cooperative housing and fha

7/30/2019 Cooperative Housing and FHA

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Cooperative Housing and FHA

Insurance


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Presenters

Tim Gruenes: Minneapolis HUD;Supervisory Project Manager/Team Leader

Scott Werdal: Minneapolis HUD;Operations Officer

Terry W. McKinley; President & CEO ofCooperative Housing Resources in St. Paul,

MN: President of the Senior Coop Foundation CHR is an FHA Approved Lender


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Agenda

Basic co-op concept

General characteristics

Board of Directors

Structure - $s

HUD (Section 213) requirements Pre-sale of units

Review of share purchasers


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Agenda - Continued

MN Hub procedures

Section 213 for purchasers/consumers

Section 213 for sponsors/developers

Section 213 for HUD

Appreciationlimited equity vs. market Co-op legal documents

References


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Agenda - Continued

Why is the Co-op so Popular WithOlder Adults?

Why do developers like the co-opmodel so much?

Sponsorship IncentivesBusiness

Sponsorship IncentivesMission

Community Incentives


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Agenda - Continued

Difficulties in Developing/Managing aCoop

Pictures of Coops.


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Basic Cooperative Concept

Mortgagor = N.P.corp. owns the project

Co-op members: own a membership

certificate in the corporation

Membership certificate gives them the right

to occupy and the right to participate:

Board member

Voter


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Cooperative Structures

There are many ways to structure a

cooperative.

This presentation deals with the mostcommon structure that the MN HUD office

has processed.


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Structure

General Characteristics Processed under Section 213

Elderly, new construction

Pre-sale, management type

Co-operative formed before construction

Sponsor/development service agent (DSA) Loan term of 40 years


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StructureGeneral

Characteristics Valuation, downpayment and carrying

charge amounts are usually allocated by sq.

ft.; average optimal unit size 1350 s.f. Typical unit mix of newer co-ops:

20-30% 1 BRs

50-60% 2 BRs

10-20% 2+Den/3 BRs

Most utilities are typically included


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StructureBoard of Directors

Provisional Board of Directors till first annualmeeting of members

Within 1 year and 3 months of Cert. ofOccupancy/Final Endorsement

Usually individuals from sponsor/DSA

Board of Directors (after provisional) Members/occupants of units

Staggered, eventually 3 year terms

Training is now available for board membersthrough Senior Cooperative Housing EducationProgram


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Structure - $s

Development costs covered by:

Downpayments: (typically 3040%)

FHA Insured mortgage (typically 60-70%) Carrying charges: covers on-going

expenses/debt service (typically $700$1,500 PUPM); Trending down!

100% of income after expenses & reservesused for debt service


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HUD (Section 213)

Requirements Criterion 3 maximum mortgage = 98% of

Replacement Cost

Stat. Limits > (d)(4)similar to 207/220 No MAPright now must go TAP

General Operating Reserve: begins at 3% of total

carrying charges. Controlled by mortgagor.

Minimum downpayments: 3% of total cost.

Pre-Salesee next two slides


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Pre-sale of Units

Insurance of Advances 90% + of the units prior to Initial Closing

If construction has begun, 50% + of the units with

Directors permission. Sponsor/DSA must cover difference

Sponsor/DSA must agree to pay the monthly carrying

charges on any remaining units for a maximum of 3

years or until sold.

HUD must review/approve share purchasers

before Initial Endorsement


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Pre-sale of Units

Insurance Upon Completion 97% + of the units prior to closing

Director may adjust downward.

Sponsor/DSA must agree to pay themonthly carrying charges on any remainingunits for a maximum of 3 years or until

sold. HUD must review/approve sharepurchasers before Final Endorsement


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Review of Share Purchasers

Handbook 4550.2 (paragraph 11-6).

Co-op Membership Exhibit (FHA 3203)

Credit Reports

Personal Financial Statements (FHA 3232A)

Verification of employment

Verification of deposit


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MN Hub Procedures

Variable down payments: Allowed by handbook,

however we require at least 5% participation in

mortgage (Common Interests) Collections of downpayments:

Handbook - no collections until commitment

We typically waiveallow after invite issued and legal

documents reviewed.

Ins. Upon Completion: 60% + pre-sale prior to

allowing use of downpayments.


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Section 213 for Purchasers/Consumers

Advantages:

Long-term, fixed-rate, non-recourse Built-in mechanisms to protect the consumer FHA known to Seniors generation: trusted

name recognition Institutional oversight and discipline: audits,

reserves., etc Distributive Shares - MIP has been refunded.


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Section 213 for Purchasers/Consumers

Disadvantages Some co-op members chafe under co-op

oversight Some members or their beneficiaries may

prefer unrestricted equity returns and nonage-restricted potential buyers to liquidityand ease of transfer to waiting list elderly(i.e., condo structure)

Lock-outs (when excluding is not pricedwithin the rate)


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Section 213 for Sponsors/Developers

Advantages: Nonrecourse Not rate-sensitive

Equity funded by buyers, and non-mortgageable costs can be paid from equity. Profit margin

Disadvantages: Pre-sale requirement Unless IUC is used, must collect full down

payment prior to construction


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Section 213 for HUD

Advantages: Very low loan-to-cost (50%-65%; Trend to 35%) Significant pre-sale requirement before closing Very favorable default experience - good track-

record High resident creditworthiness Is not subject to credit-subsidy limits

Disadvantages: Co-op members call HUD when they have a

problem with the developer


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Appreciation -

Limited Equity vs. Market Model Form of Bylaws sets appreciation as

the amount of principal pay-down.

We have seen different approaches:From:

1-3% appreciation per annum plus principalpaydown (most utilized)

To:

Marketappreciation not limited


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Transfer of Membership

(Regulated by the Bylaws) Co-op has first option to deal with departing

members share.

Co-op compiles waiting list If co-op waives right, member responsible

New member must be approved by co-op.

MN Insured projects usually sold by Co-op7500 Yorkcurrent waiting list > 550 peopleAvg. transfer time of one developer, 1-5 days


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Cooperative Legal Documents

Articles of Incorporation

Subscription Agreement

Occupancy Agreement

Cooperative Agency Agreement

Management Agreement

Bylaws

Information Bulletin (Disclosures!)


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References

New construction:

HUD Handbook 4550.1

HUD Handbook 4550.2

Existing: HUD Handbook 4550.3

HUD Clips does not contain Appendices

(legal docs and forms): Contact MN officeif you need copies.


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WHY IS THE CO-OP SO

POPULAR WITH ACTIVEOLDER ADULTS?


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It is most important to understand that the

cooperative concept appeals to older adultsespecially couples--who would not

normally consider seniors housing and who

typically would remain in their single-familyhomes.

Rick Fenske, Senior Market Researcher

Maxfield Research, Minneapolis


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Co-op Advantages for Older Adults

They remain in control at a time of life whenmost other alternatives require sacrificingcontrol.

Seniors can get out of SF home maintenance,

and especially with high down-payments, livelike snow birds (with no better high returnsafe investment available for their nest eggsavings from SF home sale)!

Co-op governance provides a forum for activeparticipation and taking of responsibility Preserve equity - no spend-down of assets.


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Co-op Advantages for Older Adults

Continued

They preserve tax benefits ofhomeownership

They save money paying only the actualcosts - no outside owner or mandatoryservices ($1000 PUPA < G.O. Rental)

Affordable by senior homeowners with

modest income Attracts young- and old-old alike.


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SENIOR LIVING ENVIRONMENTS

Age 65+

75%

20%

5%

DEPENDENT LIVING -RENTAL

INDEPENDENT LIVING

- RENTAL

INDEPENDENT LIVING

- OWNERSHIP

Source: AARP


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Outdoor Heavy Light Trips to Light Cooking Personal

maintenance housework maintenance store, etc. Housework meals grooming

SENIORS ANTICIPATING NEED FOR HELP

Page 65+

65%

54%

34%

26%

18%

14%11%

0%

10%

20%

30%

40%

50%

60%

70%

Source: AARP


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Senior Cooperative Members' Ages

0

10

20

30

40

50

60

70

80

90

100

1 5 913

17

21

25

29

33

37

41

45

49

53

57

61

65

69

73

77

81

85

89

93

97

101

105

109

113

117

121

125

129

133

137

141

Ages Median

Age:

74Age

55-59

4%

Age

60-64

6%

Age

65-69

19%

Age

70-74

29%

Age

75-79

27%

Age 80-84

18%

Age 85-90

2%

Age 90+

1%

Buyers


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Senior Cooperative Members' Incomes

-

20,000

40,000

60,000

80,000

100,000

120,000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111

Median

Income:

BUYERS

INCOMES


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Cardinal Pointe - Purchasers' Single-family Home Values

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000$500,000

1 7 13 19 25 31 37 43 49 55 61 67 73 79 85 91Buyers

Two a dd'l buyers'

homes at $970,000 &

$1,630,000

Median:

Mean:


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WHY DO DEVELOPERS

LIKE THE CO-OP MODELSO MUCH?

C ti D l


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Cooperative Developers

(nonprofits in italics) Ebenezer Society (1976) Episcopal Church Home of Minnesota (1980) Calvary Lutheran Church - Golden Valley (1980) Nokomis Community Development Corp (1980) Presbyterian Homes (1985)

Realife Corporation (1988) Gramercy Corporation (1995) Paul Sentman - Sentman Enterprises (1998) Elim Care (2000)

Nichols Development (Summerhill) (2001) United Properties Real Estate Equities, LLC (2003) Guardian Angels (2003)

St. Annes Extended Care (2005)


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Year: 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Growth of Older Population1990-2050

0

5000

10000

15000

20000

25000

30000

35000

40000

Older

Population(int

housands) Ages 65-74

Ages 75-84

Ages 85+

Littl F ll 15 Mil R di


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Little Falls - 15 Mile RadiusHouseholds, age 65-85, by Income

61 3

28 4

26 4 25 9

21 820 4

13 0

10 4 10 811 6

10 3

70

3725 22

4 4 00

10 0

20 0

30 0

40 0

50 0

60 0

70 0

$500,

000

Income Ranges

Median Income: $23,400


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Sponsorship Incentives - Business

Land profit Development profit Appeals to a diverse market -- especially

young old

Simple operating program Creating a market for elder services Management fees


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Sponsorship Incentives - Mission

Providing a better alternative that --Supports aging in placeEnhances true independence through

interdependence Improves members health and well-being Preserves seniors financial resourcesFrees up affordable homes for younger

families Contributing to community economic health


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Community Incentives

Turns over single-family homes to youngerfamilies Retains seniors and their contributions in the

community

Economic development Adds a significant amenity/housing option in

order for a community to retain otherwise out-migrating elderly who would prefer to stay in

the neighborhoods they know best (tale oftwo mayors)


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Difficulties in

Developing/Managing a Coop Marketing a cooperative project is very different

than a rental - selling a sense of community.

If this is the first cooperative, nothing to showpeople other than planssome developers build

sample units.

Oftentimes, experienced marketing personnel

from other cooperatives are hired by newdevelopments.


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...decreased environmentalcontrollability is associated with

negative health outcomes, while

increased controllability is associatedwith positive outcomes.

Judith Rodin, Ph.D., gerontologistPresident, University of Pennsylvania


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Gerald Glaser, Gerontologist

Ebenezer Center for Aging, testifying before the

Presidents Housing Commission, 1981

"From a gerontological point of view, the essential

benefit of the cooperative is that it provides an

economic structure and social framework that fosters

self-reliance, self-control and determination,

interdependence, and cooperation among the resident

members, even among those with severe chronic

conditions. As gerontologists we know that these factors

contribute directly to continued independent living,

successful aging and the enhancement of longer life."


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Gross Floor Area(est.) : 82,760 DEVELOPMENT BUDGET

Project: Current Project Interest Rate: 6.5%Location: Minnesota Term (yrs): 40 CONSTRUCTION/SF 60$ 4,965,600$Project #: Not Assigned Down Payment/SF: 54.00$ Architect 3.00% 148,968

Average Monthly Charge/SF: 0.916$ Other Fees/DU 2,500$ 105,000 253,968$Loan Amount: 4,050,000$ TOT. for all Improvements 5,219,568$

PRICING, INCOME & EXPENSES FINANCING, TAXES, CLOSING COSTS:

Interest 12 mos. & 6.50%

Total 40.0% Required Total Total on 4,050,000$ 131,625$

# of Unit Unit Unit Down Monthly Income to Down Monthly Taxes 15,000

Units Descr. Size Price Payment Charge Qualify Payments Charges FHA Fees 1.8% 72,900

3 1BR/1BA 800 112,080$ 44,830$ 760$ 19,826$ 134,490$ 2,280$ Consulting 54,000

6 1BR/D/1BA 960 134,500$ 53,800$ 890$ 23,217$ 322,800$ 5,340$ Finance Fees/Discounts 3.0% 121,500

6 2BR/1.5BA 1,075 150,610$ 60,240$ 980$ 25,565$ 361,440$ 5,880$ Appraisal 7,000

9 2BR/2BA 1,150 161,120$ 64,450$ 1,060$ 27,652$ 580,050$ 9,540$ Title & Rec. 20,250 422,275$

12 2BR/2BA 1,240 173,730$ 69,490$ 1,130$ 29,478$ 833,880$ 13,560$

6 2BR/D/2BA 1,360 190,540$ 76,220$ 1,230$ 32,087$ 457,320$ 7,380$ LEGAL, ORG.MARKETING, & DEV. FEES

42 48,000 2,689,980$ 43,980$ Furnishings 75,000Working Capital 81,000

OTHER INCOME: Total Annual Monthly Charges: 527,760$ Legal 35,000Paid parking: 0 stalls @ -$ Organizational 10,000Guest Room: 10 nights @ 35$ 350$ Marketing 5,000$ 210,000

350$ 4,200$ Developer's Fee 10,000$ 420,000 831,000$Total Annual Income, all Sources: 531,960$

LAND VALUE 6,000$ 252,000$OPERATING BUDGET: Estimate of Annual Common Expense 210,000$

Per unit: 5,000$ TOTAL PROJECT COSTS: 6,724,843$

Annual Fixed Charges: LTV: 60%

Int.Rate. 6.50% Term/yrs: 40 TOTAL REQUIREMENTS FOR SETTLEMENTInterest Plus Curtail 7.025482% 284,532 TOTAL COSTS/USES: 6,724,843$Mortgage Insurance 0.50% 20,250 SOURCES: Mortgage Amount 4,050,000$Operating Reserve 3.00% 15,833 320,615$ Downpayments 2,689,980$

Total Funds Available: 6,739,980$Total Gross Ann.Exp. And Fixed Charge s: 530,615$ CASH INVESTMENT REQUIRED (15,137)$

NET INCOME/(LOSS): 1,345$ Total Project Costs: 6,724,843$

Project Cost per unit: 160,115$Project Cost per netsquare foot: 140$


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Contacts

Tim Gruenes: [email protected]

Scott Werdal: [email protected]

Terry W. McKinley:

[email protected]