Refinance, Retrofit, Redevelop or Run! Planning your Societys future - - PowerPoint PPT Presentation

Refinance, Retrofit, Redevelop or Run!

Planning your Society’s future

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Background

• Since the early 1980’s through to the 2000’s both levels of government have been

encouraging and offering various programs to Non-Profit housing societies to finance and operate affordable rental housing.

• The federal government through Canada Mortgage and Housing Corporation, CMHC,

and the provincial government through BC Housing have been the agencies responsible for the delivery of programs and the administration of the numerous operating agreements with the sponsoring societies.

• The Operating Agreements govern how societies operate and manage their projects.

The terms, conditions and responsibilities vary greatly depending on the specific program under which a project was funded. Generally the funding was based on a 35 year term for mortgage amortization and funding of rental subsidies.

• As these agreements expire the societies become solely responsible for the projects’
• ngoing financing and operations. In BC this affects almost 30,000 rental units the last
• f which will expire by 2033.

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Workshop Team

Facilitator:

• Fiona Burke, Board member, Red Door

Presenters:

• Susan Snell, Executive Director, Red Door
• Denis Loeppky, Development Consultant

The Red Door Housing Society is currently working on the redevelopment of 2

• projects. Many of the examples to be shared in this workshop are taken from

these projects.

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Workshop Objectives

• The objective of this workshop is to consider options for your Society to

consider relating to the future operations and management of your projects.

• We intend to run through this presentation relatively quickly in order to

have time for questions and answers as well as focus on the issues you as society leaders want to address.

• We hope that at the conclusion of this workshop and the overall

conference you will take away some ideas and be able to build some enthusiasm within your organization for addressing the challenges ahead.

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Refinance, Retrofit, Redevelop or Run

This presentation will provide examples and explain some evaluation tools that can be used to determine the best approach to consider for the future.

• Refinance: What will the financial situation be when the mortgage matures and the subsidies cease.

Will your revenues be sufficient without subsidies and will you cash reserves be sufficient to undertake any outstanding maintenance need or upgrades.

• Retrofit: Has your project deteriorated due to deferred maintenance or just hasn’t aged well. Would

extensive retrofitting fix the problems and if so, would it be financially prudent to refinance in order to fund the work.

• Redevelop: If your project is no longer viable and it is not feasible to retrofit should it be replaced? If

so, with what? Would a new build be financially possible? Would the new project be affordable? What happens to the residents during the demolition and construction.

• Run: Should we, or can we, simply hand the project over to another willing society or give it back to

the government.

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The First Step

• The first step any Society Board member and/or administrator needs to take is

to “decide to begin”.

• A feasibility study begins with gathering the information already on hand.
• Your most recent financial statements, together with your operating,

mortgage and land agreements are a good place to start.

• If you have multiple projects collect the agreements for each as they may vary

considerable depending on the program variation under which they were funded.

• While a formal building assessment of your buildings will need to be done, in

the early stages you probably have a good idea of what is needed as either maintenance or upgrades.

• In order to move forward it is also important to understand what options are

available and what has worked for other societies facing the same issues.

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Self-Assessing your situation

The key to developing a realistic action plan for the future is to undertake a thorough assessment of your current circumstances.

• Is your Society currently financially viable?
• Is your project operating as originally intended and is it still meeting the needs of your

community and residents?

• Will the project/s be viable when the mortgage matures and the subsidies cease?
• What is the physical condition of your building/s or are they in need of minor

improvements or major upgrading?

• If the project/s need to be replaced how can you undertake new development and still

keep rents affordable without subsidies?

• What is possible under our existing operating, mortgage and land agreements?
• Where do we start?

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Start by considering the options

• Refinance
• Retrofit
• Redevelop

Or

• Run

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Refinance

• Will your project be financially viable when the mortgage matures and the subsidies end?

The following is an example from Red Door Housing Society’s Mi Casa project using their

• perating budget from the 2012 financial statements:

Annual Revenue 288,363. Annual Expenses 273,784. Surplus: $14,579. Less rent subsidies - 26,449. Less mortgage P&I

• 102,922.

Net Revenue 261,914. Net Expenses 170,862. Surplus: $91,052.

• Based on the above upon full repayment of the mortgage and subsidy withdrawal the project

would have an increased annual operating surplus of $91,052.

• The expiry of the Operating Agreement and termination of the rent subsidies, will allow

eligible residents to directly access rental assistance under the RAP or SAFER programs. The society could increase the rents to the RAP or SAFER maximums as the residents can receive subsidies directly. Again using this example by increasing tenant rents to RAP maximums the net annual rental revenue would increase from $223,975. to $304,444. a further increase of the annual surplus of $80,469.

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Refinance

• As the previous slide illustrates projects that are in relatively good condition can be

maintained with proper maintenance and regular upgrades funded from the society’s annual operating surpluses. Surpluses can also be set aside to grow a capital replacement reserve for future renovation or redevelopment needs.

• Where the building is structurally sound but due to age or deferred maintenance a

number of issues and or upgrades are needed, societies may seek short term financing in order to bring the building into good condition. Depending on the value of this work societies may obtain the short term financing from their traditional banking facility.

• Major work relating to; structure, envelope and or health and safety would fall into our

next category, Retrofit.

• The Mi Casa example will carry through into the redevelop option.

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Retrofit

• We define retrofit as extensive work including; structural, envelope,

mechanical and electrical to bring a project to current standards and extend the projects useful life by decades.

• A critical component in the decision to undertake the extensive work is a

thorough building assessment by competent professions.

• The work will likely require a design team including architect, engineers and
• ther technical consultants. The builder selected, either by invitation call for

proposals or by public tender must be bondable and have extensive experience in major multi-family renovations.

• This work usually requires secondary or refinancing in order to obtain the

capital required to fund the work and usually requires that all, or portions of the project, be vacated to accommodate the construction.

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Retrofit

• We have supplied copies of an InfoLink article entitled “Saving Affordable Housing – A

Case Study” from the Fall 2013 edition that details how the North Peace Seniors Housing Society did refinance their project privately through a pension fund and did undertake major renovations and improvements to all their facilities.

• Their refinancing and restructuring included; pre-paying their CMHC mortgage,

cancelling their operating agreements, purchasing back their leased land, obtaining a new private mortgage to both retire the CMHC mortgage and fund the major retrofit. This did involve increasing rents to SAFER maximums and assisting residents to access the benefits to replace the previous PRAP subsidies.

• Since its refinancing and restructuring in 2004 the Society has undertaken the needed

project improvements, established capital replacement reserves and acquired additional projects and property to increase the supply of affordable housing and support services to seniors in the Fort St. John area.

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Redevelop

• As a project reaches the end of it’s useful life Societies must consider

replacing it. Societies faced with this option need to consider all the challenges and options available.

• Redevelopment or replacement of an existing housing complex is challenging

as there are no government facilitated programs similar to those under which projects were originally built. Societies are required to leave their comfort zone as building operators and managers and begin to take a lead role as a housing provider.

• This can be a difficult decision for both Boards and Staff to make however,

non-profit societies must accept that their role is changing and the need for affordable rental housing continues and is not being address by either level of senior governments or the private sector.

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Redevelopment

• While direct funded delivery programs and ongoing operating subsidies are no longer

available, both BC Housing and CMHC do offer assistance to societies through programs such as Seed Funding grants and Proposal Development Funding loans. Both agencies also offer interim and capital financing at very competitive rates and terms.

• In order to enable societies to undertake redevelopment of their properties BC Housing

introduced the Asset Transfer Program last year to change the land tenure on most projects from leasehold to freehold.

• Societies may also reach out to municipalities and the private sector to form

partnerships to facilitate development. This often involves developing mixed income and mixed use projects which can reach a wider range of residents and generate revenue to allow sub-market lower rents to those in need.

• To help societies through the development and construction processes Development

Consultants offer their services and expertise as well associations such as the BC Non- Profit Housing Association.

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Redevelopment example

• Earlier in the presentation we used Red Door Housing Society’s Mi Casa

project as an example of a project that would be financially viable after the mortgage and operating subsidies expired.

• However this project was not viable due to excessive maintenance costs and a

comprehensive building assessment indicated that it would require over $2.3 million over the next 10 years just to remain operational.

• The Board concluded that redevelopment was the only acceptable option

providing a new project would continue to offer affordable rents to families and singles.

• Susan Snell working with Denis Loeppky of Loeppky Consulting, Allan Deans of

Performance Construction and Dane Jansen of DYS Architecture worked to develop a proposal that is currently working its way through the rezoning process in Vancouver.

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Mi Casa Proposal

• The Mi Casa proposal is to replace the 3 story, 22 unit project built in 1985 with a 6 story

concrete apartment of 51 units.

• The new project will include one bedroom units as the needs of residents have changed. A

number of the original residents are now empty nesters and would have had to move out of their 2 or 3 bedroom units that were their homes as they raised their families.

• The project pro-forma details capital and operating budget projections and a rent schedule

with a mixed range of rents from the SAFER and RAP threshold to a maximum of 90% of equivalent market rents.

• The Society has worked with the community and held an information meeting to address

neighbours’ concerns with increased density and height. They also informed the existing residents and developed a plan to assist in their relocation.

• CMHC has provided Seed and PDF assistance to help with development expenses and BC

Housing has offered assistance with construction and mortgage financing.

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Mi Casa projected Capital and Operating Budgets

June 22, 2015 Preliminary Operating Costs Scheme B -51 units Red Door Housing Society 6 story plus basement mid-rise concrete Mi Casa Redevelopment Proposal A) Building Data: B) Estimated Capital and Financing Costs

• No. of Units

Unit type Size (sq. ft.) Total (sq. ft.) Total capital 17,753,840. 20 1 bdrm. apt. 537/605 11,123 Less: Land Equity (3,905,000.) 14 2 bdrm. apt. 880 12,350 Net Mortgage required 13,848,840. 17 3 bdrm. apt. 988/1,053 17,186 51 40,659 Annual debt servicing costs Circulation /amenity 9,716 (13,848,840. @ 3.1% @ 35yrs.) $647,026. Total Gross Area 50,375 Monthly costs/rents per unit (20) -1 bdrm. (14) - 2 bdrm. (17) - 3 bdrm. Total Annual Mortgage P & I (35yrs @ 3.1%) 738.00 1,170.60 1,340.46 647,233. Property Tax 0. Administration 50.00 50.00 50.00 30,600. Utilities - common area 45.00 45.00 45.00 27,540. Utilities In-suite (not included) 0. Maintenance / janitorial 65.00 65.00 65.00 39,780. Service Contracts ( elevator/fire/systems) 50.00 50.00 50.00 30,600. Landscape maintenance 10.00 10.00 10.00 6,120. Replacement reserve 83.34 83.33 83.33 51,000. Contingency 40.00 40.00 40.00 24,480. Total monthly expenses (economic rent) 1,203.00 1,640.60 1,810.46 933,675.

• Oct. 2013 / Oct. 2014
• Oct. 2013 / Oct. 2014
• Oct. 2013 / Oct. 2014

Vancouver average rent (50 to 99 units) 1,037.00 1,191.00 1.520.00 1,717.00 1,869.00 2,556.00 Vancouver average rent (2000/newer) 1,499.00 1,561.00 1,968.00 1,972.00 2,829.00 ** Percent of Vancouver average rent (2000/newer) 80.4% 77.1% 83.4% 83.2% 64.0% ** #8 Mt. Pleasant/Renfrew Hts. Vacancy rate 1.2% 0.9% 1.5% 1.1% 0% 0% #8 Mt. Pleasant/Renfrew Hts. Average rents 948.00 987.00 1,275.00 1,329.00 1,465.00 1,613.00

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Mi Casa Preliminary Rent Schedule

Preliminary Rental Schedule based on Capital and Operating Cost Projections Red Door Housing Society - Mi Casa Redevelopment Proposal 51 unit 6 story plus basement mid-rise apartment Rents at full capital financing less land equity One bdrm. units x rent Two bdrm. units x rent Three bdrm. units x rent 4 units x $765. = 3,060. 2 units x $1,055. = 2,110. 3 units x $1,160. = 3,480. (SAFER Single max.) (RAP max. 3 person) (RAP max 4+ person) 6 units x $825. = 4,950. 2 units x $1,190. = 2,380. 3 units X $1,697. = 5,091 (SAFER Couple max.) (RAP max. 4+ person) (60% of Market avg. $2,829.) 2 units x $1,066. = 2,132. 4 units x $1,577. = 6,308. 5 units x $2,263.= 11,315. (SAFER Shared max.) (80% of market avg. $1,972.) (80% of market avg. $2,829.) 8 units x $1,405. = 11,240. 6 units x $1,775. = 10,650. 6 units x $2,546. = 15,276. (90% of market avg. 1,561.) __________ (90% of market avg. $1,972.) __________ (90% of market avg. $2,828.) __________ 20 14 17 Total rent per month 21,382. 21,448. 35,162. Monthly Annually Affordability: Projected Rental Revenue 77,992. 935,904. 19 units or 37.3% “deep subsidy “ Less: Total Economic rents required

• 77,806.
• 933,672.

3 units or 5.9% “60% of market” Revenue surplus/(deficit) 186. 2,232. 9 units or 17.6% “80% of market” 20 units or 39.2% “90% of market” Note: 19 units or 37.3% within HILs Updated: November 16, 2015 Prepared by: Loeppky Consulting Ltd.

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• r Run
• In larger communities served by a number of Societies the option to

transfer ownership of projects from a smaller to a larger society is an

• ption. We are seeing this type transfer of assets more frequently.
• This transfer can be a benefit as it does increase the receiving societies

equity base and could help facilitate redevelopment.

• This option is not as readily available in smaller communities where a

society may be the only provider and are maintaining as best they can out

• f concern for their residents.
• We hope that any societies in this dilemma are able to benefit in so way

from the examples and options discussed today.

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Group Focus Session

• In order to focus on the issues you, as a Society are facing

related to the future of your projects we would like to spend the next 15 minutes identifying issues under each of the

• ptions.
• In the remaining time we can discuss these issues and share

ideas and examples of how these issues may be address or resolved.

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