HomeMy WebLinkAboutRDA Item No. 6CITY OF
, LSIlYOKE
LAKE
DREAM EXTREMEn
REPORT TO REDEVELOPMENT AGENCY
TO: HONORABLE CHAIRMAN
AND MEMBERS OF THE REDEVELOPMENT AGENCY
FROM: ROBERT A. BRADY
EXECUTIVE DIRECTOR
DATE: JUNE 28, 2011
SUBJECT: AFFORDABLE HOUSING FINANCIAL ANALYSIS (AMCAL AND
CENTRAL VALLEY COALITION FOR AFFORDABLE HOUSING
PROPOSALS)
Background
On March 22, 2011, the Agency Board reviewed two separate affordable housing
proposals.
Developer AMCAL is proposing to develop a 3.4 acre site at 6th Avenue and Bancroft
Way. The AMCAL proposal is divided in two phases. Phase I will provide 47 two and
three bedroom units of affordable family housing (6 very low income and 41 low income
units) and one unrestricted manager's unit. Phase II will provide 48 one and two
bedroom units of affordable senior housing (5 very low income and 43 low income units)
and one unrestricted manager's unit. The income and rent restrictions for each Phase
are detailed in the attached KMA reports.
Developer Central Valley Coalition for Affordable Housing is proposing to develop a 7.5
acre site located on Lakeshore Drive and has designated the project as "Lakeshore
Village." Lakeshore Village will consist of 127 units comprised of 28 one-bedroom units,
44 two-bedroom units, and 56 three-bedroom units. Forty-four units will be available to
very low income families, 82 units will be restricted to low income households and one
unrestricted unit will be reserved for an on-site manager. The income and rent
restrictions are detailed in the attached KMA report.
Following the Agency Board's discussion of these competing proposals, staff was
directed to forward the proposals to Keyser Marston and Associates (KMA) in order to
analyze the extent that Agency assistance would be necessary.
AGENDA ITEM NO. 6
Page 1 of 48
Affordable Housing Financial Analysis
June 28, 2011
Page 2
In connection with that analysis, staff has also reviewed the funding availability. As of
the end of the 2009/2010 fiscal year, the Agency's Low and Moderate Income Housing
Fund ("Housing Fund") had an unencumbered balance of approximately $2.7 million.
The proposed FY 2011- 2012 Agency Budget estimates the Housing Fund 2010/2011
year-end balance at approximately $5.9 million. Consequently, additional Housing
Funds may be available for projects. However, the amount of unencumbered funds is
unknown at this time due to the uncertainty of the recently passed (but unsigned)
legislation terminating redevelopment and the Agency's own year-end accounting.
In addition, the City of Lake Elsinore has approximately $1 million available in its
affordable housing in lieu fee account that can be allocated to eligible affordable
housing projects.
KMA Analysis
AMCAL Family and Senior Affordable Housing
AMCAL is proposing to acquire the "Total Development Site" for both phases and then
commence construction on Phase I. AMCAL has indicated that the Total Development
Site must be acquired now and acquisition costs are estimated at $2,215,000.
The results from the KMA financial analysis can be summarized as follows:
1. The forty-eight (48) unit "Family Project" is proposed to be developed on 2.38
acres of land located in the southern section of the Total Development Site. The
recommended Agency assistance for the Family Project is $5.8 million.
2. The forty-nine (49) unit "Senior Project" is proposed to be developed on the
remaining one (1) acre of land (Senior Site) located in the northern section of the
Total Development Site. The recommended Agency assistance to the Senior
Project is $5.0 million.
Although the Agency could potentially fund only one Phase at the outset, AMCAL has
indicated that Agency assistance would be required to provide upfront funding for the
entire acquisition costs. For example, if the Agency opted to only fund Phase I, the
actual gap associated with Phase I would be $5.8 million plus the property costs
associated with Phase II (estimated at $677,000). Accordingly, in order to proceed with
financing Phase I, the Redevelopment Agency would need to increase its commitment
from $5.8 million to approximately $6.48 million. Similarly, if the Agency opted to only
fund Phase II, the actual gap associated with Phase II would be $5.0 million plus the
property costs associated with Phase I (estimated at $1,548,000) for a commitment of
approximately $6.55.
KMA notes that the lack of an identified funding source, (given the limits of the Agency's
available funds) puts the project and Agency at risk to be left with vacant land and no
Page 2 of 48
Affordable Housing Financial Analysis
June 28, 2011
Page 3
financially viable plans for development. KMA suggests that before agreeing to pursue
this proposal, the Agency should determine whether there is an alternative use for any
undeveloped portion of the site.
Central Vallev Coalition for Affordable Housin
Central Valley Coalition for Affordable Housing is proposing to acquire a 7.5 acre site
and construct 126 affordable (44 very low income and 82 low income units) and one
manager's unit. Central Valley proposes to construct the project with a combination of
Redevelopment Agency assistance, tax credits and/or tax exempt housing bonds.
Central Valley's financing proposal is premised on obtaining either 9% Tax Credits or
the less lucrative 4% tax credits coupled with housing bonds.
The competition for 9% tax credits is extremely intense and KMA believes that the
proposal presented would not be competitive. Accordingly, KMA's analysis is limited to
consideration of 4% tax credits and issuance of tax exempt housing bonds.
Based on that analysis, KMA concluded that the Central Valley project justifies
Redevelopment Agency financial assistance of $9.4 million and concludes that the
developer's requested $9.65 million (approximately 3% differential) is warranted given
the scope of the Project.
Recommendation
1. That the Agency Board review the KMA analysis, defer selection of a project at
this time, and direct staff to return to the Agency Board within the next 90 days with a
definitive analysis of available funds following resolution of the State budget and related
proposals; or alternatively
2. That the Agency Board review the KMA analysis, select a proposed project and
direct Agency Counsel to prepare a definitive loan agreement up to the amount of the
currently available unencumbered Housing Fund balance consistent with the
recommended residual receipts financing structure. The disbursement of Housing
Funds should be conditioned upon evidence of financing to be presented by the
developer demonstrating the financial feasibility of the project to the satisfaction of the
Executive Director. Any commitment of Housing Funds should be subordinate to
existing Housing Fund obligations and any Agency payments to the Educational
Revenue Augmentation Fund, Special District Augmentation Fund or similar fund
established by state legislation necessary to avoid termination of the Agency.
Page 3 of 48
Affordable Housing Financial Analysis
June 28, 2011
Page 4
Prepared by: Justin Carlson, Redevelopment Agency Analyst
Reviewed by: Barbara Leibold, Agency Counsel
Approved by: Robert A. Brady
Executive Directo
Attachments:
1. AMCAL Family and Senior Apartments-Project Review Memorandum (dated May
17, 2011).
2. AMCAL Senior Apartments:
3. AMCAL Family Apartments:
4. Central Valley Housing AK
2011).
Financial Gap Analysis (dated May 17, 2011).
Financial Gap Analysis (dated May 17, 2011).
artments: Financial Gap Analysis (dated May 17,
Page 4 of 48
1, wm
KEYSER MAIt,3STON ASSOCIATES,
ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVISORS WN
REAL ESTATE
N
REDEVELOPMENT
To: Justin Carlson
Redevelopment Agency Analyst
HOUSING
AFEORnnnLC
,
ECONOMIC DEVELOPMENT
City of Lake Elsinore
SAN ERANCI&CO
A.JERRYKEYSEK
From: Kathleen Head
TIMOTHYC. KELLY
Tim Bretz
KATE EARLE FUNK
DEBBIE M. KERN
ROuRT J. W ETMORE
REEDT K.AWAHARA
Date: May 17, 2011
106ANCELFS
KATHLEEN H. HEAD
Subject: AMCAL Family and Senior Apartments - Project Review
JAMES A. RARE
PAUL C. ANDERSON
GREGORY D. SOO-HOO
In accompanying memoranda, Keyser Marston Associates, Inc. (KMA) estimated the
KEVIN E. ENGSTROM
financial gaps associated with family and senior citizen apartment projects being
JULIE L. ROMEY
DENISE BICKERSTAFB
proposed by AMCAL Multi-Housing Inc. (Developer). The projects are proposed to be
developed in two phases on a 3.38-acre parcel at the southeast corner of East Franklin
SAN DIEGO
GUU,LDM.TRIMBLE
Street and Avenue 7 (Total Development Site). The purpose of the following
PAUL C. MARRA
memorandum is to evaluate the financial issues associated with the phased
development transaction structure being proposed by the Developer.
BACKGROUND
The Developer is proposing to acquire the Total Development Site, and then to
commence construction on the first development phase. Given the limited amount of
Property Tax Increment Housing Set-Aside (Set-Aside) funds available from the Lake
Elsinore Redevelopment Agency (Agency), the second development phase cannot
commence until the Developer obtains assistance from outside funding sources.
The results of the KMA financial analyses can be summarized as follows:
The 48-unit "Family Project" is proposed to be developed on 2.38 acres of land
area (Family Site) located in the southern section of the Total Development Site.
The recommended financial assistance for the Family Project is set at $5.8
million.
500SOUTHGRAND AVENUE, .SUITE1480 )LOS ANGELES, CALIFORNIA 90071.a FRONEs.21362280E35 > FAX`213:¢225204.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family and Senior Apartments - Project Review Page 2
2. The 49-unit "Senior Project" is proposed to be developed on the remaining one
acre of land area (Senior Site) located in the northern section of the Total
Development Site. The recommended Agency assistance to the Senior Project
is set at $5.0 million.
It is our understanding that the Developer would prefer to develop the Senior Project in
the first phase. However, they have indicated that they are willing to defer to the Agency
on this decision.
PROPOSED TRANSACTION STRUCTURE
The Developer has indicated that the Total Development Site must be acquired now,
and that only a portion of the property will be developed during the first phase of
construction. The acquisition costs for the Total Development Site equal $2,215,000.
The acquisition costs are allocated as follows:
Family Project: $1,548,000; and
2. Senior Project: $667,000.
The allocated property acquisition costs are factored into the financial gap for each
development phase. However, as a practical matter, the Agency would be required to
provide upfront funding for the entire gap associated with the Phase I project plus the
property acquisition costs associated with the Phase II project.
ISSUES FOR CONSIDERATION
The proposed transaction requires the Agency to pay for the Total Development Site
without having any assurance that the Developer will be able to obtain sufficient outside
funding assistance to undertake the Phase II development. The risk to the Agency is
that if the Phase II development does not ultimately occur, the Agency will be left with a
large piece of vacant land with no concrete plans for development. Before agreeing to
pursue this development, the Agency should determine whether there is an alternative
use that they would like to pursue on the undeveloped portion of the Total Development
Site.
If the Agency decides to move forward with the Project, the Agency will need to choose
which product the Developer will construct first. This, in turn, will determine which
section of the Total Development Site will remain vacant until the Phase 11 development
can be implemented.
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KEYSER RSTON ASSOCIATES.
ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVISORS IN:
REAL EATAIT
REDEVELOPMENT
AFFORDABLE HOUSENG
EGONOMIG DEVELOPMENT
SAN FRANI!PkY)
A. JERRY KEYSER
TLN03HYC. KELLY
KATE EARLE FUNK
DEBBIE M. KERN
ROBERT I. W ETMORE
REED T. V AWAHARA
LOS ANOMSS
KATHLEEN H. HEAD
DAMES A. RARE
PAUL C. ANDERSON
GREGORY D. Soo-Hao
KEVIN E, ENGSTROM
JULIE L. ROMEY
DENISE DICKERSTAFP
SAN DIEGO
GERALD M. TRIMBLE
PAUL C. MARRA
To: Justin Carlson, Redevelopment Agency Analyst
City of Lake Elsinore
From: Kathleen Head
Tim Bretz
Date: May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis
At your request, Keyser Marston Associates, Inc. (KMA) prepared financial gap analyses
for a two-phase apartment development being proposed by AMCAL Multi-Housing Inc.
(Developer). The proposed development consists of one phase consisting of family
apartments and the other phase consisting of senior citizen apartments. The
development is proposed to be located on a 3.38-acre parcel at the southeast corner of
East Franklin Street and Avenue 7 (Total Development Site).
The Developer is currently proposing to acquire the Total Development Site. However, it
is our understanding that the Lake Elsinore Redevelopment Agency (Agency) only has
sufficient resources to assist one of the phases now, and that the second phase will be
delayed until the Developer accumulates sufficient outside financial assistance
resources to fill the financial gap associated with the second. It is further our
understanding that the Developer is willing to develop either the family project or the
senior citizen project in the first development phase. In recognition of this fact, KMA has
prepared separate financial analyses for the two proposed projects.
The following KMA analysis evaluates the development of the senior citizen apartment
project, which is proposed to be developed on approximately one acre of land area
(Senior Site) located in the northern section of the Total Development Site. The senior
citizen apartment phase consists of 49 apartment units targeted towards very-low
income and low income households, with one on-site manager's unit (Senior Project).
The purpose of the analysis is to estimate the financial gap associated with the Senior
Project.
500 SOUTH GRAND AVENUE,. SUITE 1480), LOS ANGELES, CALIFORNIA 900,71 H PHONE-.:2136228095 > FAX:2136225204
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 2
EXECUTIVE SUMMARY
The following funding sources are anticipated to be used to finance the Senior Project:
Tax-Exempt Multifamily Bonds that are competitively awarded by the California
Debt Limit Allocation Committee (CDLAC);
2. Low Income Housing Tax Credits (Tax Credits) that are automatically awarded
by the California Tax Credit Allocation Committee (TCAC) to projects that receive
a qualifying Bond allocation from CDLAC; and
3. Property Tax Increment Housing Set-Aside (Set-Aside) funds provided by the
Agency.
The KMA analysis results in a financial gap of $5.46 million, which is approximately
$456,000 higher than the Developer's request for $5.01 million in Agency financial
assistance. If the Agency moves forward with the Senior Project, it is the KMA
recommendation that the Agency assistance be limited to the Developer's financial
assistance request.
PROJECT DESCRIPTION
The proposed scope of development can be described as follows:
2.
3.
The Senior Site is comprised of approximately 43,659 square feet of land area.
The 49-unit Senior Project represents a density of approximately 49 units per
acre.
The proposed unit mix is as follows:
Number of Unit Size
Units (Sf)
One-Bedroom Units 40 706-
Two-Bedroom Units 9 900
Totals/Averages 49 740
4.
The gross building area (GBA) for the Senior Project is 46,282 square feet, which
includes:
a. Gross residential area totaling 36,100 square feet;
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 3
b. Gross community room area totaling 1,390 square feet; and
c. Gross circulation and common area totaling 8,792 square feet.
5. Forty-nine (49) surface parking spaces will be provided, which equates to a ratio
of one space per unit.
6. The Developer is proposing to allocate the units as follows:
Very-low Income Units
5
Low Income Units
43
Unrestricted Manager's Unit
1
Total Units
49
FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to assist in evaluating the Developer's proposal.
The analysis is located at the end of this memorandum, and is organized as follows:
Table 1: Estimated Development Costs
Table 2: Stabilized Net Operating Income
Table 3: Financial Gap Calculation
Estimated Development Costs (Table 1)
KMA reviewed the Developer's development cost estimate, and then independently
prepared a pro forma analysis for the Senior Project. The resulting development costs
are estimated as follows:
Property Assemblage Costs
The Developer estimated the property assemblage costs at $667,000, which consists of
the following:
The property acquisition costs are estimated at $611,000, or $14 per square foot
of land area. KMA was provided with a purchase and sale agreement, which
confirms the purchase price.
2. The Developer provided a $31,000 allowance for holding costs.
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3. The Developer estimated the closing costs at $25,000.
No appraisals were provided for KMA to review. If the warranted property acquisition
costs change as a result of appraisal information that is subsequently obtained, the KMA
analysis will need to be revised accordingly.
Direct Costs
The direct costs assume that the Senior Project will not be subject to State of California
prevailing wage requirements. The direct costs applied in the analysis can be
summarized as follows:
1. The Developer estimated the off-site improvement costs at $374,000, which
includes costs for utilities and street improvements. City of Lake Elsinore (City)
Planning Department staff should verify the scope of the improvements that will
be required to serve the Senior Project, and the accuracy of this cost estimate.
2. The on-site improvement costs are estimated at $14 per square foot of land area,
or $617,000.
3. The residential building costs are estimated at $4.14 million, or $89 per square
foot of residential GBA.
4. A $55,000 allowance for furnishings, fixtures and equipment is provided.
5. KMA included a 14% allowance for contractors' fees and general requirements,
which is the maximum allowed by TCAC.
6. An allowance for general liability insurance and construction bonds at 2% of
construction costs is provided.
7. A direct cost contingency allowance equal to 5% of other direct costs is provided.
KMA estimates the total direct costs at $6.31 million. This equates to $136 per square
foot of GBA.
Indirect costs
KMA utilized the following assumptions for estimating the indirect costs:
The architecture, engineering and consulting fees are estimated at 10% of direct
costs.
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Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 5
2. The Developer estimated the public permits and fees costs at $1.27 million, or
$25,800 per unit. City staff should verify the accuracy of this estimate.
3. The taxes, insurance, legal and accounting costs are estimated at 2% of direct
costs, or $126,000.
4. A $25,000 allowance for marketing and leasing costs is provided.
5. The Developer fee is set at $1.33 million, which is the maximum amount allowed
for the Senior Project by TCAC.
6. An indirect cost contingency allowance equal to 5% of other indirect costs is
provided.
KMA estimates the total indirect costs at $3.55 million.
Financing Costs
The Senior Project is proposed to be financed with Tax-Exempt Multifamily Bonds
allocated by CDLAC. To comply with Internal Revenue Service (IRS) requirements, the
Bond must be equal to at least 50% of the Senior Project's land acquisition costs plus
eligible Tax Credit basis. To meet the 50% test for the Senior Project, the Bond must
equal at least $5.42 million.
The Senior Project's estimated net operating income can only support a $1.67 million
Bond (Series A Bond). Therefore, a Series B Bond must be issued to cover the greater
of the funds required to meet the 50% test, or the construction costs for which
construction period funding is not available. In this case, the $3.74 million necessary to
meet the 50% test exceeds the unfunded construction costs of $3.05 million. Thus, the
Series B Bond is set at $3.74 million.
The financing costs for the Senior Project are estimated as follows:
The construction period and absorption period interest costs are estimated at
$292,000. These costs are based on the following assumptions:
a. The construction period interest costs are based on a 4.5% interest rate,
a 14-month construction period, and a 60% average outstanding balance.
b. The absorption period interest costs are based on a six-month absorption
period with a 100% average outstanding balance.
2. The financing fees are set at 5.0 points. This equates to $271,000.
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3. The capitalized operating reserve is estimated at $90,000. This allowance is
equal to three months of operating expenses and debt service payments.
4. The Tax Credit fees are estimated at $27,000 based on the following
assumptions:
a. A $2,000 application fee;
b. A $410 per unit monitoring fee; and
c. One percent (1 of gross Tax Credit proceeds for one year.
KMA estimates the total financing costs at $680,000.
Total Development Costs
As shown in Table 1, KMA estimates the total development costs at $11.2 million. This
estimate is $660,000 higher than the Developer's development cost estimate. The
difference in the cost estimates is primarily attributable to the following:
KMA's estimate of direct construction costs is $1.07 million higher than the
Developer's estimate.
The Developer's estimate of indirect costs is $132,000 higher than the KMA
estimate.
The Developer's financing cost estimate is $281,000 higher than the KMA
estimate.
Stabilized Net Operating Income (Table 2)
Income and Affordability Restrictions
The Senior Project's funding sources include Tax-Exempt Multifamily Bonds, Tax Credits
and Set-Aside funds. Each of these programs publishes the applicable income limits for
households that are qualified to reside in the development.
The Tax-Exempt Multifamily Bond Program and the Tax Credit Program publish rent
standards for projects that receive these funds. Comparatively, California Health and
Safety Code Section 50053 (Section 50053) defines the affordable housing cost
calculation methodology that must be applied for projects assisted with Set-Aside funds.
In order for the units to fulfill the production and expenditures proportionality
requirements imposed on the Agency by California Redevelopment Law (CRL), the rents
must comply with the Section 50053 affordable housing cost calculation.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 7
The KMA analysis is based on the following household income and affordable rent
standards
Income Restrictions: The tenants' income cannot exceed the strictest of:
a. CRL income restrictions as defined under California Health and Safety
Code Section 50105 for very-low income households and Section
50079.5 for low income households; and
b. Federal Low Income Housing Tax Credits income restrictions defined
under United States Code, Title 26, Section 142(d)(2)(B).
2. Affordability Restrictions: The rents applied to the units must reflect the most
stringent of:
a. The Tax-Exempt Multifamily Bond rents published annually by CDLAC;
b. The Tax Credits rents published annually by TCAC;
C. The rents derived from the affordable housing cost calculation
methodology defined in Section 50053.
Net Operating Income
The rents applied to the units must reflect the most restrictive requirements imposed by
the proposed funding sources. Based on information distributed by CDLAC, TCAC, and
the California Department of Housing and Community Development (HCD) in 2010, the
rents, net the appropriate utility allowances, are estimated as follows:'
One-Bedroom
Two-Bedroom
Rent Restriction
Units
Units
Very-Low Income
CRL Rents
$595
$656
TCAC Rents @ 50% of Median
$554
$656
Applicable Rents
$554
$656
Low Income
CRL Rents
$725
$803
TCAC Rents @ 60% of Median
$676
$802
Applicable Rents
$676
$802
' The Developer estimated the monthly utility allowances as $55 for a one-bedroom unit and $75
for a two-bedroom unit.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 8
KMA estimates the Senior Project's gross income at $407,000, which includes laundry
and miscellaneous income averaging $6 per unit per month. After applying a 5%
vacancy and collection allowance, KMA estimates the resulting effective gross income
(EGI) at $386,600.
The operating expenses are estimated as follows:
The general operating expenses are estimated at approximately $4,200 per unit
per year.
2. KMA assumes the Developer will apply for the property tax abatement that is
accorded to non-profit housing organizations that own income-restricted
apartments. As such, the Developer estimates that the Senior Project will not be
subject to any property tax payments.
3. The Developer estimated the cost to provide social services at $16,200 per year.
4. The annual capital replacement reserve deposit is estimated at $250 per unit,
which is the minimum amount required by TCAC.
As shown in Table 2, the residential operating expenses are estimated to total $234,300,
or approximately $4,800 per unit. When the Senior Project's EGI is reduced by the
operating expenses, KMA estimates the stabilized net operating income (NOI) at
$152,300. This estimate is the same as the Developer's NOI estimate.
Financial Gap Calculation (Table 3)
The financial gap is estimated by deducting the available outside funding sources from
the Senior Project's total development costs. The outside funding sources anticipated to
be received by the Senior Project are described in the following sections of this analysis.
Total Available Funding Sources
Tax-Exempt Multifamily Bonds
Based on the following underwriting assumptions, KMA estimates that the Senior Project
can support $1.67 million in Tax-Exempt Multifamily Bonds:
A 120% debt service coverage ratio;
2. A 6.5% interest rate; and
3. A 30-year amortization period.
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Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 9
Tax Credit Proceeds
KMA estimates the net Tax Credit proceeds at $4.07 million. The value is calculated
based on the following assumptions:
1. The Senior Project's eligible Tax Credit basis is equal to the lesser of the
depreciable costs for the 49 Tax Credit units, or the basis limits established by
TCAC. In this case, the $10.22 million in depreciable costs can all be included in
the Senior Project's eligible basis.
2. The Senior Project is located in a designated "Difficult to Develop" census tract,
which allows the eligible Tax Credit basis to be increased by 30%. The resulting
total eligible basis is $13.28 million.
3. The current Tax Credit application sets the annual Tax Credit rate at 3.4%.
4. 100% of the Senior Project's building area is located in units that qualify for Tax
Credits.
5. The net syndication value supported by the Tax Credit is ultimately determined
based on competitive market conditions and on the timing of the disbursements.
Based on currently available information, KMA and the Developer estimate the
proceeds at $0.90 per gross Tax Credit dollar.
Total Available Outside Funding Sources
KMA estimates the total outside funding sources at $5.74 million. In contrast, the
Developer estimates the total outside funding sources at $5.53 million. The
approximately $204,000 differential is attributed to:
KMA utilized a 120% debt service coverage ratio, while the Developer utilized a
115% debt service coverage ratio. The Developer's estimate of supportable
financing is $74,000 higher than the KMA estimate.
The KMA estimate of direct construction costs is significantly higher than the
Developer's estimated costs, which results in a higher eligible Tax Credit basis
than is being used in the Developer's analysis. The KMA estimate of net Tax
Credit proceeds is $278,000 higher than the Developer's estimate.
Financial Gap Conclusion
Based on the assumptions outlined in this analysis, KMA calculates the financial gap as
follows:
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 10
Total Development Costs $11,202,000
(Less) Total Available Funding Sources (5,738,000)
Financial Gap $5,464,000
Per Unit $111,500
Based on the results of the preceding financial analysis, it is the KMA conclusion that the
Senior Project exhibits a $5.46 million financial gap. In comparison, the Developer has
requested $5.01 million in financial assistance from the Agency. The causes of the
$456,000 difference in the financial gap estimates are summarized in the following table:
KMA Developer
Estimated Development Costs $11,202,000 $10,542,000
(Less) Available Funding Sources (5,738,000) (5,534,000)
Financial Gap
$5,464,000 $5,008,000
$660,000
$456,000
CONCLUSIONS / RECOMMENDATIONS
Based on the results of the preceding analysis, it is the KMA conclusion that the Senior
Project demonstrates a $5.46 million financial gap. However, the Developer is
requesting that the Agency provide $5.01 million in assistance to the Senior Project. It is
the KMA recommendation that the Agency limit the assistance to the amount of the
Developer's request.
It is important to note that KMA has not been provided with an appraisal for the Total
Development Site. If an appraisal is ultimately performed, and the established value is
different than the amount used in this analysis, the KMA financial gap analysis will need
to be revised accordingly.
It is the KMA assumption that the Agency assistance to the Project will be structured as
a residual receipts note. This loan should be secured by a subordinated deed of trust
against the property and evidenced by a promissory note and a regulatory agreement.
KMA recommends that the loan be structured as follows:
The loan should have a 55-year term.
2. The loan should bear simple interest at a 3% rate.
3. The Project's revenues should be distributed in the following priority order:
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Senior Apartments: Financial Gap Analysis Page 11
a. Approved operating expenses;
b. Approved deposits into reserves accounts;
C. Debt service on the Tax-Exempt Multifamily Bond financing;
d. Payment of asset management fees and partnership management fees
for the first 15 years of operation that should be capped at $17,000 in the
first year, and then escalated at 3% per year thereafter;
e. Repayment of any general partner development loans and contributions;
and
f. Payment of any Tax Credit equity adjusters to the limited partner.
4. The Agency should receive at least 50% of the cash flow remaining after the
approved distributions.
5. Any outstanding principal and interest balance of the residual receipts loan
should become due and payable at the end of the 55-year term. The repayment
period should be extended if the Developer agrees to extend the income and
affordability covenants.
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TABLE 1
ESTIMATED DEVELOPMENT COSTS
5 VERY-LOW INCOME UNITS AND 43 LOW INCOME UNITS
AMCAL SENIOR HOUSING
LAKE ELSINORE, CALIFORNIA
1. Property Assemblage Costs
Property Acquisition Costs
43,659
Sf Land
$14
/Sf Land
$611,000
Holding Costs 2
31,000
Closing Costs z
25,000
Total Property Assemblage Costs
43,659
Sf Land
$15
ISf Land
$667,000
II. Direct Costs3
Off-site Improvements 4
$374,000
On-site Improvements 5
43,659
Sf Land
$14
/Sf Land
617,000
Residential Building Costs
46,282
Sf GBA
$89
ISf GBA
4,138,000
Furnishings, Fixtures & Equipment
55,000
Contractor Fees / General Requirements
14%
Construction Costs
718,000
General Liability Insurance / Const Bonds
2%
Construction Costs
103,000
Contingency Allowance
5%
Other Direct Costs
300,000
Total Direct Costs $6,305,000
III. Indirect Costs
Architecture, Engineering & Consulting
10%
Direct Costs
$631,000
Permits & Fees 6
49
Units
$25,841
/Unit
1,266,000
Taxes, Ins, Legal & Accounting
2.0%
Direct Costs
126,000
Marketing & Leasing
49
Units
$500
/Unit
25,000
Developer Fee 7
15%
Eligible Costs
1,333,000
Contingency Allowance
5%
Other Indirects
169,000
Total Indirect Costs
$3,550,000
IV. Financing Costs
Interest During Construction
Series A Bond 6
$1,673,000
Loan Amount
4.50%
Interest
$90,000
Series B Bond a
$3,742,000
Loan Amount
4.50%
Interest
202,000
Financing Fees
Series A Bond
$1,673,000
Loan Amount
5.00
Points
84,000
Series B Bond
$3,742,000
Loan Amount
5.00
Points
187,000
Operating Reserves
3
Months Op Exp and
Debt Svc Pmts
90,000
TCAC Fees 10
27,000
Total Financing Costs
$680,000
V. Total Development Costs
49
Units
$228,600
/Unit
$11,202,000
Based on Amendment to Phase 1 Purchase Agreement between AMCAL Multi-Housing, Inc. and Franklin St. LP dated 4/12/2011.
2 Based on Developer estimate.
3 Estimates assume prevailing wage requirements will NOT be imposed on the Project.
4 Based on Developer estimate. City staff should identify the scope and cost of the required off-site improvements.
5 Includes costs for 49 at-grade parking spaces.
6 Based on Developer estimate. The estimate should be verified by City staff.
7 Equal to the maximum amount allowed by TCAC.
6 Includes debt on the 75% of the Tax Credit Equity which will not be funded during construction. Assumes a 14-month construction period with a
60% average outstanding balance and a 6-month absorption period with a 100% average outstanding balance.
9 Equal to 50% of the eligible Tax Credit basis plus the property acquisition costs minus the Series A bond amount; a 14-month construction period
with a 60% average outstanding balance; and a 6-month absorption period with a 100% average outstanding balance.
t0 Includes a $2,000 application fee; $410/unit monitoring fee; and 1 % of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4%_TC_5 13 11 Senior; Pro Forma; trb Page 18 of 48
TABLE 2
STABILIZED NET OPERATING INCOME
5 VERY-LOW INCOME UNITS AND 43 LOW INCOME UNITS
AMCAL SENIOR HOUSING
LAKE ELSINORE, CALIFORNIA
1. Gross Residential Income'
Manager's Unit 2
VL Inc RedevfTax Credit @ 50% Median
1-Bedroom Units @ (700-Sf)
2-Bedroom Units @ (900-Sf)
Low Inc Redev/Tax Credit @ 60% Median
1-Bedroom Units @ (700-Sf)
2-Bedroom Units @ (900-Sf)
Gross Residential Income
Laundry/Miscellaneous Income
Gross Income
(Less) Vacancy & Collection Allowance
Effective Gross Income
$386,600
II. Operating Expenses
General Operating Expenses
49
Units
$4,200 /Unit
$205,800
Property Taxes 3
49
Units
$0 /Unit
-
Services
49
Units
$331 /Unit
16,200
Replacement Reserve
49
Units
$250 /Unit
12,300
Total Operating Expenses
49
Units
$4,782 /Unit
$234,300
III. Net Operating Income
$152,300
I Based on Riverside County 2010 Incomes distributed by HUD/HCD. As pertinent, the rents are based on rents published in 2010 by TCAC and
California Health and Safety Code Section 50053 calculation methodology. Utility Allowances per Developer: $55 for 1-Bdrm units and $75 for 2-
Bdrm units.
2 Based on Developer estimate.
3 Based on the assumption that the Developer will receive the property tax exemption accorded to non-profit housing organizations that develop
income-restricted apartments.
1
Unit
$802
/Unit/Month
$9,600
4
Units
$554
/Unit/Month
26,600
1
Units
$656
/Unit/Month
7,900
36
Units
$676
/Unit/Month
292,000
7
Units
$802
/Unit/Month
67,400
49
Units
$403,500
49
Units -
$6
/Unit/Month
3,500
$407,000
5%
Gross Income
(20,400)
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4%_TC_5 13 11 Senior; Pro Forma; trb Page 19 of 48
TABLE 3
FINANCIAL GAP CALCULATION
5 VERY-LOW INCOME UNITS AND 43 LOW INCOME UNITS
AMCAL SENIOR HOUSING
LAKE ELSINORE, CALIFORNIA
1. Available Funding Sources
Tax-Exempt Financing
Net Operating Income
Income Available for Mortgage
Interest Rate
$152,300 NOI (See Table 2)
1.20 DCR
6.50% Interest Rate
$126,917 Debt Service
7.58% Mortgage Constant
Permanent Loan
Tax Credit Equity'
Gross Tax Credit Value
Syndication Rate
Net Tax Credit Equity
Total Available Funding Sources
II. Financial Gan Calculation
Total Development Costs
(Less) Total Available Funding Sources
$11,202,000
(5,738,000)
III. Financial Gap 49 Units $111,500 /Unit $5,464,000
Assumes a $10.2 million eligible basis, which includes a 130% difficult-to-develop premium, a 3.4% Tax Credit rate and an applicable fraction of
100%.
$1,673,000
$4,517,000
$0.90 /Tax Credit Dollar
$4,065,000
$5,738,000
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4%_TC_5 13 11_Senior; Pro Forma; trb Page 20 of 48
m
r .v
021
KE'YSER RSTON ASSOCL4TESY
ADVISORS IN PUIL(Cf PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVISDRs IM
REAL ESTATE
REDEVELOPMENT
APFORDAULE HOUSING
ECONOMIC DEVELOPMENT
.
SAN FR: MC3(YA
A.IEKRYKEMP,
TIMOTHYC. KELLY
KATE EARLE FUNK
DERDIE M. KERN
ROBERT!- WETMORE
REED T. K.AY✓AHARA
ISIS ANGELES
KATHLEEN H. HEAD
JAMESA. RARE
PAUL C. ANDERSON
GREGORY D. 5003700
KEVIN E. ENGSTROM
JULIF L.ROMEY
DENIsE BICKERSTA£E
SAN DIEGO
GERALDM.TRIMRLE
PAUL C. MARRA
To: Justin Carlson, Redevelopment Agency Analyst
City of Lake Elsinore
From: Kathleen Head
Tim Bretz
Date: May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis
At your request, Keyser Marston Associates, Inc. (KMA) prepared financial gap analyses
for a two-phase apartment development being proposed by AMCAL Multi-Housing Inc.
(Developer). The proposed development consists of one phase consisting of family
apartments and the other phase consisting of senior citizen apartments. The
development is proposed to be located on a 3.38-acre parcel at the southeast corner of
East Franklin Street and Avenue 7 (Total Development Site).
The Developer is currently proposing to acquire the Total Development Site. However, it
is our understanding that the Lake Elsinore Redevelopment Agency (Agency) only has
sufficient resources to assist one of the phases now, and that the second phase will be
delayed until the Developer accumulates sufficient outside financial assistance
resources to fill the financial gap associated with the second. It is further our
understanding that the Developer is willing to develop either the family project or the
senior citizen project in the first development phase. In recognition of this fact, KMA has
prepared separate financial analyses for the two proposed projects.
The following KMA analysis evaluates the development of the family apartment project,
which is proposed to be developed on 2.38 acres of land area (Family Site) located in
the southern section of the Total Development Site. The family apartment phase
consists of 48 apartment units targeted towards very-low income and low income
households, with one on-site manager's unit (Family Project). The purpose of the
analysis is to estimate the financial gap associated with the Family Project.
500 SOUTH GRANDAVENlUE,SUITE1480-.`> LOSANGELES,CA1LTTORNIA90071> PRONt-.2136228095 Ir FAX:, 213611-5204
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 2
EXECUTIVE SUMMARY
The following funding sources are anticipated to be used to finance the Family Project:
1. Tax-Exempt Multifamily Bonds that are competitively awarded by the California
Debt Limit Allocation Committee (CDLAC);
2. Low Income Housing Tax Credits (Tax Credits) that are automatically awarded
by the California Tax Credit Allocation Committee (TCAC) to projects that receive
a qualifying Bond allocation from CDLAC; and
3. Property Tax Increment Housing Set-Aside (Set-Aside) funds provided by the
Agency.
The KMA analysis results in a financial gap of $6.28 million, which is approximately
$486,000 higher than the Developer's request for $5.8 million in Agency financial
assistance. If the Agency moves forward with the Family Project, it is the KMA
recommendation that the Agency assistance be limited to the Developer's financial
assistance request.
PROJECT DESCRIPTION
The proposed scope of development can be described as follows:
2.
3.
The Family Site is comprised of approximately 103,600 square feet of land area.
The 48-unit Family Project represents a density of approximately 20 units per
acre.
The proposed unit mix is as follows:
Number of
Unit Size
Units
(Sf)
Two-Bedroom Units
32
826-
Three-Bedroom Units
16
1,000
Totals/Averages
48
880
4.
The gross building area (GBA) for the Family Project is 54,154 square feet, which
includes:
a. Gross residential area totaling 42,240 square feet;
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 3
b. Gross community room area totaling 1,370 square feet; and
c. Gross circulation and common area totaling 10,544 square feet.
One-hundred twelve (112) surface parking spaces will be provided, which
equates to a ratio of 2.3 spaces per unit.
6. The Developer is proposing to allocate the units as follows:
Very-low Income Units 6
Low Income Units 41
Unrestricted Manager's Unit 1
Total Units 48
FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to assist in evaluating the Developer's proposal.
The analysis is located at the end of this memorandum, and is organized as follows:
Table 1: Estimated Development Costs
Table 2: Stabilized Net Operating Income
Table 3: Financial Gap Calculation
Estimated Development Costs (Table 1)
KMA reviewed the Developer's development cost estimate, and then independently
prepared a pro forma analysis for the Family Project. The resulting development costs
are estimated as follows:
Property Assemblage Costs
The Developer estimated the property assemblage costs at $1.55 million, which consists
of the following:
The property acquisition costs are estimated at $1.45 million, or $14 per square
foot of land area. KMA was provided with a purchase and sale agreement, which
confirms the purchase price.
2. The Developer provided a $73,000 allowance for holding costs.
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Subject: AMCAL Family Apartments: Financial Gap Analysis Page 4
3. The Developer estimated the closing costs at $25,000.
No appraisals were provided for KMA to review. If the warranted property acquisition
costs change as a result of appraisal information that is subsequently obtained, the KMA
analysis will need to be revised accordingly.
Direct Costs
The direct costs assume that the Family Project will not be subject to State of California
prevailing wage requirements. The direct costs applied in the analysis can be
summarized as follows:
The Developer estimated the off-site improvement costs at $403,000, which
includes costs for utilities and street improvements. City of Lake Elsinore (City)
Planning Department staff should verify the scope of the improvements that will
be required to serve the Family Project, and the accuracy of this cost estimate.
2. The on-site improvement costs are estimated at $12 per square foot of land area,
or $1.27 million.
3. The residential building costs are estimated at $4.06 million, or $75 per square
foot of residential GBA.
4. A $55,000 allowance for furnishings, fixtures and equipment is provided.
5. KMA included a 14% allowance for contractors' fees and general requirements,
which is the maximum allowed by TCAC.
6. An allowance for general liability insurance and construction bonds at 2% of
construction costs is provided.
7. A direct cost contingency allowance equal to 5% of other direct costs is provided.
KMA estimates the total direct costs at $7.05 million. This equates to $130 per square
foot of GBA.
Indirect costs
KMA utilized the following assumptions for estimating the indirect costs:
The architecture, engineering and consulting fees are estimated at 10% of direct
costs.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 5
2. The Developer estimated the public permits and fees costs at $1.24 million, or
$25,800 per unit. City staff should verify the accuracy of this estimate.
The taxes, insurance, legal and accounting costs are estimated at 2% of direct
costs, or $141,000.
A $24,000 allowance for marketing and leasing costs is provided.
5. The Developer fee is set at $1.46 million, which is the maximum amount allowed
for the Family Project by TCAC.
6. An indirect cost contingency allowance equal to 5% of other indirect costs is
provided.
KMA estimates the total indirect costs at $3.75 million.
Financing Costs
The Family Project is proposed to be financed with Tax-Exempt Multifamily Bonds
allocated by CDLAC. To comply with Internal Revenue Service (IRS) requirements, the
Bond must be equal to at least 50% of the Family Project's land acquisition costs plus
eligible Tax Credit basis. To meet the 50% test for the Family Project, the Bond must
equal at least $6.32 million.
The Family Project's estimated net operating income can only support a $2.33 million
Bond (Series A Bond). Therefore, a Series B Bond must be issued to cover the greater
of the funds required to meet the 50% test, or the construction costs for which
construction period funding is not available. In this case, the $3.99 million necessary to
meet the 50% test exceeds the unfunded construction costs of $3.34 million. Thus, the
Series B Bond is set at $3.99 million.
The financing costs for the Family Project are estimated as follows:
The construction period and absorption period interest costs are estimated at
$341,000. These costs are based on the following assumptions:
a. The construction period interest costs are based on a 4.5% interest rate,
a 14-month construction period, and a 60% average outstanding balance.
b. The absorption period interest costs are based on a six-month absorption
period with a 100% average outstanding balance.
The financing fees are set at 5.0 points. This equates to $315,000.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 6
3. The capitalized operating reserve is estimated at $103,000. This allowance is
equal to three months of operating expenses and debt service payments.
4. The Tax Credit fees are estimated at $27,000 based on the following
assumptions:
a. A $2,000 application fee;
b. A $410 per unit monitoring fee; and
c. One percent (1%) of gross Tax Credit proceeds for one year.
KMA estimates the total financing costs at $786,000.
Total Development Costs
As shown in Table 1, KMA estimates the total development costs at $13.13 million. This
estimate is $772,000 higher than the Developer's development cost estimate. The large
difference in cost estimates is primarily attributable to the following:
KMA's estimate of direct construction costs is $1.09 million higher than the
Developer's estimate.
2. The Developer's estimate of indirect costs is $56,000 higher than the KMA
estimate.
3. The Developer's financing cost estimate is $266,000 higher than the KMA
estimate.
Stabilized Net Operating Income (Table 2)
Income and Affordability Restrictions
The Family Project's funding sources include Tax-Exempt Multifamily Bonds, Tax
Credits and Set-Aside funds. Each of these programs publishes the applicable income
limits for households that are qualified to reside in the development.
The Tax-Exempt Multifamily Bond Program and the Tax Credit Program publish rent
standards for projects that receive these funds. Comparatively, California Health and
Safety Code Section 50053 (Section 50053) defines the affordable housing cost
calculation methodology that must be applied for projects assisted with Set-Aside funds.
In order for the units to fulfill the production and expenditures proportionality
requirements imposed on the Agency by California Redevelopment Law (CRL), the rents
must comply with the Section 50053 affordable housing cost calculation.
1105011; LE:KHH:gbd
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 7
The KMA analysis is based on the following household income and affordable rent
standards
Income Restrictions: The tenants' income cannot exceed the strictest of:
a. CRL income restrictions as defined under California Health and Safety
Code Section 50105 for very-low income households and Section
50079.5 for low income households; and
b. Federal Low Income Housing Tax Credits income restrictions defined
under United States Code, Title 26, Section 142(d)(2)(B).
Affordability Restrictions: The rents applied to the units must reflect the most
stringent of:
a. The Tax-Exempt Multifamily Bond rents published annually by CDLAC;
b. The Tax Credits rents published annually by TCAC;
C. The rents derived from the affordable housing cost calculation
methodology defined in Section 50053.
Net Operating Income
The rents applied to the units must reflect the most restrictive requirements imposed by
the proposed funding sources. Based on information distributed by CDLAC, TCAC, and
the California Department of Housing and Community Development (HCD) in 2010, the
rents, net the appropriate utility allowances, are estimated as follows:'
Two-Bedroom
Three-Bedroom
Rent Restriction
Units
Units
Very-Low Income
CRL Rents
$656
$710
TCAC Rents @ 50% of Median
$656
$742
Applicable Rents
$656
$710
Low Income
CRL Rents
$803
$872
TCAC Rents @ 60% of Median
$802
$911
Applicable Rents
$802
$872
' The Developer estimated the monthly utility allowances as $75 for a two-bedroom unit and $103
for a three-bedroom unit.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 8
KMA estimates the Family Project's gross income at $470,100, which includes laundry
and miscellaneous income averaging $9 per unit per month. After applying a 5%
vacancy and collection allowance, KMA estimates the resulting effective gross income
(EGI) at $446,600.
The operating expenses are estimated as follows:
The general operating expenses are estimated at approximately $4,300 per unit
per year.
2. KMA assumes the Developer will apply for the property tax abatement that is
accorded to non-profit housing organizations that own income-restricted
apartments. As such, the Developer estimates that the Family Project will not be
subject to any property tax payments.
3. The Developer estimated the cost to provide social services at $16,200 per year.
4. The annual capital replacement reserve deposit is estimated at $250 per unit,
which is the minimum amount required by TCAC.
As shown in Table 2, the residential operating expenses are estimated to total $234,600,
or approximately $4,900 per unit. When the Family Project's EGI is reduced by the
operating expenses, KMA estimates the stabilized net operating income (NOI) at
$212,000.
The Developer estimated the Family Project's NOI at $209,640, which is approximately
$2,400 lower than the KMA estimate. This differential is caused by the fact that the
Developer set the replacement reserve deposits at $300 per unit per year, while KMA
set this allowance at the $250 per unit per year.
Financial Gap Calculation (Table 3)
The financial gap is estimated by deducting the available outside funding sources from
the Family Project's total development costs. The outside funding sources anticipated to
be received by the Family Project are described in the following sections of this analysis.
Total Available Funding Sources
Tax-Exempt Multifamily Bonds
Based on the following underwriting assumptions, KMA estimates that the Family Project
can support $2.33 million in Tax-Exempt Multifamily Bonds:
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 9
A 120% debt service coverage ratio;
A 6.5% interest rate; and
3. A 30-year amortization period.
Tax Credit Proceeds
KMA estimates the net Tax Credit proceeds at $4.45 million. The value is calculated
based on the following assumptions:
1. The Family Project's eligible Tax Credit basis is equal to the lesser of the
depreciable costs for the 48 Tax Credit units, or the basis limits established by
TCAC. In this case, the $11.18 million in depreciable costs can all be included in
the Family Project's eligible basis.
2. The Family Project is located in a designated "Difficult to Develop" census tract,
which allows the eligible Tax Credit basis to be increased by 30%. The resulting
total eligible basis is $14.54 million.
3. The current Tax Credit application sets the annual Tax Credit rate at 3.4%.
4. 100% of the Family Project's building area is located in units that qualify for Tax
Credits.
5. The net syndication value supported by the Tax Credit is ultimately determined
based on competitive market conditions and on the timing of the disbursements.
Based on currently available information, KMA and the Developer estimate the
proceeds at $0.90 per gross Tax Credit dollar.
Total Available Outside Funding Sources
KMA estimates the total outside funding sources at $6.78 million. In contrast, the
Developer estimates the total outside funding sources at $6.56 million. The
approximately $219,000 differential is attributed to:
KMA utilized a 120% debt service coverage ratio, while the Developer utilized a
115% debt service coverage ratio. The Developer's estimate of supportable
financing is $74,000 higher than the KMA estimate.
2. The KMA estimate of direct construction costs is significantly higher than the
Developer's estimated costs, which results in a higher eligible Tax Credit basis
than is being used in the Developer's analysis. The KMA estimate of net Tax
Credit proceeds is $293,000 higher than the Developer's estimate.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 10
Financial Gap Conclusion
Based on the assumptions outlined in this analysis, KMA calculates the financial gap as
follows:
Total Development Costs $13,127,000
(Less) Total Available Funding Sources (6,778,000)
Financial Gap $6,349,000
Per Unit $132,300
Based on the results of the preceding financial analysis, it is the KMA conclusion that the
Family Project exhibits a $6.35 million financial gap. In comparison, the Developer has
requested $5.8 million in financial assistance from the Agency. The causes of the
$553,000 difference in the financial gap estimates are summarized in the following table:
KMA Developer
Estimated Development Costs $13,127,000 $12,355,000 $772,000
(Less) Available Funding Sources (6,778,000) (6,559,000) (219,000)
Financial Gap $6,349,000 $5,796,000 $553,000
CONCLUSIONS/RECOMMENDATIONS
Based on the results of the preceding analysis, it is the KMA conclusion that the Family
Project demonstrates a $6.35 million financial gap. However, the Developer is
requesting that the Agency provide $5.8 million in assistance to the Family Project. It is
the KMA recommendation that the Agency limit the assistance to the amount of the
Developer's request.
It is important to note that KMA has not been provided with an appraisal for the Total
Development Site. If an appraisal is ultimately performed, and the established value is
different than the amount used in this analysis, the KMA financial gap analysis will need
to be revised accordingly.
It is the KMA assumption that the Agency assistance to the Project will be structured as
a residual receipts note. This loan should be secured by a subordinated deed of trust
against the property and evidenced by a promissory note and a regulatory agreement.
KMA recommends that the loan be structured as follows:
The loan should have a 55-year term.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: AMCAL Family Apartments: Financial Gap Analysis Page 11
2. The loan should bear simple interest at a 3% rate.
3. The Project's revenues should be distributed in the following priority order:
a. Approved operating expenses;
b. Approved deposits into reserves accounts;
C. Debt service on the Tax-Exempt Multifamily Bond financing;
d. Payment of asset management fees and partnership management fees
for the first 15 years of operation that should be capped at $17,000 in the
first year, and then escalated at 3% per year thereafter;
e. Repayment of any general partner development loans and contributions;
and
f. Payment of any Tax Credit equity adjusters to the limited partner.
4. The Agency should at least receive 50% of the cash flow remaining after the
approved distributions.
5. Any outstanding principal and interest balance of the residual receipts loan
should become due and payable at the end of the 55-year term. The repayment
period should be extended if the Developer agrees to extend the income and
affordability covenants.
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~Y4&0,"1 1648
TABLE 1
ESTIMATED DEVELOPMENT COSTS
6 VERY-LOW INCOME UNITS AND 41 LOW INCOME UNITS
AMCAL FAMILY HOUSING
LAKE ELSINORE, CALIFORNIA
1. Property Assemblage Costs
Property Acquisition Costs'
103,605
Sf Land
$14
/Sf Land
$1,450,000
Holding Costs'
73,000
Closing Costs 2
25,000
Total Property Assemblage Costs
103,605
Sf Land
$15
/Sf Land
$1,548,000
IL Direct Costs3
Off-Site Improvements 4
$403,000
On-Site Improvements 5
103,605
Sf Land
$12
/Sf Land
1,272,000
Residential Building Costs
54,154
Sf GBA
$75
/Sf GBA
4,062,000
Furnishings, Fixtures & Equipment
55,000
Contractor Fees / General Requirements
14%
Construction Costs
803,000
General Liability Insurance / Cosst Bonds
2%
Construction Costs
115,000
Contingency Allowance
5%
Other Direct Costs
336,000
Total Direct Costs
$7,046,000
111. Indirect Costs
Architecture, Engineering & Consulting
10%
Direct Costs
$705,000
Permits & Fees 6
48
Units
$25,841
/Unit
1,240,000
Taxes, Ins, Legal &Accounting
2.0%
Direct Costs
141,000
Marketing & Leasing
48
Units
$500
/Unit
24,000
Developer Fee 7
15%
Eligible Costs
1,459,000
Contingency Allowance
5%
Other Indirects
178,000
Total Indirect Costs
$3,747,000
IV. Financing Costs
Interest During Construction
Series A Bond 9
$2,329,000
Loan Amount
4.50%
Interest
$126,000
Series B Bond'
$3,988,000
Loan Amount
4.50%
Interest
215,000
Financing Fees
Series A Bond
$2,329,000
Loan Amount
5.00
Points
116,000
Series B Bond
$3,988,000
Loan Amount
5.00
Points
199,000
Operating Reserves
3
Months Op Exp and Debt Svc Pmts
103,000
TCAC Fees tO
27,000
Total Financing Costs
$786,000
V. Total Development Costs
48
Units
$273,500
/Unit
$13,127,000
Based on Amendment to Phase 11 Purchase Agreement between AMCAL Multi-Housing, Inc. and Franklin St. LP dated 4/1212011.
2 Based on Developer estimate.
3 Estimates assume prevailing wage requirements will NOT be imposed on the Project.
4 Based on Developer estimate. City staff should identify the scope and cost of the required off-site improvements.
5 Includes costs for 112 at-grade parking spaces.
6 Based on Developer estimate. The estimate should be verified by City staff.
Equal to the maximum amount allowed by TCAC.
8 Includes debt on the 75% of the Tax Credit Equity which will not be funded during construction. Assumes a 14-month construction period with a
60% average outstanding balance and a 6-month absorption period with a 100% average outstanding balance.
s Equal to 50% of the eligible Tax Credit basis plus the property acquisition costs minus the Series A bond amount; a 14-month construction period
with a 60% average outstanding balance; and a 6-month absorption period with a 100% average outstanding balance.
10 Includes a $2,000 application fee; $410/unit monitoring fee; and 1% of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4% TC_5 12 11_Family; Pro Forma; lrb Page 32 of 48
TABLE 2
STABILIZED NET OPERATING INCOME
6 VERY-LOW INCOME UNITS AND 41 LOW INCOME UNITS
AMCAL FAMILY HOUSING
LAKE ELSINORE. CALIFORNIA
1. Gross Residential Income'
Manager's Unite
1
Unit
$911
/Unit/Month
$10,900
VL Inc Redev[Tax Credit (550% Median
2-Bedroom Units @ (820-Sf)
4
Units
$656
/Unit/Month
31,500
3-Bedroom Units @ (1,000-Sf)
2
Units
$710
/UniUMonth
17,000
Low Inc Redev/Tax Credit aa. 60% Median
2-Bedroom Units @ (820-Sf)
28
Units
- $802
/Unit/Month
269,500
3-Bedroom Units @ (1,000-Sf)
13
Units
$872
/UniUMonth
136,000
Gross Residential Income
48
Units
$464,900
Laundry/Miscellaneous Income
48
Units
$9
/Unit/Month
5,200
Gross Income
$470,100
(Less) Vacancy & Collection Allowance
5%
Gross Income
(23,500)
Effective Gross Income
$446,600
11. Operating Expenses
General Operating Expenses
48
Units
$4,300
/Unit
$206,400
Property Taxes3
48
Units
$0
/Unit
-
Services
48
Units
$338
/Unit
16,200
Replacement Reserve
48
Units
$250
/Unit
12,000
Total Operating Expenses
48 Units
$4,890 /Unit
$234,600
111. Net Operating income $212,000
Based on Riverside County 2010 Incomes distributed by HUD/HCD. As pertinent, the rents are based on rents published in 2010 by TCAC and
California Health and Safety Code Section 50053 calculation methodology. Utility Allowances per Developer: $75 for 2-Bdrm units and $103 for 3-
Bdrm units.
2 Based on Developer estimate.
3 Based on the assumption that the Developer will receive the property tax exemption accorded to non-profit housing organizations that develop
income-restricted apartments.
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4% TC_5 12 11_Family; Pro Forma; trb Page 33 of 48
TABLE 3
FINANCIAL GAP CALCULATION
6 VERY-LOW INCOME UNITS AND 41 LOW INCOME UNITS
AMCAL FAMILY HOUSING
LAKE ELSINORE, CALIFORNIA
1. Available Funding Sources
Tax-Exempt Financing
Net Operating Income
Income Available for Mortgage
Interest Rate
$212,000 NOI (See Table 2)
1.20 DCR
6.50% Interest Rate
$176,667 Debt Service
7.58% Mortgage Constant
Permanent Loan
Tax Credit Eouity
Gross Tax Credit Value
Syndication Rate
Net Tax Credit Equity
Total Available Funding Sources
II. Financial Gap Calculation
Total Development Costs
(Less) Total Available Funding Sources
$13,127,000
(6,778,000)
Ill. Financial Gap 48 Units $132,300 /Unit $6,349,000
Assumes an $11.2 million eligible basis, which includes a 130% difficult-to-develop premium, a 3.4% Tax Credit rate and an applicable fraction of
100%.
$2,329,000
$4,943,000
$0.90 /Tax Credit Dollar
$4,449,000
$6,778,000
Prepared by: Keyser Marston Associates, Inc.
Filename: LE_AMCAL_4% TC_5 12 11_Family; Pro Forma; lrb Page 34 of 48
[m
1~ 11
KEYSER MARST'ON ASSOCIATES-
ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVIp RsINi
REAL Esra r
To: Justin Carlson, Redevelopment Agency Analyst
REDEVELOPMENT
City of Lake Elsinore
AEFORDA9LE HOUSING
EcoNomic DEVELOPMENT
From: Kathleen Head
SAN FRANCR; 0.
A.JERRYKEV ER
Tim Bretz
TIMOTHY C. KELLY
KATE EARLE FUNK
DEBBIE M. KERN
Date: May 17, 2011
ROSEKTI. WETMORE
REED T. KMVAHARA
Subject: Central Valley Housing Apartments: Financial Gap Analysis
IS)SANGECES
KATHLEEN H. HEAD
JAMEs A. RABE
At your request, Keyser Marston Associates, Inc. (KMA) prepared financial gap analysis
PAUL C. ANDERSON
GREGORY D. Soo-I'loo
for the family apartment development being proposed by Central Valley Coalition for
KEVIN E. ENG571P°M
Affordable Housing (Developer). The proposed development consists of 127 apartment
JULIE L. ROMEY
DENISE BICKERSTAPr
units which will be restricted to very-low income and low income households (Project).
The Project is proposed to be located on a vacant 7.5-acre parcel near the intersection
SAN DIEGO
GERALD M TREMBLE
of Lakeshore Drive and Gunnerson Street (Site).
PAUL C. MARIA
The Developer submitted two financing proposals for the Project which consisted of:
A financing proposal consisting of Tax-Exempt Multifamily Bonds and 4% Low
Income Housing Tax Credits; and
2. A financing proposal consisting of 9% Low Income Housing Tax Credits.
The competition for 9% Tax Credits is extremely intense, and the current tie breaker
calculations for 9% Tax Credits rewards projects that include disproportionately high
local public assistance amounts.
Based on the KMA review of the tie breaker scores from the second 2010 9% Tax Credit
round, it was determined that Developer's 9% Tax Credit submittal would not be
competitive. Thus, the following KMA analysis only applies to the Developer's Tax-
Exempt Multifamily Bond/4% Tax Credit submittal.
SOO SOUTH GRAND AVENUE, .$UrrE1480:s LOS ANGELES, CALIFORNIA 900,71 PHONE:2136228095 > FAX: 2136225204:
1105015; LE:KHH:gbd
NNW W.KCYSERM/ RSTON.COM 1Ptffl(9QMU648
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 2
EXECUTIVE SUMMARY
The following funding sources are anticipated to be used to finance the Project:
Tax-Exempt Multifamily Bonds that are competitively awarded by the California
Debt Limit Allocation Committee (CDLAC);
2. Low Income Housing Tax Credits (Tax Credits) that are automatically awarded
by the California Tax Credit Allocation Committee (TCAC) to projects that receive
a qualifying Bond allocation from CDLAC; and
3. Property Tax Increment Housing Set-Aside (Set-Aside) funds provided by the
Lake Elsinore Redevelopment Agency (Agency).
The KMA analysis results in a financial gap of $9.40 million, which is $249,000 lower
than the Developer's $9.65 million financial assistance request. Although this only
represents a 3% differential, it should be noted that the KMA and Developer analyses
differ considerably on a line item by line item basis.
PROJECT DESCRIPTION
The proposed scope of development can be described as follows:
The Site is comprised of approximately 7.5 acres of land area.
2. The 127-unit Project represents a density of approximately 17 units per acre.
3. The proposed unit mix is as follows:
Number of
Unit Size
Units
(SO
One-Bedroom Units
28
646-
Two-Bedroom Units
43
945
Three-Bedroom Units
56
1,076
Totals/Averages
127
936
4. The gross building area (GBA) for the Project is 121,159 square feet, which
includes:
a. Gross residential area totaling 118,811 square feet; and
b. Gross community room area totaling 2,348 square feet.
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 3
5. Two-hundred ninety (290) parking spaces will be provided, which equates to a
ratio of approximately 2.3 spaces per unit, and consists of:
a. One-hundred twenty-eight (128) carport spaces; and
b. One-hundred sixty-two (162) surface parking spaces.
6. The Developer is proposing to allocate the units as follows:
Very-low Income Units 44
Low Income Units 82
Unrestricted Manager's Unit 1
Total Units 127
FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to assist in evaluating the Developer's proposal.
The analysis is located at the end of this memorandum, and is organized as follows:
Table 1:
Estimated Development Costs
Table 2:
Stabilized Net Operating Income
Table 3:
Financial Gap Calculation
Estimated Development Costs (Table 1)
KMA reviewed the Developer's development cost estimate, and then independently
prepared a pro forma analysis for the Project. The resulting development costs are
estimated as follows:
Property Acquisition Costs
The Developer estimated the property acquisition costs at $2.24 million, or $7 per
square foot of land area. KMA was provided with a February 2008 purchase and sale
agreement, which confirms the purchase price. However, no appraisals were provided
for KMA to review. If the warranted property acquisition costs change as a result of
appraisal information that is subsequently obtained, the KMA analysis will need to be
revised accordingly.
1105015; LE:KHH:gbd
1R@6GP@fi648
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 4
Direct Costs
The direct costs assume that the Project will not be subject to State of California
prevailing wage requirements. The direct costs applied in the analysis can be
summarized as follows:
1. The Developer estimated the off-site improvement costs at $1.25 million.' City of
Lake Elsinore (City) Planning Department staff should verify the scope of the
improvements that will be required to serve the Project, and the accuracy of this
cost estimate.
2. The on-site improvement costs are estimated at $5 per square foot of land area,
or $1.57 million.
3. The residential building costs are estimated at $9.09 million, or $75 per square
foot of residential GBA.
4. A $50,000 allowance for furnishings, fixtures and equipment is provided.
5. KMA included a 14% allowance for contractors' fees and general requirements,
which is the maximum allowed by TCAC.
6. An allowance for general liability insurance and construction bonds at 2% of
construction costs is provided.
7. A direct cost contingency allowance equal to 5% of other direct costs is provided.
KMA estimates the total direct costs at $14.56 million. This equates to $120 per square
foot of GBA.
Indirect costs
KMA utilized the following assumptions for estimating the indirect costs:
The architecture, engineering and consulting fees are estimated at 10% of direct
costs.
2. The Developer estimated the public permits and fees costs at $2.55 million, or
$20,000 per unit. City staff should verify the accuracy of this estimate.
' The Developer believes that the contractor included some on-site improvement costs in the off-
site improvement cost estimate. Upon verification, these costs may need to be reallocated.
1105015; LE:KHH:gbd
tt'7E@mcWof648
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 5
3. The taxes, insurance, legal and accounting costs are estimated at 2% of direct
costs, or $291,000.
4. A $64,000 allowance for marketing and leasing costs is provided.
5. The Developer fee is set at $2.5 million, which is the maximum amount allowed
for the Project by TCAC.
6. An indirect cost contingency allowance equal to 5% of other indirect costs is
provided.
KMA estimates the total indirect costs at $7.2 million.
Financing Costs
The Project is proposed to be financed with Tax-Exempt Multifamily Bonds allocated by
CDLAC. To comply with Internal Revenue Service (IRS) requirements, the Bond must
be equal to at least 50% of the Project's land acquisition costs plus eligible Tax Credit
basis. To meet the 50% test for the Project, the Bond must equal at least $12.38 million.
The Project's estimated net operating income can only support a $5.87 million Bond
(Series A Bond). Therefore, a Series B Bond must be issued to cover the greater of the
funds required to meet the 50% test, or the construction costs for which construction
period funding is not available. In this case, the $7.35 million in unfunded construction
costs exceeds the $6.51 million necessary to meet the 50% test. Thus, the Series B
Bond is set at $7.35 million.
The financing costs for the Project are estimated as follows:
The construction period and absorption period interest costs are estimated at
$824,000. These costs are based on the following assumptions:
a. The construction period interest costs are based on a 5.75% interest rate,
a 15-month construction period, and a 60% average outstanding balance.
b. The absorption period interest costs are based on a four-month
absorption period with a 100% average outstanding balance.
2. The financing fees are set at 5.0 points. This equates to $661,000.
3. The capitalized operating reserve is estimated at $262,000. This allowance is
equal to three months of operating expenses and debt service payments.
1105015; LE:KHH:gbd
15*ecatmmrW
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 6
4. The Tax Credit fees are estimated at $64,000 based on the following
assumptions:
a. A $2,000 application fee;
b. A $410 per unit monitoring fee; and
c. One percent (1 of gross Tax Credit proceeds for one year.
KMA estimates the total financing costs at $1.81 million.
Total Development Costs
As shown in Table 1, KMA estimates the total development costs at $25.81 million. This
estimate is $150,000 higher than the Developer's development cost estimate, which
represents a less than 1 % differential. However, the KMA and Developer cost estimates
vary widely on a line item by line item basis. The major differences can be explained as
follows:
The Developer's estimate of direct construction costs is $1.76 million higher than
the KMA estimate.
2. The KMA estimate of indirect costs is $1.36 million higher than the Developer's
estimate.
3. The KMA financing cost estimate is $549,000 higher than the Developer's
estimate.
Stabilized Net Operating Income (Table 2)
Income and Affordability Restrictions
The Project's funding sources include Tax-Exempt Multifamily Bonds, Tax Credits and
Set-Aside funds. Each of these programs publishes the applicable income limits for
households that are qualified to reside in the development.
The Tax-Exempt Multifamily Bond Program and the Tax Credit Program publish rent
standards for projects that receive these funds. Comparatively, California Health and
Safety Code Section 50053 (Section 50053) defines the affordable housing cost
calculation methodology that must be applied for projects assisted with Set-Aside funds.
In order for the units to fulfill the production and expenditures proportionality
requirements imposed on the Agency by California Redevelopment Law (CRL), the rents
must comply with the Section 50053 affordable housing cost calculation.
1105015; LE:KHH:gbd
1RM®AGDa6648
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 7
The KMA analysis is based on the following household income and affordable rent
standards:
Income Restrictions: The tenants' income cannot exceed the strictest of.,
CRL income restrictions as defined under California Health and Safety
Code Section 50105 for very-low income households and Section
50079.5 for low income households; and
Federal Low Income Housing Tax Credits income restrictions defined
under United States Code, Title 26, Section 142(d)(2)(B).
Affordability Restrictions: The rents applied to the units must reflect the most
stringent of:
a. The Tax-Exempt Multifamily Bond rents published annually by CDLAC;
b. The Tax Credits rents published annually by TCAC;
C. The rents derived from the affordable housing cost calculation
methodology defined in Section 50053.
Net Operating Income
Based on information distributed by CDLAC, TCAC, and the California Department of
Housing and Community Development (HCD) in 2010, the rents, net the appropriate
utility allowances, are the same for each of the funding sources.2 However, this may not
be the case in future years. In that case, the rents applied to the units must reflect the
most restrictive requirements imposed by the proposed funding sources. The rents
applied in this analysis are as follows:
Very-Low
Low Income
Rent Restriction
Income Units
Units
One-Bedroom Units
$549
$671
Two-Bedroom Units
$654
$800
Three-Bedroom Units
$752
$921
2 The Developer estimated the monthly utility allowances as $60 for a one-bedroom unit, $77 for
a two-bedroom unit and $93 for a three-bedroom unit. The HCD rents are based on the federal
household size calculation.
1105015; LE:KHH:gbd
1Bag®a41bwfs48
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 8
KMA estimates the Project's gross income at $1.19 million, which includes laundry and
miscellaneous income averaging $14 per unit per month. After applying a 5% vacancy
and collection allowance, KMA estimates the resulting effective gross income (EGI) at
$1.13 million.
The operating expenses are estimated as follows:
1. The general operating expenses are estimated at approximately $4,700 per unit
per year.
2. KMA assumes the Developer will apply for the property tax abatement that is
accorded to non-profit housing organizations that own income-restricted
apartments. As such, the Developer estimates that the Project will not be subject
to any property tax payment obligations.
3. The Developer estimated the cost to provide social services at $15,000 per year.
4. The annual capital replacement reserve deposit is estimated at $250 per unit,
which is the minimum amount required by TCAC.
As shown in Table 2, the residential operating expenses are estimated to total $638,200,
or approximately $5,000 per unit. When the Project's EGI is reduced by the operating
expenses, KMA estimates the stabilized net operating income (NOI) at $493,300.
The Developer estimated the Project's NOI at $463,200, which is approximately $30,000
less than the KMA estimate. This differential is caused by the following:
1. The Developer utilized a 7% vacancy and collection allowance.
2. The Developer set the replacement reserve deposits at $300 per unit per year,
while KMA set this allowance at the $250 per unit per year.
Financial Gap Calculation (Table 3)
The financial gap is estimated by deducting the available outside funding sources from
the Project's total development costs. The outside funding sources anticipated to be
received by the Project are described in the following sections of this analysis.
Total Available Funding Sources
Tax-Exempt Multifamily Bonds
Based on the following underwriting assumptions, KMA estimates that the Project can
support $5.87 million in Tax-Exempt Multifamily Bonds:
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To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 9
1. A 120% debt service coverage ratio;
2. A 5.75% interest rate; and
3. A 30-year amortization period.
Tax Credit Proceeds
KMA estimates the net Tax Credit proceeds at $9.26 million. The value is calculated
based on the following assumptions:
1. The Project's eligible Tax Credit basis is equal to the lesser of the depreciable
costs for the 127 Tax Credit units, or the basis limits established by TCAC. In
this case, the $22.52 million in depreciable costs can all be included in the
Project's eligible basis.
2. The Project is located in a designated "Difficult to Develop" census tract, which
allows the eligible Tax Credit basis to be increased by 30%. The resulting total
eligible basis is $29.27 million.
3. The current Tax Credit application sets the annual Tax Credit rate at 3.4%.
4. 100% of the Project's building area is located in units that qualify for Tax Credits.
5. The net syndication value supported by the Tax Credit is ultimately determined
based on competitive market conditions and on the timing of the disbursements.
Based on currently available information, KMA and the Developer estimate the
proceeds at $0.93 per gross Tax Credit dollar.
Deferred Developer Fee
The Developer is proposing to defer $1.25 million, or 50% of the total Developer Fee.
Interest Income
The Developer anticipates receiving $42,000 in interest income while the construction
loan is outstanding. These interest earnings are proposed to be contributed to fund
Project costs.
Total Available Outside Funding Sources
As shown in Table 3, KMA estimates the total outside funding sources at $16.41 million.
In contrast, the Developer estimates the total outside funding sources at $16.02 million.
The approximately $399,000 differential is attributed to:
1105015; LE:KHH:gbd
1B' @%AU6648
To: Justin Carlson, City of Lake Elsinore
May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 10
1. Due to the difference in vacancy allowance and reserve deposit assumptions,
KMA estimates the Project's NOI to be higher than the Developer's estimate.
The net impact of these differences is that KMA estimates the Project's
supportable financing to be $358,000 higher than the Developer's estimate.
The KMA estimate of direct construction costs is slightly higher than the
Developer's estimated costs, which results in a higher eligible Tax Credit basis
than is being used in the Developer's analysis. The KMA estimate of net Tax
Credit proceeds is $41,000 higher than the Developer's estimate.
Financial Gap Conclusion
Based on the assumptions outlined in this analysis, KMA calculates the financial gap as
follows:
Total Development Costs $25,813,000
(Less) Total Available Funding Sources (16,414,000)
Financial Gap $9,399,000
Per Unit $74,000
Based on the results of the preceding financial analysis, it is the KMA conclusion that the
Project exhibits a $9.4 million financial gap. In comparison, the Developer has
requested $9.65 million in financial assistance from the Agency. The causes of the
$249,000 difference in the financial gap estimates are summarized in the following table:
KMA Developer
Estimated Development Costs $25,813,000 $25,663,000
(Less) Available Funding Sources (16,414,000) (16,015,000)
Financial Gap
$9,399,000 $9,648,000
$150,000
($249,000)
CONCLUSIONS / RECOMMENDATIONS
Based on the results of the preceding analysis, it is the KMA conclusion that the Project
demonstrates a $9.4 million financial gap. However, the Developer is requesting that the
Agency provide $9.65 million in assistance to the Project. This represents an
approximately 3% differential, which can be considered inconsequential for a Project of
the proposed scope. Thus, it is the KMA conclusion that the Developer's request for
financial assistance is warranted by the Project economics.
1105015; LE:KHH:gbd
19M(Po eA48
To: Justin Carlson, City of Lake Elsinore May 17, 2011
Subject: Central Valley Housing Apartments: Financial Gap Analysis Page 11
It is important to note that KMA has not been provided with an appraisal for the Site. If
an appraisal is ultimately performed, and the established value is different than the
amount used in this analysis, the KMA financial gap analysis will need to be revised
accordingly.
It is the KMA assumption that the Agency assistance to the Project will be structured as
a residual receipts note. This loan should be secured by a subordinated deed of trust
against the property and evidenced by a promissory note and a regulatory agreement.
KMA recommends that the loan be structured as follows:
The loan should have a 55-year term.
2. The loan should bear simple interest at a 3% rate.
3. The Project's revenues should be distributed in the following priority order:
a. Approved operating expenses;
b. Approved deposits into reserves accounts;
C. Debt service on the Tax-Exempt Multifamily Bond financing;
d. Payment of approved asset management fees and partnership
management fees;3
e. Repayment of any general partner development loans and contributions;
and
f. Payment of any Tax Credit equity adjusters to the limited partner.
4. The Agency should receive at least 50% of the cash flow remaining after the
approved distributions.
5. Any outstanding principal and interest balance of the residual receipts loan
should become due and payable at the end of the 55-year term. The repayment
period should be extended if the Developer agrees to extend the income and
affordability covenants.
3 The Developer did not include any partnership fees in the cash flow projection for the Project.
However, the Developer has indicated that the fees will total $18,000 in the first year.
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TABLE 1
ESTIMATED DEVELOPMENT COSTS
4% TAX CREDIT SCENARIO
28 VERY-LOW INCOME UNITS AND 42 LOW INCOME UNITS
CENTRAL VALLEY HOUSING APARTMENTS
LAKE ELSINORE, CALIFORNIA
Property Acquisition Costs' 326,700 Sf Land $7 /Sf Land $2,244,000
II. Direct Costs2
Off-site Improvements a
$1,250,000
On-site Improvements
326,700
Sf Land
$5
/Sf Land
1,572,000
Residential Building Costs
121,159
Sf GBA
$75
/Sf GBA
9,087,000
Furnishings, Fixtures & Equipment
50,000
Contractor Fees / General Requirements
14%
Construction Costs
1,667,000
General Liability Insurance / Const Bonds
2%
Construction Costs
238,000
Contingency Allowance
5%
Other Direct Costs
693,000
Total Direct Costs
$14,557,000
III. Indirect Costs
Architecture, Engineering & Consulting
10%
Direct Costs
$1,456,000
Permits & Fees 4
127
Units
$20,055
/Unit
2,547,000
Taxes, Ins, Legal & Accounting
2.0%
Direct Costs
291,000
Marketing & Leasing
127
Units
$500
/Unit
64,000
Developer Fee 5
12%
Eligible Costs
2,500,000
Contingency Allowance
5%
Other Indirects
343,000
Total Indirect Costs
$7,201,000
IV. Financina Costs
Interest During Construction
Series A Bond a
$5,870,000
Loan Amount
5.75%
Interest
$366,000
Series B Bond'
$7,348,000
Loan Amount
5.75%
Interest
458,000
Financing Fees
Series A Bond
$5,870,000
Loan Amount
5.00
Points
294,000
Series B Bond
$7,348,000
Loan Amount
5.00
Points
367,000
Operating Reserve
3
Months Op Exp and Debt Svc Pmts
262,000
TCAC Fees 6
64,000
Total Financing Costs
$1,811,000
V. Total Development Costs
127
Units
$203,300
/Unit
$25,813,000
Based on Developer estimate and a 2008 Purchase and Sale Agreement. A recent appraisal was not provided for review.
2 Estimates assume prevailing wage requirements will NOT be imposed on the Project.
9 Based on Developer estimate. City staff should identify the scope and cost of the required off-site improvements.
4 Based on Developer estimate. The estimate should be verified by City staff.
5 Equal to the maximum amount allowed by TCAC.
6 Includes debt on the 80% of the Tax Credit Equity which will not be funded during construction. Assumes a 15-month construction period with a
60% average outstanding balance and a 4-month absorption period with a 100% average outstanding balance.
r Equal to the unfunded construction costs minus the Series A Bond amount; a 15-month construction period with a 60% average outstanding
balance; and a 4-month absorption period with a 100% average outstanding balance.
e Includes a $2,000 application fee; $410/unit monitoring fee; and 1% of the gross Tax Credit proceeds for one year.
Prepared by: Keyser Marston Associates, Inc.
Filename: Central Valley_4% TC_5 17 11; Pro Forma; trb Page 46 Of 48
TABLE 2
STABILIZED NET OPERATING INCOME
4% TAX CREDIT SCENARIO
28 VERY-LOW INCOME UNITS AND 42 LOW INCOME UNITS
CENTRAL VALLEY HOUSING APARTMENTS
LAKE ELSINORE, CALIFORNIA
1. Gross Residential Income'
Manager's Unit
1
Unit
$0
/Unit/Month
$0
VL Inc Redev/Tax Credit (CD 50% Median
1-Bedroom Units @ (640-Sf)
13
Units
$549
/Unit/Month
85,600
2-Bedroom Units @ (945-Sf)
15
Units
$654
/Unit/Month
117,700
3-Bedroom Units @ (1,076-Sf)
16
Units
$752
/Unit/Month
144,400
Low Inc Redev/Tax Credit Col 60% Median
1-Bedroom Units @ (640-Sf)
15
Units
$671
/Unit/Month
120,800
2-Bedroom Units @ (945-Sf)
27
Units
$800
/Unit/Month
259,200
3-Bedroom Units @ (1,076-Sf)
40
Units
$921
/Unit/Month
442,100
Gross Residential Income
127
Units
$1,169,800
Laundry/Miscellaneous Income
127
Units
$14
/Unit/Month
21,300
Gross Income
$1,191,100
(Less) Vacancy & Collection Allowance
5%
Gross Income
(59,600)
Effective Gross Income
$1,131,500
II. Operating Expenses
General Operating Expenses
127
Units
$4,657
/Unit
$591,400
Property Taxes 2
127
Units
$0
/Unit
-
Services
127
Units
$118
/Unit
15,000
Replacement Reserve
127
Units
$250
/Unit
31,800
Total Operating Expenses
127 Units
$5,025 /Unit
$638,200
III. Net Operating Income $493,300
Based on Riverside County 2010 Incomes distributed by HUD/HCD. As pertinent, the rents are based on rents published in 2010 by TCAC and
California Health and Safety Code Section 50053 calculation methodology. Utility Allowances per the Developer: $60 for 1-Bdrm units; $77 for 2-
Bdnn units; and $93 for 3-Bdrm units.
2 Based on the assumption that the Developer will receive the property tax abatement accorded to non-profit housing organizations that develop
income-restricted apartments.
Prepared by: Keyser Marston Associates, Inc.
Filename: Central Valley-4% TC_5 17 11; Pro Forma; trb Page 47 of 48
TABLE 3
FINANCIAL GAP CALCULATION
49/6 TAX CREDIT SCENARIO
28 VERY-LOW INCOME UNITS AND 42 LOW INCOME UNITS
CENTRAL VALLEY HOUSING APARTMENTS
LAKE ELSINORE, CALIFORNIA
1. Available Funding Sources
Tax-Exemot Financing
Net Operating Income
Income Available for Mortgage
Interest Rate
$493,300 NO] (See Table 2)
1.20 DCR
5.75% Interest Rate
$411,083 Debt Service
7.00% Mortgage Constant
Permanent Loan
Tax Credit Equity
Gross Tax Credit Value
Syndication Rate
Net Tax Credit Equity
Deferred Developer Fae2
Interest and Pre-Stabilization Income'
Total Available Funding Sources
II. Financial Gap Calculation
Total Development Costs
(Less) Total Available Funding Sources
$9,953,000
$0.93 /Tax Credit Dollar
50% Developer Fee
$5,870,000
$9,257,000
$1,245,000
$42,000
$16,414,000
$25,813,000
(16,4143000)
Ill. Financial Gap 127 Units $74,000 /Unit $9,399,000
I Assumes a $22.5 million eligible basis, plus a 130% difficult-to-develop premium, a 3.4% Tax Credit rate and an applicable fraction of 100%.
2 Based on Developer estimate.
Prepared by: Keyser Marston Associates, Inc.
Filename: Central Valley_4% TC_5 17 11; Pro Forma; trb Page 48 of 48