CPA Application 2022 - Community Investment Fund for Homeownership 9.16.22.pdf COMMUNITY PRESERVATION
PROJECT APPLICATION COVER SHEET
I: Project Information
Project Title:Two-Family Lease Purchase Pilot to Kickstart a Homeownership
Community Investment Fund
Project Summary: This initiative will pilot a three-year lease purchase program,
funded through a revolving Community Investment Fund, to provide a
homeownership opportunity to an income qualified household (60-80% AMI). The
pilot project will purchase an existing two-family home, select a qualified
lease-to-own applicant, coordinate training and support, and accrue the buyer’s
purchase down payment through the rental payments. At the end of the project, the
home will be sold to the lease-purchaser, and the initial funds will be returned to
lenders/investors or the newly created Community Investment Fund as appropriate.
Estimated start date: _ 1/1/2023 ______ Estimated completion date:_ 1/1/2027 _____
CPA Program Area (check all that apply):
� Open Space � Historic Preservation
X � Community Housing � Recreation
II: Applicant/Developer Information
Contact Person and or/primary applicant: Danielle McKahn, Managing Partner, Pioneer
Development LLC
Property Owner (if applicable): A Nonprofit and an LLC will be formed
Organization (if applicable): A Nonprofit and an Advisory Committee will be formed
Mailing Address: 32 Perkins Ave, Northampton, MA 01060
Daytime phone #: (413) 320-7208 Fax #: None
E-mail address & Website: danimckahn@gmail.com
III: Budget Summary
Total budget for project: $500,000
CPA funding request: $100,000 (3 to 4-Yr 0% Loan with Extension/Reinvest Option)
CPA request as percentage of total budget: 20%
Applicant’s Signature: ____________________________
Date Submitted: ____________________________ 9/16/22
Project Narrative
A no interest, 3-year loan of $100,000 is sought from the Northampton Community
Preservation Fund in order to pilot a housing initiative that supports homeownership for
Northampton residents with household incomes at 60-80% of the Area Median Income
(AMI). This loan will help establish a self-sustaining Community Investment Fund that
enables continued support of homeownership for years to come.
Existing subsidized rental, new construction programs, and deed restricted affordable
housing already contribute to a vital need to develop and maintain affordable housing stock.
This project focuses on affordable homeownership for residents that are 60-80% of AMI
using existing naturally occurring small multi-family affordable housing stock. Residents at
60-80% of AMI also have great difficulty in accumulating the necessary down payment for
homeownership and are thus prevented from access to the same economic tools that build
multi generational wealth. This project accumulates the necessary down payment through a
three-year lease purchase program, and uses this period for homeownership and landlord
training as well.
This pilot project is designed to enable residents to rent an affordable unit at market rate,
and then accrue the downpayment to purchase the property over a period of 3 years.
Conceptually similar to a lease to own model, hybridized with home ownership models similar
to those successfully employed by Habitat for Humanity, residents will invest their time in
maintaining the property, familiarizing themselves with operation and maintenance, and
receiving training in financial literacy and property management. After 3 years, the resident
will have the option to purchase the property, with the down payment provided by a portion
of the market rate rent they have already paid. This project will initiate the establishment of
a Community Investment Fund that returns 0-2% to community loan funds and philanthropic
investors, rather than the 8-15% or more normally returned by Real Estate Investment
Funds. Simply put, rather than providing investors with a high rate of return, this Community
Investment Fund will provide future homeowners with a down payment.
In addition to the need to transition residents into homeownership, this fund aims to slow
the impacts of gentrification that Northampton is currently experiencing. As market rate rents
continue to climb, real estate investors are ‘over improving’ existing houses, and raising the
cost of rent accordingly. This upward pressure on the rental market is attracting significant
investment at the expense of maintaining existing naturally occurring affordable rental units
and homes to those at 60-80% AMI. The properties in this program will not be deed
restricted, however, because wealth-building is a significant project goal, and avoiding deed
restrictions will encourage sweat equity investment and allow the lease purchaser to benefit
from local appreciation if and when the home is later sold. The objective of this program is to
intentionally create a structure that enables lower-income residents to buy a home, gain
equity, and grow their own wealth. At the same time, the initiative preserves and grows the
capital investments in the Fund in order to continue to support future projects and residents.
While we are not deed restricting houses to keep them perpetually available to residents at
60-80% AMI, we are preserving the financial investment, reducing the barriers to access of
home ownership and slowing the pace of gentrification and the impact it has on diversity in
our community.
Project Location
Once grant, loan and investment funds to initiate the Community Investment Fund are
secured, a two-family property for sale in the appropriate condition and at the appropriate
price will be identified. As local developers ourselves, we have significant available resources
and expertise to identify and purchase an appropriate property to engage in this pilot
project. From an assessment over the past 10 years of two-family properties available for
sale in Northampton through MLS, there are approximately 10 properties per year with the
right characteristics at the right competitively bid price. We are not concerned about our
ability to identify a prospective project, offer a competitive bid and secure ownership of the
property.
Community Preservation Criteria
This project targets the Community Housing program area within the CPA Plan. Low
income housing is defined as less than 80% of the AMI and we are targeting residents that
are within the range of 60-80% of the AMI. As has been well established, the affordability
of housing to those below the AMI promotes social and economic diversity and increasing
the fraction of those residents that can remain in housing that is accessible to them
through homeownership preserves that investment in our community.
Within the Community Housing Program, this project will produce and support:
● Diverse Populations - This project supports residents that represent
socioeconomically diverse backgrounds within the 60-80% range of the AMI.
● Harmonious Housing - A focus on two family housing, rather than new
construction, preserves the existing character of our diverse neighborhoods and
diverse housing stock. By identifying and maintaining small scale multi-family
houses, we are ensuring that these projects remain harmonious, in design and
scale, as they are situated within the context of the surrounding community.
● Existing Buildings - This project leverages and maintains existing housing
stock. In addition we are maintaining real property and reducing the risk from
injury, harm or destruction. Although we will not be seeking historic certification
for any purchased properties, we will bring all properties to lead compliance,
remove knob and tube wiring and mitigate other hazards currently tolerated in
numerous local rental and owner occupied properties. While not required by the
Building Code or Public Health Standards and Policies, our development ethic
offers a reliable history of ensuring that all properties we work with are improved
to reasonably safe standards, including the removal of knob and tube wiring to
allow for improvements of the building thermal envelope and bringing properties
to lead compliance. We have accounted for these improvements in the project
budget.
● Fair Housing - Priority will be given to Northampton residents and employees
according to the Fair Housing standards.
● Supportive Services - Existing tools, supported through local non profit
corporations and organizations, will be utilized to provide financial literacy
training, particularly for those in need of support services. Additional services will
be provided to support the transition to homeownership, similar to those
structured by Habitat for Humanity.
● Enhanced Nonprofit Capacity - This project will leverage and compliment
existing local nonprofit resources and potentially lead toward collaborative efforts
to expand their financial literacy portfolios. Resources will be leveraged from
tenant selection through the transition to homeownership. A list of nonprofit
organizations that have advised this project structure is included. While we do
not yet have collaborative agreements formally structured, many are receptive
and enthusiastic about this model and eager to support this work. We intend to
continue to build those relationships and avoid reinventing the wheel.
● Reduction of Vehicle Reliance - In selecting a property, we will identify a
property that is within 1.75 miles from downtown Northampton or Florence
center, with a specific interest in properties within 1.0 mile. Among the criteria
for property selection is access to Northampton’s extensive recreational path
network. Because we are not building new construction, we are limited in site
selection, but have narrowed that criteria to distance from our downtown or
Florence center as a proxy to the reduction of bike trips and reliance on walking,
biking and public transit systems.
● Housing for Households at 80% of the AMI - Residents will be identified
with household incomes that are within 60-80% of the AMI
● Affordable Home Ownership for Families - As articulated in the Pioneer
Valley Planning Commission’s Housing Needs Assessment and Housing Strategic
Plan, this project provides low income residents with an ability to obtain
financing for homeownership and addresses the large up front cash requirement
that has contributed to the housing affordability gap.
● New Possibilities - As an alternative funding model this project establishes a
revolving Community Investment Fund that will continue to address economic
barriers to low income home ownership. A Community Affordable Housing Trust
may not be the best instrument for supporting home ownership for residents at
60-80% AMI. Rather, a Community Investment (or Impact) Fund can better
support continued investment that does not require ongoing government
subsidies for each subsequent project. In spirit, however, this fund intends to
achieve many of the goals set forth by community members interested in the
establishment of a Community Affordable Housing Trust as detailed in the CPA
Table of Allowable Spending Purposes.
Community Needs
This pilot project, and the establishment of a Community Investment Fund is designed to
serve existing or future Northampton residents with household incomes at 60-80% of area
median income (AMI). This population is currently underserved due to affordable housing
structures focused on <60% AMI, and few programs that focus on transition to
homeownership through direct financial support as opposed to financial literacy and
support. Those programs that do provide down payment assistance rely on deed
restrictions to preserve the affordable status of the entire house or unit, particularly the
portion owned by the low income homeowner. As articulated in the Pioneer Valley Planning
Commission’s Housing Needs Assessment and Housing Strategic Plan, this project provides
low income residents with an ability to obtain financing for homeownership and addresses
the large up front cash requirement that has contributed to the housing affordability gap.
Long term Preservation of the Project
While we are not deed restricting this affordable housing, and instead focusing on
homeownership for low income residents, the Community Investment Fund serves as a
revolving fund that continues to assist renters through the transition to home ownership.
This revolving fund provides the long-term preservation of the program to support future
low income residents, as opposed to the long-term preservation of the specific housing
project.
Community Support for Project
At this stage in the project development, we have consulted with numerous local and
national organizations and experts to assist us in framing and articulating this project
concept. We are continuing to engage with these advisers and plan to develop structured
support and collaborative relationships to directly assist in, or continue to advise, this
project. A list of people we have consulted with to structure this project, fund and grant
request include:
● Financial Literacy, Affordable Housing and Local Needs: Valley Community
Development Corporation has offered to provide free homeownership pre
purchase and post purchase classes to project residents, as well as additional
support with financing and homeownership. Staff we have consulted with at
Valley CDC include Joanne Campbell (former Executive Director), Alexis
Breiteneicher (current Executive Director), Jessica Allan (Real Estate Project
Manager), Sarah Sargent (Small Business Program Manager) and Donna Cabana
(Homeownership Program Manager). Also, Megan McDonough (Executive
Director of Pioneer Valley Habitat for Humanity)
● Fund Structures, Financial Risks, and Programs to Support Low Income
Homeownership: Suzanne Beck (former Executive Director of the Greater
Northampton Chamber of Commerce), Randy Krotowski (Resident, Florence MA),
Rebecca Busanky (PV Grows Fund Coordinator), Raymond Lanza-Weil (President,
Common Capital), Joe Weisbord (former Director of Homelessness Initiatives,
Foreclosure Prevention, and Credit and Housing Access for Fanny Mae), Sky
Morse (Investment Director, M&S Development LLC), Jake Ide (Director of
Investment & Philanthropy, Vermont Community Loan Fund), John Dunne (Senior
Community Housing Officer, The Corporation for Supportive Housing)
● Community Resources to Support Residents and Affordable Housing:
George Kohout (Chair of the City of Northampton Planning Board), Pat Goggins
(formerly of Goggins Real Estate)
Metrics for Project Success
The near term metric for success is to transfer property ownership to an income qualified
tenant and return the initial capital investment to the Community Investment Fund to be
used for the acquisition of another property purchase and project. Lenders and investors
will be given an opportunity to renew their term if desired, and any grants and excess
funds will be reinvested in the fund and the next project. Longer term, our ability to grow
the Community Investment Fund and our ability to deploy this structure in other
communities is of keen interest.
Maintenance and Upkeep
Operation and maintenance of the pilot project property will be managed personally,
pro-bono, by members of Pioneer Development (the grant applicants). Over the course of
the 3-year project, operation and maintenance will be transitioned to the prospective
homeowner and the prospective homeowner will be trained through existing programs and
assistance of the Pioneer Development members. As the Community Investment Fund
grows, the fund will directly support the cost of property management. For each property
in this program, maintenance and upkeep transitions to the new homeowner. It is our
hope, down the line, to establish an Emergency Fund that could be used to support
homeowners who have used this program should they experience significant financial
burdens at a time when a property maintenance need is particularly acute.
Project Budget Narrative: The total budget for this project is $500,000 as detailed in
attached budget documents. $100,000 in CPA funds are requested as a loan for a three to
four-year term at 0% interest and used toward property acquisition. To raise the remaining
demonstration project funds, we plan to apply for Northampton ARPA Community Recovery
Project grant funds and to pursue additional fundraising including individual philanthropic
investments.
A sources and uses budget and operating proformas are attached, as well as an
affordability analysis.
Multi-Year Funding: This project is expected to utilize $100,000 in borrowed CPA funds
for 3 to 4 years. The lease-purchase period for the selected applicant is expected to be 3
years. At sale, the borrowed CPA funds will be returned to the city, or the city may renew
the loan for another term to repeat the project.
Project Timeline: Upon securing the funds required for the pilot project, we will seek
to purchase a property and select an applicant by September 2023. The training and
lease purchase process will be completed by September 2026.
Feasibility: This project requires purchase of a small multi-family home that fits the
location, purchase price and improvement budget parameters. Approximately 10 such
homes are sold on the open market through MLS each year in Northampton, and must
be obtained through a competitive bidding process. The project can be piloted once the
required funds are raised or pledged.
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Prepared by Pioneer Development LLC
Initial Seed Funds (General Uses)
$450,000 Maximum* Purchase Price
$25,000 Maximum* Repairs & Improvements
$25,000 Soft Costs & Reserves
$500,000 Total Seed Fund
*Funds not used will become part of the Reserve Funds for the Pilot
Pilot Project Budget (Sample Detail Uses)
$400,000 2‐Family Home Purchase Price
$25,000 Knob & Tube Removal, Lead Remediation, Boiler Upgrade, Repairs
$10,000 Closing Costs at Purchase and Sale
$10,000 Other Soft Costs
$55,000 Reserve Fund
$500,000 Total Purchase, Improvement and Selling Costs with Reserves
Sources Budget
$100,000 CPA 0% Interest Loan
$350,000 Northampton ARPA Grant Funds
$50,000 Individual Philanthropic Investors
$500,000 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 Interest (Investors paid semi‐annually. All other interest to be reinvested into fund)
$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
$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
Budget Page 1
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
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
Debt Service (2% Community Investment Fund Interest) $10,000 $30,000
Total Income $13,205 $39,614
Budget Page 2
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
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
Apartment 3 0 $0 $0
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)
Budget Page 3
Community Investment Fund for Homeownership: Two‐Family Home Pilot Project
Prepared by Pioneer Development LLC
Affordability Analysis
Maximum Sales Price
15% Down Payment
Mortgage
Interest Rate
Amortization
Monthly P&I Payments
Tax Rate
Monthly Property Tax
Hazard insurance
PMI*(See Note Below)
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)
Comments:
$52,719
$1,318
*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
9/16/2022
Division of Private Housing