u.s department of housing and urban development office of affordable housing programs under contract...

U.S Department of Housing and Urban DevelopmentOffice of Affordable Housing Programs

Under Contract with ICF International

Monitoring the Health of Your Multifamily Developments

Monitoring Multi-Family Developments

What Is A Successful Home-Assisted Rental Project?

Owner/manager understand & comply with applicable programmatic regs

Project can repay loans

Project revenue covers operating costs over long term

Attractive and well-maintained

Public agency/owner/manager know early warnings & prevent problems from occurring


Basic HOME Principles During the “affordability period”

HOME units:• Are rented only to Low- and Very-Low-

Income Households • Have rents at/below HUD-established

limits• Are maintained in standard, decent

condition • Are rented with leases and fair housing

procedures


Compliance Monitoring Important to ensure that rental

projects meet compliance requirements for affordability period

If project is not compliant:• Are not providing quality housing to

eligible households • Requires a lot of PJ oversight• May fail and HOME funds have to be

repaid


Enhanced Monitoring But to be successful, projects must

also be physically and financially viable, and this affects their ability to remain in compliance

Can’t just monitor for compliance, also must monitor for viability


Rental Compliance System Can consider rental project compliance

as system of integrated steps• Success at each step affects all others• Feedback from steps at end of process

used to improve overall performance

Many PJs “compartmentalize” staff, tasks & processes• Do underwriting staff confer with

monitoring staff about potential project risk areas?

• Does data from monitoring affect future underwriting decisions?


RENTAL COMPLIANCE SYSTEM (cont)

Underwriting Selects Projects That Are Likely to Succeed

PJ/Owner Agreement

Outlines Obligations

Application Process Reinforces HOME

Compliance Standards

PJ Watches For Troubled Projects

and Intervenes Early

PJ Monitors Each Project For Compliance in Key Areas:

Affordability; Tenant Relations; Unit Quality

Owner Addresses Monitoring Findings &

Reports to PJ

PJ Actively Manages Its Portfolio of Projects


Periodic Reporting

Annual Rent and Occupancy report from owner is required (§92.252(f)(2))

• Suggest additional and more frequent reports

Benefits of periodic owner reports:• Help verify project compliance• Track property performance over time

Reports should:• Include quantitative and narrative

information• Be easy to complete and read


Annual Report To PJ

HOME requires annual rent and occupancy report to PJ from owner

May include non-financial, financial, and narrative information• Non-financial information relates to

occupancy and property quality• Financial information relates to

property’s income, expenses, cash flow• Narrative information typically covers

property management issues


PJ Monthly Or Quarterly Reports Not a HOME requirement

• May help PJ catch problems earlier

Suggest obtain periodic reports from owner or property manager on:• HOME unit status• Overall occupancy rates• Unit turn over• Property financial status• Significant maintenance issues

Attach a rent role


Reviewing Reports

Steps in reviewing reports:• Establish indicators • Compare properties to indicators• Review for “red flags”• Categorize properties:

Good, fair, poor, troubled• Follow-up with appropriate action

Important to review reports periodically – don’t wait for end of year

• Lots of problems can pile up in a year!


Early Intervention Requires Information

It is cheaper to fix a problem early, than late


Reporting, Generally

How others report:• Baseball, Weather, Stock Market,

Healthcare• Industry standards (RBI, heating degree

days, Nasdaq index, cholesterol level)

MF industry lags


Baseball – Key Indicators Pitchers

• W/L Ratio• ERA• BB/K

Batters• Slugging• BA• OBP


Weather: Brilliant Info Design Multidimensional

information• Long-term and

short-term trend• Recent actuals and

near-term projections


What If…Applied to MF Larger bars show

portfolio range

Smaller bars show peer range

Boxes show actual performance of asset

Context, historical trend, projected outcomes


Key Indicators – Multifamily Financial

• Debt Service Coverage• Net Cash Flow (NCF) – The bottom line

(result)

Operational• Vacancy, Collections• Operating Expenses (vs. budget, or as a

ratio)• Average Days Vacant

Make-Ready


Cause and Effect Follow the Flow of Effect and Cause

(Diagnostic Drill-Down)• Effect (NCF) vs. Cause (VL)• Effect (VL) vs. Cause (Make-Ready)• Effect (Make-Ready) vs. Cause (staffing

levels, finances, management)

Then, Address the Cause

Which, Affects the Effect


KI – Net Cash Flow All Potential Revenue (rents, other) Minus all Income Loss (VL + CL) Minus all Expenses (OpEx, R4R) Minus all Required Debt Service Equals NCF Important because it is the result of

other indicators Important because it’s a measure of

‘cushion’


Meaninglessness

NCF at Whispering Pines is ($55) PUPA.

Yes, negative NCF is bad, but…

What about mission,

Or context…


NYC Marathon Gerard Vigneron

4:58:31

34,277

80

1st in Peer Group

Record: Bob Horman (80) 3:39:18


Peer Reporting Context Matters

Good peers are narrowly defined…

…which requires a lot of uniform data…

…which no one really has…

StrengthMatters


StrengthMatters™ Data Warehouse for

Peer Benchmarking

www.strengthmatters.net

Members upload electronically to a common CoA

On-line, live, dynamic reporting functionality

Transparency


Alternatives for Context If not peer comparisons, then what?

• Exception (worst-first, or red-flag reporting)

• Trending (property vs. its own history)• Comparisons to budget (property vs. its

own goals)• Comparisons to underwriting proforma

(property vs. its own expectations) Feedback loop


Exception Reporting Worst 10% get 90% Trick is: Which are the ‘worst 10%’? Sorting ‘Worst-First’ Red-Flag Reporting Sorting by actuals and ratios

• Total NCF vs. NCF/Unit Property A: ($500)/year (but ($25)/unit) Property B: ($100)/unit/year (but ($4k))

Using ‘Bins’


NeighborWorks America MFI

Measures 7 Key Indicators on 1,000 properties, quarterly

Results for each property is ‘binned’ based on range of outcomes: Excellent, Good, Fair, Poor.

NCF is measured: NCF as a % of GPI (EGI)• Bin 1 (Excellent): >10%• Bin 2 (Good): 5-10%• Bin 3 (Fair): 0-4.99%• Bin 4 (Poor): NCF <0% (i.e., negative NCF)


Exception Reporting into ‘Bins’


Drilling Down into the Bins


More Drilling Down


Yet More


Trending Allows for seeing relative

performance (the subject as its own peer)

Familiarity

Don’t actually need charts or graphs


Percentiles Shows relative performance, without

showing other data

Percentile is ranking: 75th Percentile means three quarters scored lower, one quarter scored higher

Multiple percentiles (each say something different)

• NCF/unit among all properties: 75th

• NCF/unit among peers (urban high rise, §8): 39th• NCF total: 99th• NCF change year-year: 10th


Enough About Reporting: Other Monitoring Techniques Site Visits and Drive-Bys

Encouraging Third-Party Info• How’s My Driving: 1-800-555-1212

Compliance Monitoring: Relationship between financial problems and occupancy compliance

Capital Needs Analyses


Capital Needs CNA is a reliable predictor of financial

crisis

EUL, RUL, Cost are predictable.

Decent CNA can give 3+ years warning of capital shortfall

Combine with analysis of NCF, refinancability, rent increase potential, etc.

u.s department of housing and urban development office of affordable housing programs under contract...

Documents

monitoring staff

enhanced monitoring

rental project compliance

multifamily developments

pj home

compliance requirements

viability slide

rental projects