The underwriting criteria for development are as follows:
- Rents: must be achievable in the market place.
- Operating Expenses: generally between $2,900 $3,900 per unit.
- Vacancy rate: must be related to market comparables.
- Debt Ratio: must be no less than 1.20 - 1.25.
- Development Budget: must verify construction numbers with construction contract.
- Reserves: must include construction contingency, replacement, and operating (6 months debt service + operating expenses) in place for 15 years.
- New Construction: replacement reserves; Senior Housing $300/unit; Family Housing $350/unit.
- Acquisition/Rehabilitation: requires capital needs assessment (reserve requirements may be higher)
- Development Team: must have experience in affordable housing and financial capacity to meet obligations.
- Financial Capacity: Developer / Guarantor must demonstrate sufficient net worth and liquidity to cover guarantee obligations.
Standard Guarantees include:
- Construction completion and Operating Deficit
- Tax Credit Adjuster/Recapture
- Payment of developer fees
- Right to recapture repurchase
- Guarantees will be personal in nature
- Permanent Loan with minimum term of 18 years
- Fixed rate (or an interest rate cap for Variable rate loans)
- Non-recourse (no guarantee back to owner or general partner)