HUD MAP CHAPTER 5, 6 & 9

UPDATE

May 2012SMAC Hilton Head, SC

Rob Hazelton – Principal - Dominion Due Diligence

• Emphasizes Consistency

• Aims to Improve PCNA Quality

• Connects Asset Management with the PCNA

• Facilitates Improved HUD Staff Review Time

• A Step in HUD’s Commitment to Execution

PENDING PCNA ML

• All Programs - Single Scope of Work with 20-Year R4R

• ASTM Standard E2018-10 is being adopted

• Broad allowance for upgrades and modernizations

• Clarifies Capital Expense vs. Maintenance Expense

• 6 month (180 day) shelf-life

PROPOSED PCNA ML (page 1 of 3)

• Potentially shortening loan term without forensic examinations of >30 year sites

• Minimum PUPA $250/unit

• Only PCNA Enumerated Repairs and Replacements may be drawn from escrow

• Crackdown on Accessibility Review, level of requried due diligence and clarification of term “Adaptable”

PROPOSED ML(page 2 of 3)

• Accessibility conditions must be Critical Repairs

• “Corrective Action Plan” for accessibility-related repairs to defer them from Critical timing

• No R4R expenses for first 2 years (except routine item)

• Minimum R4R Balance = 5% of the 20-year total for 105% funding at end of 20-year term.

PROPOSED PCNA ML (page 3 of 3)

• CURRENTLY: Per MAP Guide and FAQs, accessibility repairs are to be defined as either Critical or Non-Critical Repairs based upon the nature of the violation and exigent threat to health and safety.

• PROPOSED:

a. ALL accessibility repairs are Critical Repair by FHEO definition.

b. Can be deferred to 12-months with a “Corrective Action Plan”

c. May be deferred longer with HQ involvement/waiver (few exceptions)

ACCESSIBILITY REPAIRSCRITICAL or NON-

CRITICAL ?

IS 30-YEARS OVER THE HILL?Why HUD’s recent cautiousness to the 30+ year old?

Many Estimate Useful Life (EUL) values for large multifamily systems expire between 30 and 50-years

Risk mitigation notion that a 30+ year old property warrants a shorter loan term (issues of remaining economic life)

Accessibility compliance (UFAS) issues

Many of these older properties have large cashouts

HUD’S New “Early Warning System” of PCNA review

MULTIFAMILY FORENSIC ENGINEERING STUDY

Pre-Inspection Conference Call is a necessity

Obtain, coordinate and/or review applicable forensic &

intrusive studies of questionable or aged systems

Site inspection requests: Clarify areas of inspection &

availability of service providers and staff

Determine UFAS applicability (resident profile)

Coordinate findings within PCNA report and R4R tables

PLUMBINGSCOPING

PLUMBING PIPE CORROSION

INFRARED STUDIES

BUILDING ENVELOPE STUDIES

However, remember when doing needs assessments of the 30+ year old properties, that one-size does not fit all. One scope of forensic studies is not the same for all properties. The forensic/intrusive inspection needs of a wood-framed 2-story garden style apartment complex, and a 10-story masonry apartment building are likely to be drastically different.

HUD’SFOCUS ON

AFFORDABLE HOUSING

1. MAP 5.28 STREAMLINED PROCESSING

2. LIHTC TAX CREDIT PILOT

3. RENTAL ASSISTANCE DEMONSTRATION

Guidance to Defer Submission of Final Architectural Plans and Specifications o ~ 80% set of construction documentso Outline specification onlyo Costs within 95% accuracyo 2-Stage 3rd Party AEC Reporting

Concernso Time commitment from 80% to 100%o Loose designs cause $$ swingso VE issues / Changes in Design or Amenities

LIHTC Streamlined Process (MAP Guide 5.28)

Architectural, Civil documents (at minimum)

Project Manual (ML 2010-41 CSI MasterFormat)

Geotechnical reportALTA Survey

Architectural plans must include:o All building type planso All unit type enlarged planso Plans for amenity structureso Map Appendix 5Eo Disallowed: “Or equal(s)” and “Allowances”

The “80% Complete Set”

HUD Form 2328How to fill out the HUD Form 2328 (exp. 01/31/2013)

Complete all information on the formProvide a short description for EACH trade item. The

“Trade Description” column must be completedEnsure structure cost only above line item 32, with all

civil land improvement costs in lines 35 trough 40Ancillary structure costs only in line item 33Whole dollar amounts onlySoft Cost (Fee) Structure:

General Requirements: 3% - 8%. Breakdown required for >8%

Builders Overhead: 2% Statutory LimitBuilders Profit: 3% to 8%, depending upon size and

complexityPerformance Bond: >1%

TAX CREDIT PILOT PROGRAM -

THE HEAVY FThe new Tax Credit Pilot program allows the following types of transactions to occur, both of which require a version of a PCNA:

Section 223(f) acquisition and/or refinance and moderate rehabilitation of affordable properties, with rehabilitation levels up to $40,000 per unit in hard costs.

Extension of the 3-year waiver rule for LIHTC properties, allowing for Section 223(f) permanent financing of newly constructed or substantially rehabilitated affordable projects that are complete and stabilized.

HEAVY 223-F:COST

RECOMMENDATIONSRepairs must be DETAILED

Quantity Survey Cost Estimates, also known as line-item/quantity cost estimates, are necessary.

The Tax Credit Pilot Mortgagee Letter and Housing Notice both identify the “repair work will be subject to monthly inspections and lender control over draws.”

Lump sum costs should be avoided.

Complete Plans and Drawings are not always needed.

Specifications are always needed, but could be just AIA A201 and an outline specification.

Per MAP Guide 5.28, firm submission can be made with “deferred submittal” of complete drawings. However, at the time of submission the construction documents must be detailed enough to be cost estimated to an accuracy of 2%. Recommend 80%+ complete.

HEAVY 223-F:DESIGN

RECOMMENDATIONS

Case Study #1- 9% LIHTC Sub-Rehab- Scope of work included:

- Flatwork/Parking Repairs- Site Lighting/Security Upgrades- New Siding / Weatherization- Roof, Window, Door Replacement- K & B replacements (50% of units)- HVAC and DHW Replacement- Electric Panel Replacement- Interior Finish Replacement

- Architectural Submission- Outline/Narrative Specification- Interior Unit Matrix- Site Plan (sketched w/repairs)- 1 Drawings for ADA ramp at CH

Case Study #2- 4% LIHTC Moderate Rehab- Scope of work included:

- Flatwork/Parking Repairs- Brick façade repair / Weatherization- Roof Replacement- Common hall upgrades- K & B replacements (55% of units)- UFAS Upgrades to 8 units- Elevator Upgrades- Central Boiler Replacement

- Architectural Submission- Outline/Narrative Specification- Interior Unit Matrix- UFAS Unit drawings (8.5”x11”)- Site Plan (sketched w/noted repairs)

PIH NOTICE 2012-18RENTAL ASSISTANCE DEMO

Initial Authorization for conversion of 58,750 assisted public housing units

Supports leveraging with mortgage insurance/LIHTC equity to facilitate much needed repairs

Competitive application process begins August 1st

Application Attachment 1B: Financing Letter of Intent

Sizing of capital needs per the HUD-OAHP Mark-to-Market program, Green Initiative Scope of Work

• National Loan Committee and Hub Loan

Committee

• Asset Management Involvement in all deals

• “Cashout” - The new dirty word?

• Breaking Ground and the “Early Warning Process”

• Green PCNA Scope of Work (RAD, others?)

• New MAP Guide, with revised ESA guideance

2011-2012 NEW HUD TOPICS

ASBESTOSNew MAP Guide requires an asbestos survey pursuant

to “ASTM E2356-10 Standard Practice for Comprehensive Building Asbestos Surveys”

ASTM methodologies require:Licensed inspector be used (whether or not

sampling performed).If no sampling, all must be PACM.NOB and Trace material analysis by different

method.Screening inspection not compliant, unless

presumptions made.

NEPA DISCUSSIONSSHPO on refinance transactions

Noise Studies on 223(f) projects

Beware of “Floodways”

Executive Order 11880 and 11990

Railroad concerns with LEAN

Other Recent Issues?

REMEDIATION PLANSComplete removal of contamination

Remediation to de minimis levelsMeet non site-specific LSTF authority standardsNo active or passive remediation remainingNo need for Eng./Institutional Controls/Monitoring Wells

Incomplete removal of contaminationJustification for incomplete removal of contamination

must be submitted along with the remediation plan, including documentation that: the cost of the incomplete removal of contamination,

including any life cycle costs for O&M, and the cost of any enforcement requirements of LSTF

authorities, are sufficiently below the costs of complete contamination removal.

VAPOR ENCROACHMENT

HUD’s Vapor Intrusion Screening Requirement

The Phase I ESA must include an initial vapor (soil gas) intrusion screen. Must be performed using Tier 1 “non-invasive” screening pursuant to

ASTM E 2600 - 10, as amended.

Purpose: To determine if there is a potential for subsurface vapors from volatile

organic compounds (VOC), semi-volatile SVOC) and inorganic volatile compounds to occur below existing/proposed structures.

Vapors. If the Tier 1 Vapor Screen resulted in an REC then the Phase II ESA shall include either : a Tier 2 Screen pursuant to ASTM E 2600, a Tier 3 Vapor Intrusion Assessment (VIA) as discussed in ASTM E

2600, or go directly to Tier 4 “mitigation”