DEVELOPMENT PROJECT REVIEW COMMITTEE
UNDERWRITING ANALYSIS OF FUNDING REQUEST
APPLICANT/SPONSOR: Community Housing Resource, Inc.
PROJECT NAME/ADDRESS: Stable Path
19 Race Point Road- Provincetown
HOME $ REQUESTED: $75,000 (new) + $150,000 (committed)=
$225,000
TOTAL DEVELOPMENT COST: $7,948,861
# OF PROJECT UNITS: 23 # OF AFFORDABLE UNITS: 18
# OF HOME UNITS: 11
PROJECT SCORE: 83
DATE: May 7, 2014
1. Overview
Stable Path is a new construction affordable rental development located on an approximately 2.3 acre site at 19 Race Point Road in Provincetown. There will be 23 units in the development, 18 of which will be affordable to households at/below 60% area median income (AMI) for Barnstable County. The project will consist of 10 buildings of 2-4 units each with the following unit mix: 2 efficiency/studio units; 3 one bedroom; 16 two bedroom; and 2 three bedroom. Thirteen (13) units will be leased to families earning less than 60% AMI, five (5) will be leased to families earning less than 30% AMI, and five (5) market rate units will be leased to households at or below 100% AMI. The five 30% AMI units will be assisted with five (5) project based Section 8’s and three (3) project-based MRVPs will assist households at or below 50% AMI, all of which are being requested as part of the DHCD application.
The development is sponsored by Community Housing Resource, Inc. (CHR) (developer & contractor) which has been in existence since 1996. The Consortium and/or Barnstable County have provided funding toward five of CHR’s rental developments, one of which was a tax credit project, and one of its homeownership developments. The architect is Jessica Snare, and the construction manager will be Williams Building Company (WBC). CHR provides property management to its own developments and currently manages 60 deed restricted residential rental units along with some commercial units.
The 2.3 acre site was part of a larger parcel that was a former horse farm that was acquired by Ted Malone in May 2003 for $1,860,000. The site was subsequently subdivided with one parcel containing a variety of year round and seasonal business uses (garden center, yoga studio, bait and tackle shop, dog grooming shop, art studios, food service businesses, a stable for six horses), office space, and two residential units. The other parcel, on which this project is proposed, received permits for the 23 units from both the Planning Board and Zoning Board of Appeals under local by-laws in September of 2011.
2. Changes From August 2013 and Rationale For Additional Funding Request
The development plan- # of units, bedroom mix, affordability mix, plans and specs, etc. is basically unchanged from the August 2013 submission; the primary rationale for the additional funding request is the $282,000 (3.7%) increase in the total development cost from $7.67 million to $7.95 million. A summary Sources and Uses table below reflects the changes:
August 2013 / March 2014 / ChangeSOURCES
Tax Credits/Other Equity / $2,908,587 / $3,111,530 / $202,943
DHCD / $2,050,000 / $2,050,000 / ------
BC HOME / $150,000 / $225,000 / $75,000
Provincetown CPC/AHTF / $715,000 / $715,000 / ------
First Mortgage / $1,764,412 / $1,764,412 / ------
Deferred Developer Fee / $78,690 / $82,919 / $4,229
TOTAL / $7,666,689 / $7,948,861 / $282,172
USES
Acquisition / $1,532,000 / $1,532,000 / ------
Construction / $4,349,719 / $4,454,682 / $104,963
Soft Costs / $1,000,193 / $1,155,779 / $155,586
Developer OH & Fee / $784,777 / $806,400 / $21,623
TOTAL / $7,666,689 / $7,948,861 / $282,172
CHR reported that it had made significant progress in getting its plans toward the construction documents stage and that WBC had reviewed the updated plans and specs and was comfortable with the pricing that led to only a 2.4% increase since the August 2013 submission.
The major soft cost increases were for marketing ($30,000), insurance ($27,000), loan interest ($20,000), and contingency ($50,000). The marketing increase was based upon CHR’s Sally’s Way experience; the insurance increase was because of MHP’s requirement to carry the first year’s operations premium in the development budget; the loan increase is to cover uncertainty about the timing of the payment of the equity investments; and the increased contingency is to cover against syndication legal expenses beyond the $25,000 currently budgeted.
3. Executive Summary
A. Challenges/Opportunities: This is a similar scale project that CHR has done before and that the Consortium has supported previously although this will only be CHR’s second tax credit project. Absent the public financing, it is ready to proceed as it is permitted and CHR has construction bid plans 95% complete. This is CHR’s second submission to DHCD for tax credit funding.
B. Affordability: 79% of the units are affordable to households at/below 60% AMI: 13 units (57%) to households at/below 60% AMI and 5 units (22%) to households at/below 30% AMI.
C. Risk Factors:
Developer: Moderately Low- CHR has been in existence since 1996 with Ted Malone as the principal of the company. CHR has successfully completed ten residential and/or mixed use developments. In some prior deals, the public lenders have required personal guarantees from Ted’s assets in addition to the pledge of the real estate as security, and it is very likely that similar guarantees will be required by the tax credit purchaser, MHP, and DHCD to mitigate against the lack of net worth by the development entity. CHR has been in full compliance on its only tax credit project (32 Conwell Street/Old Ann Page Way).
Underwriting Assumptions: Moderately Low- Total Development Cost (TDC) of $345,000/unit and construction costs of $184 per square foot are both at the upper end of recent new construction, multi-family Consortium funded developments. Soft costs at 14.5% of TDC are under the Consortium’s preferred maximum of 15%. The net developer overhead and fee of 10.2% is below the Consortium’s 15% maximum. Tax credit rents are about 22-28% below HOME rents, and the vacancy rate of 5% is standard with a 3% rate for project-based units. Debt service coverage of 1.13 at year one is below the Consortium’s 1.15 guideline. Annual property management expenses of $6,511 per unit are about $1,000 less than comparable recent tax credit projects. Replacement reserves are budgeted at $390 per unit- higher than the standard $325 per unit per year.
Construction: Moderately Low- WBC will have a construction management contract with CHR. WBC built the Sally’s Way project, and CHR was very pleased with WBC’s work on that development. WBC has been the contractor for other affordable housing developments on the Cape, and staff notes that there have been post construction negotiations with WBC on two of them.
Market/Leasing: Low- The updated market study by Bonz and Company estimated that the project’s 2 and 3 bedroom tax credit rents were about 38% below market rents. The study did not estimate a lease up period although the experience from the two most recent Provincetown affordable rental projects (83 Shank Painter and Province Landing) was that the projects were fully leased within 3 months of project completion. The projected market rate rents were priced at just about market rate: $1,265/month for the one bedroom unit; $1,550/month for the two bedroom units; and $1,792/month for the three bedroom unit. The market study stated that the capture rate (% of income eligible renters) was about .5% (a capture rate of less than 10% is considered an indicator of sufficient demand). Staff has observed that recent Consortium funded family rental projects have not encountered any issues with the initial lease up. CHR’s turnover rate at Old Ann Page Way/32 Conwell Street has been 8.5% over its 10+ year history; well below the industry standard of 20% based upon a household moving every 5 years.
Property Management: Low- As noted earlier, CHR’s deed-restricted rental portfolio is currently 60 units. CHR has a full time in house property manager and a full time maintenance staff person. In addition, the Town of Provincetown through a CDBG award currently has a resident services coordinator who is available for all the residents of the affordable rental units in town; however, it is uncertain if that funding will be renewed. CHR has budgeted $1,380 per year for contracted resident services and is in discussions with the Homeless Prevention Council to provide contracted services for all CHR rental properties.
Overall Risk Analysis: The proposed project presents a favorable (low to moderately low) risk profile with the primary risk factor the project’s tight debt service coverage; however, CHR’s past projects have proved to be financially stable with similar tight original operating budgets and debt service coverages. A satisfactory (HUD approved finding of no significant environmental impact) environmental review will need to be completed for the project; however, based upon the information reviewed to date, there does not appear to be any areas of significant environmental concern. A further determination and approval from the Conservation Commission will be necessary and satisfactory removal of the 21E identified hazardous materials from the existing garage will need to be part of the construction scope of work.
4. Property Description
The project site is an undeveloped (with the exception of a 10 bay garage that will be removed) 2.3 acre parcel at 19 Race Point Road in Provincetown. The site has rolling and challenging topography that varies from about 40 to 63 feet above sea level. There are no wetlands on site; however, there is a large wetland that abuts the property adjacent to Route 6.
The adjoining parcel, from which the project site was subdivided, contains a variety of year round and seasonal business uses (garden center, yoga studio, bait and tackle shop, dog grooming shop, art studios, food service businesses, a stable for six horses), office space, and two residential units. including a stable for six horses, office space, and two residential units. There is a residential neighborhood to the north of the site, the Dunes campground to the east, and the Provincetown DPW and transfer station and a variety of commercial uses to the west. As noted above, there do not appear to be any significant environmental issues at the site.
5. Development Entity and Team’s Capacity
A. Prior Developments: As noted earlier, the Consortium and/or County has provided funding for seven of CHR’s prior developments that have been successfully. Jessica Snare has been the architect on most of CHR’s projects, and WBC has been the contractor for a number of affordable housing developments in the region. CHR has two full time property management staff for its portfolio of 60 rental units.
B. Current Operational Capacity: Ted Malone, as President of CHR, has extensive affordable housing experience. In addition to the property management staff, CHR has a full time construction manager along with a marketing staff person.
C. Financial Strength: As noted earlier, in some prior deals, the public lenders have required personal guarantees from Ted’s assets in addition to the pledge of the real estate as security, and it is very likely that similar guarantees will be required on this project by the tax credit purchaser, MHP, and DHCD to mitigate against the lack of net worth by the development entity.
D. Standing Re: Prior HOME Awards: CHR is in good standing on all of its HOME Consortium projects.
6. Market Need/Study
The updated market study by Bonz and Company estimated that the project’s 2 and 3 bedroom tax credit rents were about 38% below market rents. The study did not estimate a lease up period although the experience from the two most recent Provincetown affordable rental projects (83 Shank Painter and Province Landing) was that the projects were fully leased within 3 months of project completion. The projected market rate rents were priced at just about market rate: $1,265/month for the one bedroom unit; $1,550/month for the two bedroom units; and $1,792/month for the three bedroom unit. The market study stated that the capture rate (% of income eligible renters) was about .5% (a capture rate of less than 10% is considered an indicator of sufficient demand). Staff has observed that recent Consortium funded family rental projects have not encountered any issues with the initial lease up. CHR’s turnover rate at Old Ann Page Way/32 Conwell Street has been 8.5% over its 10+ year history; well below the industry standard of 20% based upon a household moving every 5 years.
7. Location and Design Issues
The site is located within approximately a mile of public and private services, public transportation, parks and recreational facilities, and commercial facilities.
As referenced in the site description, the site is topographically challenging; however, CHR successfully completed the Sally’s Way project in Truro on a comparably challenging site. There will be 10 new buildings of 2-4 units each that will be sited to take advantage of the topography. All of the proposed buildings will be 2 x 6 wood frame structures with walk out lower levels or basements. Unit plans will vary from single floor units to those with two or three stories. Average unit sizes are as follows: studio- 489 sf; 1 bedroom-534 sf; 2 bedroom- 864 sf; and 3 bedroom- 1,196 sf. Two units will be fully handicap accessible, five units will be visitable, and CHR will make all of the units adaptable to the sensory impaired. 15 of the 23 units will have washer/dryer hookups, and there will be a shared laundry room adjacent to the community room. In the submitted plans, other than the two units in one building with a full basement, there is not additional storage space for tenants outside of their units. CHR subsequently confirmed that it could provide additional storage for the other tenants in Building 8.