NEIGHBORHOOD LENDING PARTNERS, INC.
MINIMUM UNDERWRITING CRITERIA
Economic Development Loans
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP Economic Development loan applications. NLP Economic Development projects located in empowerment zones, enterprise zones, low and moderate-income neighborhoods, or other areas targeted by local governments for redevelopment will receive favorable consideration. Approved project types include commercial, retail, and industrial with preference for retail and mixed use properties (i.e., includes residential units). This direction provides for consistency with NLP’s Mission Statement. The underwriting criteria may be subject to revision by the Loan Committee under the direction of the Board of Directors.
Type: Construction, rehabilitation, or mini-perm loans.
Term: Up to 10 years.
Amortization: Up to 25 years depending on property type and age, with a 20 year maximum preferred.
Interest Rate: Prime Rate plus an appropriate spread (minimum of 1.00%) during the construction/rehab term, converting to a 3-5 year adjustable rate mortgage (“ARM”) during the mini-perm term. The ARM will be priced at the rate of U.S. Treasuries of Comparable Maturities plus a spread of 225 to 350 basis points for a 3-year ARM, or 250 to 375 basis points for a 5-year ARM. The range or minimums for acceptable spreads for not-for-profit developers is 50 basis points lower than stated above. NLP Loan Committee shall establish an interest rate floor that will be reviewed based on market parameters. NLP does not offer an interest rate cap for this product.
Security: First lien mortgage, collateral assignment of rents and leases, and UCC filing on furniture, fixtures, and equipment.
Loan-to-value: Maximum 80%. If any restricted housing units are part of the project, then the value will be based on a restricted-rent methodology.
Loan-to-cost: Not to exceed 85% of total development cost.
Debt Service Coverage: A minimum of 1.10x on total project debt (exclusive of cash flow dependent mortgages), and 1.20x on NLP debt (such debt service coverage calculation not to include debt service coverage on subordinate mortgages).
Public Subsidy: NLP will allow subordinate financing.
Prepayment Penalties: There is no prepayment penalty during the construction/rehab term. A prepayment penalty will be structured for the mini-perm term, based on the specific transaction.
Minimum Loan: $250,000 for a project that is new construction; $125,000 for a project that is a rehabilitation of an existing building.
Maximum Loan: Maximum of $7.5 million to any single project. Depending on which NLP affiliate is the lender, there may be other restrictions for credit exposure to any single developer/guarantor/principal as well as a total credit exposure for this loan product for the respective NLP affiliate.
Pre-Leasing Requirements: 100% of all tenant space must be pre-leased that is considered to be reserved for national or credit tenants. Out of the space that is considered to be reserved for local tenants, 80% must be pre-leased. All projects may not have any more than 20,000 square feet of local tenant space.
F e e S t r u c t u r e
Application Fee: For all loan transactions greater than $3 million, the minimum application fee is $5,000. For all loan transactions less than $3 million, the minimum application fee is $3,000.
Origination Fee: Typically the fee is 1% of the loan amount. Determination of fees based upon such factors as size, type, and complexity of loan, permanent loan term, and project sponsor.
Loan Processing Fee: An applicable loan processing fee will be collected at closing. The current applicable loan processing fee is $1,000. If multiple loan fundings are required, a separate loan processing fee will be charged for each funding request, ranging from $150-$300.
Other: Borrower must also pay any legal fees, appraisal fees, inspection fees and other out-of-pocket costs whether or not the loan closes.
N L P G e n e r a l R e v i e w G u i d e l i n e s
Review of Project
Sponsor/Borrower: Project sponsors and borrowers will be reviewed for their development record including their construction/development history, as well as their operating and management performance for existing projects, and their credit history. For-profit sponsors and/or borrowers, if a corporation or partnership, will be required to provide three years of corporate or partnership financial statements for the borrowing entity and principals. For-profit borrowers, if individuals, must provide three years of tax returns. All for-profit borrowers will be required to provide resumes of principals and organizational documents.
Not-for-profit sponsors and/or borrowers will be required to provide the following: Financial statements for the past three years (preferably audited and/or prepared by a CPA); organizational documents, including Articles of Incorporation and Bylaws, evidence of tax-exemption, list of board members and their resumes; list of primary contributors, if applicable; and operating statements on existing projects.
Appraisal
Requirements: Current appraisal by a pre-approved NLP appraiser, to be ordered by NLP or designated Member bank and paid for by the borrower/developer when ordered. The appraisal must be reviewed for compliance and there is an appraisal review fee charged, currently listed at $150. Recommended NLP appraisers and appraisal policy to comply with requirements of regulators.
Environmental
Audit/Assessment: An Environmental Audit (Phase I) is required when the transaction (loan) size is at least $1 million. When the transaction size is less than $1 million, but at least $500,000, then only a Transaction Screen Process (“TSP”) is required. All third-party environmental reports must be completed by a NLP approved Environmental Engineer and they must meet the current ASTM 1528 standards. If the site(s) are single-family infill lots or located in a developed residential subdivision, then a visual inspection may only be required. If the site(s) are not infill or located in a developed residential subdivision, a Site Inspection Questionnaire (“SIQ”) will be required when the transaction size is less than $500,000. If the scope of the work involves rehabilitation of an existing building, then research and review of lead-in-paint and asbestos issues will be required as well.
Rehabilitation/Construction
Risk Management: Review of plans and specifications, general contract and detailed total cost budget by pre-approved NLP engineer to be paid by developer; progress inspections by pre-approved NLP construction inspector and inspecting architect; soil tests for new construction; evidence of conforming zoning; utility letters; rehabilitation escrow or disbursement on a percentage of completion basis, depending upon the extent of rehabilitation; builder’s risk insurance for all projects with new construction/rehabilitation, except for minor rehabilitation that are cosmetic in nature; payment and performance bonds for all new construction/rehab loans of $1,000,000 or greater; and interest and operating reserves as required by Loan Committee. A contingency fund of 10% may be required for all loans approved for rehabilitation of a property.
Project Review: Project review will include but not be limited to project location, feasibility, jurisdictional approvals, and community support. Favorable consideration is given to leases to a service provider when such service provider offers services that enrich the community. There may be commercial tenant/business operation restrictions.
Project Management: An experienced management agent, management plan and project manager acceptable to NLP.
Guarantees: Full recourse will be required without any burn-off provision on loans to for-profit developers.
Subordinate Financing: Subordinate financing allowed; pre-approval by NLP required.
Not-for-profit
Developers: NLP recognizes that not-for-profit developers can contribute significantly to the development of affordable housing in NLP’s primary market. NLP will undertake an affirmative marketing program to not-for-profits through extensive outreach, personal contacts, technical assistance, and appropriate flexibility in the application of credit standards. For example, in its credit review of not-for-profit sponsored projects, NLP will recognize the importance of the following types of issues in its analysis: support of local jurisdictions, third party equity support including subordinate financing, land donations or write-downs, and “soft” equity in the form of rezoning density bonuses, etc. Joint ventures between not-for-profit and for profit developers will be encouraged in appropriate circumstances.
For newly created not-for-profit borrowers, and at the discretion of the Loan Committee, NLP’s credit analysis may include: the financial strength of an organization’s sponsor or affiliate organization; the resumes of the sponsor and borrower’s Board of Directors; the development and/or management strength of the borrower’s staff; and the amount and nature of local government support.
Operating statements on the project will be required monthly if the project is in a rehabilitation or construction period, if rental units are available for rent. Once the project is stabilized, operating statements will be required quarterly thereafter.
Other Requirements: At Closing of a Permanent Loan, an Escrow Account must be established for RESERVES FOR REPLACEMENTS. An engineer will confirm a minimum sum that is considered adequate as recommended by NLP and approved by Loan Committee. The reserve will be paid monthly, for the life of the loan. The funds in the account can be drawn on for non-routine repairs, non-routine maintenance, or replacements. A review of the reserve requirements shall be completed every five (5) years for satisfactory coverage.
At Closing of a Permanent Loan, ESCROWS FOR TAXES AND INSURANCE will be required. Based on a full year, two months of escrow will be collected. The borrower’s monthly payment will include escrows for taxes and insurance for the remainder of the loan term. If the loan is closed late in the year, the escrows will be prorated to make sure there are sufficient funds to pay the taxes and insurance when due.
The borrower must pay all attorney fees, title insurance premiums, and fees and all other out-of-pocket expenses associated with the loan.
A SURVEY by a licensed surveyor satisfactory to NLP in form and content will be required.
A STRUCTURAL REPORT by a licensed engineer will be required on any loan involving major rehabilitation or construction or when the appraisal indicates structural obsolescence or the like. NLP may require on other loans at the sole discretion of the Loan Committee.
Schedules for Loan
Committee Packages: When a loan package is submitted for approval to the Loan Committee, the package shall contain the following schedules:
1. Site Plan, if applicable;
2. Detailed Sources and Uses of Funds of the Project to show that sources equal uses and the identification of each source;
3. Stabilized proforma showing detailed rental income, expense stops, operating expense reimbursements, operating expenses, and market vacancy.
4. Sensitivity analysis with respect to occupancy of the local tenants, local tenant rental rates, and interest rates.
5. Experience of developer, general contractor, and sale’s management.
6. Financial statements and/or financial summary of the borrower(s) and, when applicable, guarantor(s). |
