MIXED INCOME PROPERTY CFO FORUM NEIGHBORWORKS AMERICA TRAINING INSTITUTE KANSAS CITY, MISSOURI Presented by Len Tatem (Tatem Consulting LLC) & John Kelley (CNAHS/HRI Cambridge, MA)
DEFINING MIXED-INCOME Properties with numerous tiers or targets of Area Medium Income (AMI) (30%, 40%, 60%) Properties with targets expanded to units at 80% of AMI Properties with targets expanded to market rate units. Properties that are naturally affordable or unrestricted. Tatem Consulting LLC - Copyright Pending 2
ANALYTICS & MANAGEMENT OF 808 Memorial Drive Auburn Court Tatem Consulting LLC - Copyright Pending 3
MIXED- INCOME PROPERTY Water Garden Park Washington Terrace Tatem Consulting LLC - Copyright Pending 4
THE CHALLENGES 1. Rent Setting 2. Rent Stream over time 3. Operational differences when competing with the market 4. Customer Service Continuity Tatem Consulting LLC - Copyright Pending 5
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THE CHALLENGES (continued) 5. Cost Containment 6. Investor Relations 7. Debt Management 8. Impact of decisions on balance sheet and cash Tatem Consulting LLC - Copyright Pending 7
RENT SETTING Benchmark against the market place Monitoring both affordable and market rents Understanding the value of amenities Understanding the value of location Regulatory Approvals Concessions Tatem Consulting LLC - Copyright Pending 8
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ANALYZING THE RESULTS of RENT SETTING Per unit Per square foot Per bedroom size Tatem Consulting LLC - Copyright Pending 11
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RENT STREAM OVER TIME Tracking of rents to the underwriting Expansion/contraction of rent level based on subsidy or market Ability to refinance Ability to generate cash Tatem Consulting LLC - Copyright Pending 14
HOW DO OPERATIONS DIFFER WHEN YOU ARE COMPETING DIRECTLY WITH THE MARKET? Affordable Targeting Only Mixed Income Market rate/naturally Affordable Tatem Consulting LLC - Copyright Pending 15
COST CONTAINMENT Capital investment to reduce operating costs Improvements with paybacks to reduce energy usage Reducing real estate taxes, insurance and other non-controllable items Tatem Consulting LLC - Copyright Pending 16
Magazine Williams Solar Panels Tatem Consulting LLC - Copyright Pending 17
CUSTOMER SERVICE Stable Staffing and Its Importance Good Old-Fashioned Customer Service Methods for retaining staff Housing Wage Competitive Compensation Recognition Rewards Tatem Consulting LLC - Copyright Pending 18
ANALYTICS & MANAGEMENT OF Tatem Consulting LLC - Copyright Pending 19
INVESTOR RELATIONS How does this differ for each property type? What is appropriate to provide? Wait or be proactive about information? Tatem Consulting LLC - Copyright Pending 20
FINANCING Short-term financing Long-term financing Appropriate time for both Financial statement impacts Tatem Consulting LLC - Copyright Pending 21
KEY FINANCIAL STATEMENTS 1. Pro forma Budgets 2. Annual Operating Budgets 3. Profit and Loss Statement or Statement of Operations 4. Balance Sheet 5. Income Statement 6. Annual Audit Tatem Consulting LLC - Copyright Pending 22
PRO FORMA BUDGETS 1. Development pro forma (fees and costs) 2. Operating Pro forma Trending Assumptions for Revenues and Expenses Net Operating Income Debt Service Coverage Capital Expenses Cash Flow This is often the source for asset management fees Tatem Consulting LLC - Copyright Pending 23
ANNUAL BUDGET 1. Road Map for the Coming Year 2. Preparation and Approval Schedule 3. Review last two years audits 4. Review operating pro forma 5. Maximize revenues (rent increases, vacancies, and turnover control) 6. Minimize Expenses (where is the controllable impact?) 7. Market knowledge and benchmarks Tatem Consulting LLC - Copyright Pending 24
INFORMATION AVAILABLE IN STATEMENT OF OPERATIONS Debt Service Coverage (DSCR) net operating income/debt service (Note: many lenders/investors include the replacement reserve contribution in the equation) Change Over Time (Vacancies) = Amount this period/amount Last Period Cash Flow: Calculation often defined in partnership or other closing documents Tatem Consulting LLC - Copyright Pending 25
BALANCE SHEET RATIOS Working Capital (monies available) = Current Assets Minus Current Liabilities Current Ratio (ability to pay debt) = Current Assets Divided By Current Liabilities Net Worth (Owner s Equity) Total Assets Divided by Total Liabilities Tatem Consulting LLC - Copyright Pending 26
OTHER BALANCE SHEET INDICATORS Will cash cover accounts payable? Calculate accounts payable as percentage of monthly rent. Are reserves adequate? Tatem Consulting LLC - Copyright Pending 27
LIHTC SPECIFIC CALCULATIONS Forecasting capital accounts Basis (with a focus on excess basis) Tatem Consulting LLC - Copyright Pending 28