NEIGHBORHOOD LENDING PARTNERS, INC.
MINIMUM UNDERWRITING CRITERIA
Land Assembly Loan Program
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP Land Assembly loan applications. All NLP projects must either (1) be intended to provide affordable housing consistent with NLP’s Affordability Statement, or (2) be developed within an area that needs redevelopment as set by the local government, such as an Empowerment Zone. The underwriting criteria may be subject to revision by the NLP Loan Committee under the direction of the Board of Directors.
Type: Residential or commercial land assembly (i.e., acquisition) for the intent of completing Build-able work in the near term or finalizing the various layers of financing/equity necessary to make the project economically viable. This loan product is available only when NLP is also providing the financing for the construction and permanent financing of the project and is available only to non-profit organizations.
The Raw Land Assembly loan product will include loans secured by land that does not have the appropriate infrastructure in place in order for the developer to begin the vertical construction on the site(s); however, the property must have proper zoning in place.
The Build-able Land Assembly loan product will include loans secured by land that does have the appropriate infrastructure in place in order for the developer to begin the vertical construction on the site(s).
Term: Raw Land Assembly Up to 18 months. Recommended terms would include an initial term of 12 months with a six-month extension thereafter, subject to approval.
Build-able Land Assembly Up to 36 months. Recommended terms would include an initial term of 18 months with six-month extensions thereafter, subject to approval.
Interest Rate: Floating rates are tied to Prime Rate of interest as published in the Wall Street Journal, adjusted the day of change, with a premium ranging between 0.0% and 1.5%, based on the project’s assessment of risk.
Security: First lien mortgage, collateral assignment of rents, leases, and profits, collateral assignment of sales contracts, plus the possibility of other property owned by Borrower, such as liquid assets, accounts receivable, inventories and/or guaranties.
Loan-to-value: Raw Land Assembly Not to exceed a maximum of 65% of appraised value.
Build-able Land Assembly Not to exceed a maximum of 75% of appraised value.
In either instance, NLP reserves the right to increase the above LTV restrictions to the borrower, but only when NLP uses its own funds to lend the excess funds. In these cases, NLP’s funds will be in a first-loan loss position. This overall loan structure implies that any borrower exposure above the above stated LTV ratios is cash secured relative to the Members.
Loan-to-cost: Raw Land Assembly Not to exceed a maximum of 65% of applicable project cash costs, exclusive of any developer overhead/profit.
Build-able Land Assembly Not to exceed a maximum of 75% of applicable project cash costs, exclusive of any developer overhead/profit.
In either instance, NLP reserves the right to increase the above LTC restrictions to the borrower, but only when NLP uses its own funds to lend the excess funds. In these cases, NLP’s funds will be in a first-loan loss position. This overall loan structure implies that any borrower exposure above the above stated LTC ratios is cash secured relative to the Members.
Public Subsidy: NLP will allow subordinate financing.
Prepayment Penalties: There is no prepayment penalty during the term of the loan.
Minimum Loan: $100,000.
Maximum Loan: $1 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.
F e e S t r u c t u r e
Application Fee: The application fee for the Land Assembly loan program is $1,500.
Origination Fee: 1.0% of the loan amount.
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, based upon such factors as the number of expected draws and complexity of loan.
Other: Borrower must also pay any legal fees, appraisal fees, inspection fees, any other third-party reports 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.
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. Recommended NLP appraisers and appraisal policy to comply with requirements of regulators. The appraisal must be reviewed for compliance and there is an appraisal review fee charged, currently listed at $150.
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.
Project Review: Project review will include but not be limited to project location, economic feasibility, jurisdictional approvals, community support, and development team.
Guarantees: At the discretion of Loan Committee.
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 and commercial revitalization efforts 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: The borrower must pay all attorney fees, title insurance premiums, and fees and all other out-of-pocket expenses associated with the loan.
Surveys by a licensed surveyor satisfactory to NLP in form and content will be required.
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. Experience of developer, general contractor, and sale’s management.
4. Financial statements and/or financial summary of the borrower(s) and, when applicable, guarantor(s). |
