This document summarizes a presentation about preserving affordable housing in Oregon. It discusses HUD's role in renewing Section 8 contracts, Oregon Housing and Community Services' efforts to preserve over 4,000 units of affordable housing including providing funding and administering contracts, NOAH's role in providing interim and permanent financing, and challenges in the current market around equity, pricing, and underwriting for preservation projects. One specific project, the preservation of Rose Schnitzer Tower through low income housing tax credits and bond financing, is also discussed.

1. Financing Preservation – The Oregon Experience Moderator: John Epstein, Wells Fargo Bank Presenters: Patrick Shea, HUD Bob Gillespie, Oregon Housing & Community Services Bill Van Vliet, NOAH MA Leonard, Enterprise David Fuks, Cedar Sinai

2. Patrick sheaSupervisory project managerUS Dept. Housing and Urban Development HUD Section 8 Contract Renewals

3. HUD Portland MFH Portfolio The Portland MFH Program Center has jurisdiction for the States of Oregon and Idaho. The Portland MFH Portfolio consists of approximately 580 projects of all HUD program types, which are monitored by 8 HUD Project Managers. There are 276 contracts with 9,922 units of project based Section 8 in Oregon, which are administered by Oregon Housing & Community Services (OHCS). In Idaho there are 119 contracts with 3,786 units of project based Section 8, which are administered by Idaho Housing Finance Association. A subset of the Portland Section 8 Portfolio is the Housing Finance Agency (HFA) Section 8 contracts funded under Code of Federal Regulations (CFR) 883.

4. HUD Portland MFH Portfolio In Oregon, there were 122 projects and 4, 085 units of Section 8 generated under the 883 program. In Idaho, there 60 projects and approximately 2,000 units of generated under the 883 program. Both OHCS & IHFA have been significant partners with HUD in generating the bond financed mortgages over 30 years ago, while HUD has funded the Section 8 Housing Assistance Payments (HAP) contracts for these projects for the same period. These 883 projects, whose mortgages and Section 8 contracts began to expire concurrently in 2006 and will continue to do so for until 2013 in Oregon and 2020 in Idaho.

5. 883 Contracts This panel will focus on the Oregon Experience, but the lessons learned could be applied to other 883 Portfolios in the Nation. Contract expiration and mortgage maturity date are generally within 90 days of one another Two versions of 883 HAP contracts exist: Old Regulation 883 – pre 1981 New Regulation 883 – post 1981 May 10 5

6. The HUD Role For Acquisition & Rehabilitation Transactions HUD will: Participate in Scoping Meetings to Identify Potential Challenges and Clarify Roles Coordinate with the OHCS, as the Performance Based Contract Administrator (PBCA) on Section 8 Contract Renewal Process Hold Additional Meetings with Industry Partners in the Transaction for update status and review timelines. Process the Determinative Criteria Review Submission The Determinative Criteria Review is the HUD Approval of the Transaction for Noninsured Projects with Section 8 HAP Contracts. HUD will approve new 20 year term Contract for Preservation Purposes.

7. OHCS Role Similarly, For Acquisition & Rehabilitation Transactions OHCS will: OHCS, as the mortgagee must approve the prepayment of the bond financed mortgage. The Prepayment of the OHCS Mortgage can trigger the early termination of the 883 Old Regulation contracts. Participate in Scoping Meetings to Identify Potential Challenges and Clarify Roles OHCS, as the PBCA will process the Section 8 Contract Renewal under Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) Guidelines. OHCS will underwrite the new permanent financing. OHCS will issue Section 42 LIHTC as part the permanent financing.

8. Timelines The Section 8 Contract Expiration Date drives the process, because of the need to have new permanent financing in place with Initial MAHRA Contract Renewal effective date. Sellers and Buyers should be communicating at least Two Years before the Contract Expiration. The early termination of the Old Regulation 883 contract must be factored into the process, if OHCS allows prepayment of the mortgagee. There is the required 1 year notice to tenants of the contract expiration. In the sale of a project to a Nonprofit the required notice period to tenants of contract expiration is 6 months. The OHCS timelines associated with the competition for Section 42 LIHTC must be considered.

9. Oregon Experience Preservation TransactionPotential Resources OHCS Bond Conduit Financing Oregon Affordable Housing Tax Credits Section 42 LIHTC Oregon Housing Trust Fund Oregon Weatherization Funds HUD Section 108 Loans HUD Section 8 HAP Contracts

10. Bond Financed Mortgages - Original Players The Transactions were more simple 30 years ago. Project Owners OHCS – Bond Issuer & Mortgage Bond Holders OHCS – Traditional Contract Administrator HUD – Funding the Subsidy Contract

11. Acquisition & Rehabilitation Players Things are not so simple now to Preserve Section 8 Contracts. Seller Buyer Interim Finance, such Network for Oregon Affordable Housing OHCS – Bond Conduit Issuer Bond Holders Tax Credits Investors Gap Finance, such HUD CPD, OHCS, City of Portland OHCS - PBCA HUD – Funding the Subsidy Contract Nonprofit Industry Partners

13. 798 units – Owners have chosen to stay in the Section 8 Program

14. 1, 934 unit – Contract Expiration Not Yet Occurred

15. 270 units – Lost to Contract Opt OutThe Oregon Experience has provided value lessons in how to Preserve Project Based Section 8 Contract and position the projects for another generation.

16. Bob gillespiehousing division administratororegon housing and community services State Policy and Financing Resources

17. OHCS Early Recognition of need for Preservation Uninsured Section 8 portfolio 10% of nation’s total 4,085 units

18. OHCS is the HUD Contracts Administrator for Oregon Allows department to work with existing owners to renew HAP contracts 798 uninsured Section 8’s renewed

19. Legislative Support $11M in Lottery-backed bonds in the ’07 Session $19M in Lottery-backed bonds in the ’09 Session Oregon Affordable Housing Tax Credit (OAHTC) CAP raised to $17M Pass-through requirement for preservation properties and manufactured parks eliminated

20. Projects preserved during the 07-09 biennium:27 projects - 1,096 units Total project costs: $132,128,098 Total Replacement costs (@ $200,000 p/u): $219,200,000 Total Subsidy retained (@ $72,000 p/u over 20 yrs): $78,912,000 18 HUD Section 8 projects were closed/transferred - for a total of 786 units (bond/4% financed projects) 3 more properties received funding – for a total of 120 units; however, in September of 2008, lost lender and investor. Anticipate closing/transferring properties fall of 2010. Funding allocations have remained with the projects. (bond/4% financed projects) 1 project (46 units) received an allocation of preservation dollars for rehabilitation activities, with a commitment to renew for a 20-year HAP contract. An additional 5 projects, for a total of 144 units, received funding through the Consolidated Funding Cycle. Note: Preservation projects that received funding through the Spring 09 CFC and some Fall 08 projects will be counted in the 09-11 preserved unit count, as most required TCAP/1602 (ARRA) resources.

21. Preservation for the 09-11 biennium Goal is to preserve 1,598 units Received $19 M in Lottery Backed Bonds for preservation projects Approx. $11.3 M has been reserved for bond/4% projects Approx. $4.7 M is available through the 2010 CFC; and, Approx. $3 M for Manufactured Dwelling Parks (RFP is currently out and can be found on OHCS’ website) In addition, approx. $20.7 M of TCAP/1602 (ARRA) resources were committed to 8 preservation projects

23. 7 five-year renewals

24. 2 twenty-year renewalsSix projects currently working with NOAH for interim short-term financing through the Oregon Housing Acquisition Fund (OHAF)

26. Total Replacement costs (@ $200,000 p/u): $231,800,000

28. HOME

29. 9% Low Income Housing Tax Credits

30. Oregon Affordable Housing Tax Credits

31. Weatherization (PGE area only)

32. Housing Preservation (unknown at this time, dependent on 2011 Legislative allocation)Conduit / Risk Sharing Bond Program / Elderly/Disabled Bond Program 4% Low Income Housing Tax Credits (w/tax exempt bonds) Oregon Affordable Housing Tax Credits (out-of-cycle, preservation only) Housing Preservation Funds (unknown at this time, dependent on 2011 Legislative allocation)

33. Bill Van vlietexecutive directorNOAH Interim and Permanent Lending

34. NOAH Background: Statewide not for profit lender formed in 1990 to provide interim and permanent financing for affordable multi-family housing projects Formed by Oregon banks to share risk and develop lending expertise in affordable housing Received CDFI designation from US Treasury in 2003 $160 Million in loan capital

35. NOAH Loan Programs Program Loan Capital Permanent Loan Fund $119,432,000 Preservation (OHAF) $ 32,700,000 Predevelopment Fund $ 4,696,141 TE Bond Fund $ 3,291,546 Total Loan Capital: $160,119,687

36. Preservation Involvement Permanent Loans OHAF (interim acquisition) Loans Administer Oregon Housing Acquisition Project Policy formation

37. Preservation Initiative Oregon Housing Acquisition Project (OHAP) Statewide initiative to maximize preservation of expiring federally subsidized apartments Strong collaboration with State of Oregon and City of Portland Guided by Steering Committee of industry partners Meyer Memorial Trust launched the program with significant early grant and PRI support One of 12 programs nationally selected for significant funding by the MacArthur Foundation

39. Establish Comprehensive Data Base and Web Site

40. www.preserveoregonhousing.org

41. Establish Oregon Housing Acquisition Fund (OHAF)

42. $32 million fund

43. Facilitate Intergovernmental Coordination

44. Two working groups established and meeting

45. Include Energy Efficiency Features in Projects

46. Grant money available for non-profits

48. Preservation Initiative OHAF Funding: Foundation PRIs: $ 8,500,000 State of OR (OHCSD): $ 2,000,000 Sr. Bank Debt: $22,200,000 Total: $32,700,000 Foundations: MacArthur, Meyer Memorial Trust, Collins Banks: Wells Fargo, Bank of America, Key Bank, Chase

49. OHAF Loans Funded

50. OHAF Loan Terms Rate: 6.75%-7.50%, interest only fixed at funding Fee: 1% Term: Lesser of contract term or 36 months, with one year extensions aligned with one year contract renewals DCR: 1.10 primary at lowest point during term LTV: 75%-95% of unrestricted as-is market Rents: Varies. Possibly up to contract. Assume no rent increases during OHAF period (but inflate expenses) Require borrower-prepared “reasonable” exit strategies

51. OHAF Loans Experience to date: Loan amts limited many ways-- cash flow, LTV, or maximum allowable debt service (some flexibility during OHAF) LTV (mkt) range: 43%-95% DCR range: 1.13-2.13 Challenges: Estimating rents at contract renewal Plausible exit strategies in current environment Project valuations at different stages

52. Walnut Park--before

53. Walnut Park—exterior renovation

54. Walnut Park-renovated kitchen

55. Permanent Loans--Preservation Rate: 7.50% (current floor) Fee: 1.0-2.0% Amortization: 25 years Term: 20 years or contract exp. DCR: 1.20 primary/1.10 overall LTV: 75% of restricted (w/HAP contract) HAP Contract: 20 year required Rents: Underwrite to contract, perform downside analysis—breakeven at lesser of Mkt/LIHTC rents

56. Permanent Loans Experience to Date: LTV: 38%-80% (restricted) DCR: 1.18-1.64 Challenges: Establishing UW rents prior to construction Timing of contract renewals for “new reg” contracts Analyzing downside risk of future RCS adjustments Certain operating expenses not recognized by HUD

57. Preservation Challenges Weak capital markets threaten preservation activity limited OHAF take-out strategies Less capital—both tax credits and perm debt Planned financial structures not viable (bonds/4% credits) More rigorous borrower financial capacity requirements Geographic limitations on capital Project scale limitations Buyers need even more capital Acquisition prices Closing costs Reserves Predevelopment expenses

58. Preservation Challenges Sellers waiting for markets to recover Buyers risk averse Reliance on future public sector resources More interim financing needed

59. Preservation Challenges Economy has slowed progress Preservation effort will take more time, money Creative interim solutions will be required

60. MA LeonardVP & Impact Market LeaderEnterprise Community Partners Tax Credit Equity and Preservation

61. Radical Changes in Market Availability/Supply of Equity Pricing Underwriting

62. Supply of Equity Exit of Equity from Market Geographic Focus of Remaining Equity Challenges to Raising Equity The Discriminating Investor Size Matters No tolerance for Risk In today’s market, investors call the shots

63. Pricing Returns have risen rapidly since 2007 Prices have taken a corresponding drop Syndicators do not buy “on spec” Losses are no longer as attractive

64. Underwriting Considerations Level of Rehabilitation Needs to be rehabilitated such that is will not need additional rehabilitation for 15 years Light, moderate and substantial rehabilitation Sponsor-Investor Fit – talk to your investor early Serious Capital Needs Assessment Determine Scope prior to Setting Purchase price

65. Underwriting Considerations Revenue and Subsidy Risk Rent levels Duration of Contract Termination Risk Transition Reserves

66. Underwriting Considerations Credit Delivery Critical to have same understanding as your investor Know start date Understand delivery dates Ideal project from a delivery perspective

67. Additional Thoughts Preservation is good policy Deal type FHA Loans Structuring Seller Stays in deal Early delivery / Late pay helps pricing Green retrofit Other assistance

68. David FuksExecutive DirectorCedar Sinai Park Rose Schnitzer Tower Preservation

69. Rose Schnitzer Tower Preservation

70. Cedar Sinai Park’s Mission Cedar Sinai Park provides residential and community-based care to our elders and adults with special needs, allowing them to live with comfort, independence and dignity in a manner and in an environment based on Jewish values.

71. CSP’s Continuum of Services

73. Buyer – CSP was motivated by the opportunity to increase service to the community, make affordable housing more appealing to its historical constituency and participate in the creation of a housing with services model that would help low income elders and people with disabilities to remain independent for as long as possible.

75. 3 bond issues:

76. Construction Financing - $4.1 mil. (Wells Fargo)

77. Long Term Financing - $20 mil. (Chase)

78. Tax exempt bond Housing Development Revenue Bonds subsidized by Oregon Affordable Housing Tax Credits ($14 mil. at 1.75%)

79. Unsubsidized housing development revenue bonds ($6 mil. at 5.75%)

80. Loan from Cedar Sinai Park Foundation to the Limited Partnership secured by a second trust deed – ($ 7 mil. at 2.5%)

81. PDC Loan - $374,500

82. Oregon Housing Trust Fund - $374,500

84. Developer Fee - $2.150 mil.

85. Rehabilitation - $4.8 mil.

86. Construction Interest - $1.1 mil.

87. Bond Issuance Cost - $400,000

88. Required reserves - $2 mil.

90. The summary report does not include the Farsi and Korean speakers.

91. The mean age of the entire sample was 74 years.

92. Russian residents were significantly older than other groups (mean age of 82.3).

94. Russian and English residents reported significantly more illnesses per person than the Chinese.

95. 23% of the English, 30% of the Russian speakers and only 2 Chinese residents reported insufficient resources to pay for medical expenses.

96. Russian speakers also report a larger number of illnesses that interfere with their activities than do the other groups.

98. 35% of residents do not have a workable strategy for remembering to take their medications on time and in the correct dosage.

99. Residents frequently reported voluntarily altering their prescription regimens.

100. Implications: voluntary and involuntary non-adherence leading to hospitalization and institutionalization, increased morbidity and mortality, falls increase with more than 4 medications due to interactions.Resident Scores on the Geriatric Depression Scale by % *90% of this level accounted for by English and Russian groups

103. Harold, Arlene and Jordan Schnitzer

104. CSP Board of Directors

105. Wells Fargo Community Development

106. Wells Fargo Trust Dept. – Katie Patricelli & John Epstein

107. Victor Merced and staff, Oregon Housing and Community Services Dept.

108. KomeKalivar, PDC

109. Commissioner Nick Fish, City of Portland

110. Will White, Portland Housing Bureau

111. Sen. Ron Wyden

112. JP Morgan Chase

113. Steve Nepolitano, MMA

114. Doug Blomgren, Batemen Seidel

115. Michele Silver, CPA

116. Susan Asam, Consultant