NEIGHBORHOOD LENDING PARTNERS, INC.
MINIMUM UNDERWRITING CRITERIA
Permanent Loans
Multifamily Rental Projects
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP permanent loan applications for acquisition, rehabilitation, and/or new construction of multifamily rental projects. All NLP projects must provide affordable housing consistent with NLP’s Affordability Statement. The underwriting criteria may be subject to revision by the Loan Committee under the direction of the Board of Directors.
Type: Permanent loans secured by multifamily properties.
Term: Up to 18 years for tax credit transactions and up to 15 years for non-tax credit transactions. Terms up to 30 years can be obtained if the loan is pre-sold. All pre-sold loans with a loan term greater than the maximum NLP term will have a loan condition that the loan term will be reduced to meet the NLP maximum term if the sale does not close.
Amortization: Up to 30 years for new construction loans;
Up to 25 years for rehabilitation loans.
Interest Rate: Non-tax credit transactions will have a fixed rate based upon Treasuries of Comparable Maturities plus a spread of 2.25% to 3.25% for loans to for-profit developers with spreads of up to 0.50% lower for loans to not-for-profit developers. Tax credit transactions utilize the greater the 10-year Treasury or the three-month trailing average as the basis with a minimum spread of 2.00%. Loan Committee may approve changes to the minimum spread as a result of market conditions.
Security: First lien mortgage, collateral assignment of rents and leases, and UCC filing on furniture, fixtures, and equipment.
Loan-to-value: Maximum 80% of restricted rent appraised value, subject to favorable financing.
Loan-to-cost: Not to exceed 80% of total development cost, inclusive of a reasonable developer’s profit/overhead line item.
Debt Service Coverage: A minimum of 1.10x on total project debt (exclusive of cash flow dependent mortgages, except when NLP CDFI loans are in second position when a minimum 1.00x on total project debt), and 1.15x 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: The Fannie Mae Yield Maintenance formula will be in effect on all loans with an interest-rate adjustment period greater than five (5) years, or on all loans sold in the secondary market. For loans with interest-rate adjustment terms of five (5) years or less, it will be a predetermined percentage of 1% - 3%, based on the remaining years in the adjustment period.
Minimum Loan: No minimum.
Maximum Loan: Maximum of $10 million to any single project. Depending on which NLP affiliate is the lender, there may be other restrictions for non-tax credit transactions or credit exposure to any single developer/ guarantor/principal.
Rental Regulatory
Agreements: Borrower will be required to sign a Regulatory Agreement regarding conforming to NLP’s affordability guidelines. This agreement will be maintained for the life of the loan.
F e e S t r u c t u r e
Application Fee: The application fee for the construction loan program is inclusive of the permanent loan application fee. The application fee is due prior to the preparation of the loan approval package. The current fee is $1,500 for loans up to $1,000,000, $3,000 for loans up to $3,000,000, and $5,000 for loans over $3,000,000.
Origination Fee: The origination fee is typically 1.0% of the commitment amount. Determination of fees based upon such factors as size, type, and complexity of loan, construction loan term, and project sponsor. NLP normally charges a separate origination fee for the construction and permanent commitments.
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 draw request, ranging from $200-$300, based upon such factors as the number of expected draws and complexity of loan. The Loan Processing Fee associated with the NLP permanent loan shall also be collected at the time the construction loan closes.
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.
Operating statements on the project will be required monthly once rental units are available for rent. Once the project is stabilized, operating statements will be required quarterly thereafter.
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 including research and review of lead-in-paint and asbestos issues will be required. When the transaction size is less than $1 million, but at least $500,000, then only a Transaction Screen Process (“TSP”) will be required. All third-party environmental reports must be completed by an NLP approved Environmental Engineer and they must meet the current ASTM 1528 standards On loans under $500,000 an Environmental Assessment may be acceptable as long as no environmental concerns are noted in the review.
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; 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, availability of physical and social support services, jurisdictional approvals, community support, percentage of units available for low and moderate income households, degree of affordability, description of project units and amenities, etc.
Project Management: An experienced management agent, management plan and project manager acceptable to NLP.
Affirmative Marketing: NLP will give priority to project sponsors that use an affirmative marketing plan for tenant selection.
Guarantees: Generally will be required at the sole discretion of the Loan Committee when lending to for-profit developers. Guarantees on Tax Credit transactions will have a burn-off based on performance.
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.
Special Needs Housing: NLP may provide its loan products for special needs housing to 501(c)(3) organizations. Special needs housing could include housing for the developmentally or physically disabled, chronically mentally ill, individuals in substance abuse recovery programs, and individuals requiring assistance in living. Special needs housing eligible for NLP’s consideration must provide long-term housing and will not include transitional housing, emergency housing, or shelters.
Developers of special needs housing will need to demonstrate an expertise in both the ownership and management of housing and in the provision of services to the client population being served. NLP will consider partnerships or joint ventures of two 501(c)(3) organizations to achieve this goal.
Other Requirements: At Closing, an Escrow Account must be established for RESERVES FOR REPLACEMENTS. The balance must be maintained at a minimum of $200 per Unit per year, 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, 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 is 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;
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, other income, the vacancy and collection factor, and operating expenses.
4. Sensitivity analysis with respect to occupancy, rental rates, and interest rates.
5. 15-year cash flow proforma showing all factors listed under stabilized proforma above for each year, plus debt service coverage ratios for each mortgage, net cash flow to the borrower, and a discounted value.
6. Experience of developer, general contractor, tax credit syndicator (if applicable), and property management.
7. Financial statements and/or financial summary of the borrower(s) and, when applicable, guarantor(s). |
