unit per year requirements should not be raised with CPI in future years. AH We oppose an inflation factor and propose HCD lowers the replacement reserve deposit requirement to match the TCAC standard at $300 per unit per year. See response to similar comments above. SF Please modify the language to clarify that replacement reserves could be funded purely with development sources. The first sentence has been revised to reflect this possibility. NPH HCD should not preclude the possibility that replacement reserves could be funded from a capitalized replacement reserve only. The language should be changed accordingly to allow development sources to fully fund the reserve. Clarify that the difference between the required annual deposit and a proposed lesser annual deposit for the first 15 years may be funded as a capitalized reserve. Remove the CPI inflator as this strains feasibility. For rehabs, base replacement reserve deposit amounts on as-renovated PNA, set prior to the renovation. Agree, the revised draft makes it clear that development source funding alone is a possibility. As noted above, HCD believes the calculation should be done on a case-by-case basis. Since it is basing reserve requirements on a 20-year look, the analysis period should generally be at least this long. 3) and 4) See responses to similar BH comments, above. CE See comment one in NPH’s above comment. Same response as NPH. CHW Same as comment three in NPH’s above comment. A replacement reserve of $600 per unit is very high and not standard industry practice. See responses to similar comments above. Abode The $600 per unit requirement is very high, should match the CalHFA requirement. Additionally, multiple replacement reserve rules create uncertainty; HCD should delete the .6% formula and the reserve study options. See responses to similar comments above. SCANPH
coverage. SA For clarity, change “project in (A) to “projected”, and correct the subsection reference in (B). The subsection reference has been corrected. The term “project” is grammatically correct. CHW CHW supports the DSCR changes, but the changes would be further improved if the test for positive cash flow was for 30 years, as is typical for underwriting. HCD believes that the cost to public subsidy sources that would result from a 30-year look outweighs the potential risk reduction. HCD has revised (e)(2)(C) to allow exceeding its normal debt service coverage limit where required to meet the underwriting requirements of a direct federal lending program. Federal agencies have the same public purpose orientation as CalHFA, and on issues like this should receive equal treatment. §8310f MPH To avoid the high costs of long-term fixed rate debt with low prepayment penalties, HCD should allow different structures based on underwriting standards set forth in separate guidelines, which would allow change based on market conditions. HCD has revised its proposal to allow balloon payment loans, so long as there is an independent, senior regulatory agreement (sometimes referred to as a “bifurcated regulatory agreement” HCD’s fundamental non-financial regulatory requirements are incorporated into a covenant or similar document recorded senior to the otherwise first lender documents, while provisions related to financial arrangements are recorded junior. Since many different methods and instruments may be used to effect the bifurcated agreement, this subsection is worded to allow multiple possibilities, including recording a covenant separate from the normal regulatory agreement, recording a regulatory agreement with specified (department approved) provisions that are automatically extinguished in the event of foreclosure, or recording a regulatory agreement that provides for amendment upon foreclosure. The last option is intended to address situations where appropriate title insurance is not available for the other options. BH Use a set of assumptions to demonstrate an exit strategy or repayment of balloon loan. See response to MPH comment and proposed revisions the original amendment text. --
The reference to current liabilities is unclear – does this include capital expenditures or debt service payable from cash flow? Purchase price should be set to allow investor tax liability. It is okay for the Department to approve the appraiser, but not the appraisal. The appraisal is supposed to be an independent valuation. NPH We appreciate the desire to require strong option agreements, but there are several problems with the language as drafted. We recommend HCD delete this section, and do guidelines instead. See response to MPH comment above. CE See NPH’s above comment. See response to MPH comment above. Abode Remove the requirement that the purchase option equal to the greater of fair market value or debt (excluding taxes). Industry standard is set at fair market value or debt plus taxes. See response to MPH comment above. SCANPH Commend interest in back-end protections. See Abode’s above comment. Clarify policy on reserve spend-down to avoid year 15 problems. The limited partner buy-out process is complicated and HCD’s requirement to approve an appraisal may add to the complexity and stress. See response to MPH comment above. CHPC See SCANPH’s above comment. See response to MPH comment above. PH As written there are a lot of concerning points. Buyouts are a delicate and time sensitive process. In addition, this conflicts See response to MPH comment above.
explicitly allows this. Eden Fees: Allow $33,000, based on industry standard of $8,000 asset management plus $25,000 partnership management fees. Fees: Escalators should be either 3.5%, or, for consistency with other parts of the regulations, annual CPI. Services: Base the amount on restriction level, not actual household income (which could be higher, but still needing services). Services: Allow more for 35% units, which was the level used in old programs, and allow more for 50% units for the same reason. HCD has observed wide variation in fees, and believes $30,000 is adequate compensation for the work involved with these activities. In addition, there is no barrier to sponsors receiving additional fees from distributions. This section only limits fees payable on a priority basis, before cash flow is apportioned between soft lender payments and sponsor distribution. HCD agrees that a flat annual percentage increase would be simpler, and is now proposing 2.5%, which is slightly above inflation for the past 20 years. The standard 3.5% operating expense inflation factor used in underwriting is greater because it takes into account some cost items, such as maintenance, that increase over time at a rate greater than inflation, as buildings age. There is no reason to believe these fees should behave in the same manner. HCD is proposing to drop the distinction between tenant income levels. See the revised text of §8314(d). Same response. BH Clarify that past year payables can be paid from current year operating cash flow. HCD agrees that this would be a useful clarification, and has revised 8314(a) accordingly. BH Agrees with Mid-Penn letter on services recommendations. Specific language: allow “resident and supportive services, case management, and on-site supportive services coordination.” HCD agrees with this concept, and is now proposing to add a broad definition of “Supportive Services Costs” in Section §8301 that includes resident services, beyond TCAC requirements. §8314a MPH
See NPH’s above comments. See response to NPH comments. SHE See comment one in NPH’s above comment. See response to Eden’s second comment on §8314, above. CHW The reference to “deferred Developer Fee, pursuant to Section §8312” in §8314(a)(1)(A) is unclear, given the changes made to §8312. Subsection (a)(1)(B) should allow “below the line” priority payments for supportive services. Especially important for AHP projects, since AHP does not allow services to be included as operating expenses. Subdivision (a)(2)(A) should be clarified, and the language “may agree” should be changed to “shall” to provide more certainty of cash flow. Section §8312 has been substantially revised. Hopefully the revisions make this clearer. HCD agrees that supportive services should be payable on a priority basis “below the line” to the extent that they would be allowed an operating expense. The proposed language has been revised at subsection (a)(1)(c) to explicitly allow this. The “may” wording has not lead to any practical problems, to HCD’s knowledge. No change is proposed. Abode See comment one in NPH’s above comment. “The Department may agree to share” should be changed to “The Department shall share” to remove uncertainty. See response to Eden’s second comment on §8314, above. See response to third CHW comment above. SCANPH See comment one in NPH’s above comment. HCD should permit unpaid fees to accrue in any year. HCD should clarify if the $30,000 limit includes the investor’s asset management fee. Please change the agreement “may agree” to “shall” in section (a)(2)(A) to remove uncertainty for Sponsors and public lenders. See response to Eden’s second comment on §8314, above. HCD agrees that clarification would be appropriate, and has revised the proposed language. (a)(1)(B) now makes it clear that the limit includes investor fees. See response to third CHW comment above.