
properties, and manage the overall initiative as well (tenant selection, lease purchase process, use of
Community Investment Fund, etc.)
To execute the Pilot Project and form the Community Investment Fund, an advisory committee will be
formed. Members of this committee could ultimately end up on the board of the non-profit that is
established.
4. The application indicates that 10 appropriate houses are typically sold each year. Has an
assessment been done of how much repair costs these houses may need to bring them to code
compliance for this type of project?
Yes, a $25,000 Repairs & Improvements budget has been included based on extensive experience with
the deferred maintenance conditions typically encountered in older multi-family homes. Mostly, it is
not so much of an issue of code compliance as modernization (most older multi-family homes are
already operating legally and are code compliant, or mostly code compliant with only minor upgrades
required. We assume – again, based on extensive experience – that an older multi-family home may
require a full wiring upgrade (to remove older knob & tube wires, so that the home can be insulated
through the Mass Save program), insulation, lead remediation, potential asbestos removal, and an
upgrade to high efficiency heating equipment. Some of these upgrades would need to be completed at
the outset (e.g. lead remediation), while others could potentially be completed at a later date based
on budgeting constraints.
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5. This would be a loan, not a grant. How will repayment to CPC work?
Yes, except see response to #1, if it makes sense to change the request to a grant request.
If the funds are provided in the form of a loan, after the property is sold, the funds will be returned to
the CPC via bank check. As another possibility, the CPC could be given an option to renew the loan
term towards a repeat of the project.
6. A project budget for administration of the community preservation project fund is not provided.
How is that possible?
This is possible because these services will be provided in-kind by members of Pioneer Development.
That said, an updated version of the updated budget (see attached version submitted for ARPA grant
funds) now explicitly values these contributions. In the long run, after the pilot project is completed
and a Community Investment Fund is established, we envision that funds administration will be
contracted with an existing nonprofit and paid from a portion of 2% Community Investment Fund
interest expense removed from the property rental revenues.
7. Can you tell us more about Pioneer Development LLC?
Members of Pioneer Development LLC, a real estate development and investment partnership, have
significant experience with real estate investment and development through purchase, rehab and
management of a number of small multi-family homes. We have also developed relationships with
local affordable housing nonprofits and others to support the project. As previously mentioned, Valley
CDC will provide support through free of charge pre- and post-purchase homeownership training and
individual support by staff. We will also utilize Wayfinders’ financial literacy and landlord trainings. An
advisory committee will be formed for the pilot project and launch of the Community Investment
Fund.
Danielle McKahn, managing partner at Pioneer Development, will be primarily responsible for project
management. Pioneer Development is committed to green, smart growth real estate development
and investment. Danielle is responsible for coordinating the vision, process, design, financing and
contracting. Projects are oriented toward residential, often multi-family, “value add” retrofits of
existing buildings and new construction infill and include comprehensive energy efficiency measures.
These include $3 million in completed projects, $2 million under construction, and $2 million in the
planning phase. The very first project was Northampton’s first LEED for Homes “gut rehab” project,
the 6th in the state at the time, earning Gold Certification. Pioneer Development has converted and
expanded an existing historic building at 227 South Street to create 8 apartments and townhomes
within walking distance of downtown Northampton and is currently developing a 5-unit townhome
project that includes expansion of an existing duplex and three new construction modular townhomes.
Danielle previously worked for DevelopSpringfield, a nonprofit development organization established
to stimulate economic growth, private investment and revitalization within the City of Springfield
through investment in bricks-and-mortar development projects, property assembly/preparation and
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repositioning for redevelopment, targeted grant programs, and collaboration with city government
and aligned businesses and nonprofits. Through this work, Danielle gained familiarity with tax credit
programs and alternative financing tools, and was introduced to the concept of Community
Investment Funds. More recently, Danielle has provided Housing Development Incentive Fund (HDIP)
consulting for several projects in Springfield.
Denise McKahn, a partner in Pioneer Development, serves as a technical and financial consultant to
this project. She is an Associate Professor of Engineering at Smith College and was a Faculty Director
for the Center for the Environment, Ecological Design and Sustainability where she was an integral
member of the team that developed the recently approved Smith geothermal district energy system.
Her work is centrally focused on reducing the environmental impact of the built environment.
8. How will income eligibility be verified and tracked? What will happen to residents who no longer
meet income eligibility requirements?
Income eligibility will be determined using the same calculator currently used by Habitat for
Humanity, referred to as the 'DHCD Tenant Affordability Calculator'. Key metrics used in this calculator
include the area median income and debt to income ratio along with an assessment of the
reliability of income. This income eligibility will be assessed as the resident enters the
program and again at the completion of the Willingness to Partner contract (when the
property is sold to the resident).
9. The down payment lists three different totals - $63672, $64097, and $69000. The numbers are close
but not identical and the budget here is pretty tight. Please provide clarity on which of these
numbers is correct to ensure that the new income + appreciation does indeed cover the mortgage
cost.
$63,672 is a calculated number showing the down payment amount that would be required in the
example scenario….i.e. if a property is purchased for $400,000, it would be escalated by 2% over three
years to a property purchase price of $424,483, and 15% of that is $63,672. On the third page of the
budget (Annual Operating Proforma At Sale), we show that this level of down payment is sufficient to
run the property in the black based on the current set of assumptions shown.
The $64,097 number at the bottom of page 1 of the Budget simply demonstrates that the net
operating income plus the sales appreciation over three years exceeds the $63,672 required for the
down payment, so the down payment is sufficiently covered by the net income plus appreciation.
Although this appears to be “tight”, there is actually wiggle room to provide additional down payment
funds if needed – additional funds could be provided from the project’s Reserve Fund, or could be
taken from a portion of the 2% interest expense ($30,000) paid to the Community Investment Fund.
Or, alternatively, a small amount of additional down payment assistance funds could be generated
through a one-time GoFundMe or similar fundraising effort toward the end of the project. Or, as
another alternative, the lease purchase period could potentially be extended slightly to generate the
remaining down payment funds required.
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The $69,000 number is not directly related to the budget. That last page of the budget is a separate
Affordability Analysis demonstrating the maximum purchase price (and the calculated 15% down
payment that would be required, if that were the purchase price) that a person at today’s 80% AMI
can afford.
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Project Budget
Prepared by Pioneer Development LLC
Initial Seed Funds (General Uses)
$450,000 Maximum* Purchase Price
$25,000 Maximum* Repairs & Improvements
$120,000 Soft Costs & Reserves
$595,000 Total Seed Fund
*Funds not used will become part of the Reserve Funds for the Pilot
Sample* Pilot Project Budget (Detail Uses) *Exact budget will be based on the property and conditions
$400,000 2‐Family Home Purchase Price
$20,000 Knob & Tube Removal, Lead Remediation, HVAC Upgrade, Repairs
$7,000 Closing Costs at Purchase and Sale
$80,000 Project Management, Grant Administration & Community Investment Fund Launch (4 Years)
$10,000 Property Management (3 Years)
$20,000 Legal Fees for Fund Offering
$5,000 Other Soft Costs
$53,000 Reserve Fund
$595,000 Total Purchase, Improvement and Selling Costs with Reserves
Sources Budget
$400,000 Northampton ARPA Grant Funds
$100,000 Community Preservation Fund Loan
$92,000 In‐Kind Project Mgmt/Fund Administration, CIF Launch & Legal Fees
$3,000 Donations
$195,000 Total Initial Fund Sources
Pilot Project Operating Revenue Summary (See Operating Proforma at Purchase for Annual Detail)
$103,680 3 Year Rental Revenues (including lease purchase tenant rental payments)
‐$34,066 3 Year Operating Expenses (See Operating Proforma at Purchase spreadsheet)
‐$30,000 ~2% Fund Investment/Debt Service Interest (Investors paid semi‐annually. All other interest to be reinvested into fun
$39,614 *Net 3‐Year Income (Applied toward lease purchaser's down payment)
Pilot Project Sale Revenue Summary
$400,000 Initial Purchase Price
$24,483 *Property Appreciation (3 Years at 2% ‐ Applied at sale to lease purchaser's down payment)
$424,483 Sale Price to Lease Purchase Tenant
(Loans/investments to be repaid or renewed after sale. Remainder to be reinvested into fund)
Pilot Project Lease Purchase Completion Summary
$424,483 Sale Price to Lease Purchaser
($63,672)*15% Down Payment (15% of $424,483)
$360,811 85% Mortgage (See Operating Proforma at Sale Spreadsheet)
*$39,614 + $24,483 = $64,097 3 yrs net income plus appreciation covers down pmt
Project Budget Page 1
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Project Budget Detail
Prepared by Pioneer Development LLC
Annual Operating Proforma (at Purchase)
Number of Units 2
REVENUE RSF Rent/Mo Annual Rent Three Years
Apartment 1 (2 Bed, 1 Bath) 1,200 $1,500 $18,000
Apartment 2 (2 Bed, 1 Bath) 1,200 $1,500 $18,000
Total Rented Space 2,400 $3,000 $36,000
Vacancy 4.0%$1,440
Efffective Gross Income $34,560 $103,680
OPERATING EXPENSES Per Mo.Annual
Property Taxes $6,690
Insurance $1,625
Water/Sewer $80 $960
Trash and Recycling $50 $600
Snow Removal $520
Repairs $80 $960
Total Operating Expenses $11,355 $34,066
Annual Net Operating Income $23,205 $69,614
Community Investment Fund Investment/Debt Service $10,000 $30,000
Total Income $13,205 $39,614
Project Budget Page 2
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Project Budget Detail
Prepared by Pioneer Development LLC
Annual Operating Proforma (at Sale)
Number of Units 2
Property Purchase Cost $424,483
REVENUE RSF Rent/Mo Annual Rent Notes
Apartment 1 (2 Bed, 1 Bath)1,200 $1,600 $19,200
Apartment 2 (2 Bed, 1 Bath)1,200 $1,600 $19,200
Total Rented Space 2,400 $3,200 $38,400
Vacancy 2.0%$768 Non‐owner occupied unit only
Efffective Gross Income $37,632
OPERATING EXPENSES
Per Mo.Annual
Property Taxes $6,953
Insurance $1,625
Water/Sewer $80 $960
Trash and Recycling $50 $600
Snow Removal $520
Repairs $80 $960
Administrative / Taxes $800
Capital Reserves @ 0.25 per SF $600
Total Operating Expenses $13,018
Net Operating Income $24,614 Income without mortgage
Purchase Price $424,483
Loan (85%)$360,811
Down Payment (15%)$63,672 Loan Terms
Debt Service ($23,909)Interst Rate 5.250%
Debt Service Coverage 1.03 Amortization (Years) 30
Income $705 (Does not include equity accrued)
Project Budget Page 3
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Prepared by Pioneer Development LLC
Affordability Analysis*(See Notes)
Maximum Sales Price
15% Down Payment
Mortgage
Interest Rate
Amortization
Monthly P&I Payments
Tax Rate
Monthly Property Tax
Hazard insurance
PMI**(See Notes)
Condo/HOA fees (if applicable)
Rental Income (Including Vacancy)($1,536)
Monthly Housing Cost
Necessary Income:
# of Bedrooms
Sample Household size
80% AMI/"Low-Income" Limit
Target Housing Cost (80%AMI)
10% Window
Target Housing Cost (70%AMI)
Notes:
$52,719
$1,318
*This sheet is an Affordability Analysis based on the target maximum
eligible income level and therefore does not match the project budget
exactly. It assesses the maximum purchase price that a person at the
maximum target income level can afford.
**MHP's One Mortgage waives PMI or, alternatively, an additional 5%
down payment could be fundraised to achieve a 20% down payment
and/or could be gained by extending the lease purchase period up to
one more year.
$1,506
$0
$0
$1,505
$60,191
Household Income:
2
2
$60,250
$230
Purchase Price Limit
$460,000
$69,000
$391,000
5.25%
30
$2,159.12
17
$652
DHCD
100 Cambridge Street, S/300 Boston, MA 02114‐2524
10/14/2022
Division of Private Housing
Project Budget Page 4