NEIGHBORHOOD LENDING PARTNERS, INC.
MINIMUM UNDERWRITING CRITERIA
Condominium Conversion Loan Product
L o a n T e r m s
The following minimum underwriting criteria will be used when assessing NLP Condominium Conversion loan applications. All NLP projects must provide affordable housing consistent with NLP’s Affordability Statement, but NLP may defer to use the affordability requirements set forth by any local government agency providing financial subsidy during construction. The underwriting criteria may be subject to revision by the Loan Committee under the direction of the Board of Directors.
Type: Conversion of a multi-family rental complex into a for-sale condominium project, inclusive of rehabilitation.
Term: Up to 36 months where the structure would include an initial term of up to 24 months with the possibility of up to two options of extension of an additional six months each.
Release Prices: The minimum release price for attached residences funded via this loan product is 100% net sales proceeds from individual unit sales where net sales proceeds are defined as the contract sale price, less seller’s closing costs, with minimum dollar amounts predetermined for each unit or unit type. Equity should not be repaid until NLP is repaid in full. It is preferred to have any applicable secondary financing repaid after NLP is repaid in full, but a prorata release price during sell-out may be permitted.
Interest Rate: Floating rate based upon a spread over the Prime Rate of interest as published in the Wall Street Journal, adjusted the day of change. Current spreads over the Prime Rate range from 0.00% to 1.50%.
Security: First lien mortgage, collateral assignment of rents, leases, and profits, and UCC filing on furniture, fixtures, and equipment.
Loan-to-value: The property shall be appraised via a Market Value “As Is” via a discounted cash flow method when the proforma sales of the project are expected on a rolling basis as the units area renovated. When the proforma sales of the project are expected to occur after all renovations have been completed, then the appraisal should also include the prospective Market Value “Upon Renovation/ Conversion” in addition to the Market Value “As Is.” In either instance, the Highest and Best Use section of the appraisal should document that the renovation and conversion of the multi-family rental property to a for-sale condominium represents the only option that is maximally productive when the continued operation as apartments is also financially feasible. The maximum LTV ratio for this NLP loan product is 80% of the Market Value “As Is” on a rolling-sales assumption, or 80% of the prospective Market Value “Upon Renovation/Conversion” when the unit sales occur after all renovations have occurred.
Loan-to-cost: Not to exceed 85% of total development cost. The total development costs should be adequate to complete the project and the borrower should only be expected to receive any developer’s fee from net sales proceeds, after the NLP debt is repaid. If any budget line item is deemed to be excessive, the Lender can eliminate or reallocate the excessive funds in its sole discretion. All soft costs must have invoices.
Public Subsidy
Allowed: NLP will allow subordinate financing.
Prepayment
Penalties: There is no prepayment penalty during the term of the construction line of credit.
Minimum Loan: No minimum dollar amount, but the development must include a minimum of five residences.
Maximum Loan: Maximum of $10 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-Sales: Pre-sales will be required. When considering pre-sale requirements and criteria, the following factors will be reviewed:
· Dependant upon the project and the pre-sale conditions, additional reservation agreements may be required.
· Contracts to parties related to the borrower or others in the project will not be considered.
· Purchase contracts by purchasers of multiple lots/residences must be pre-approved by NLP.
Pre-sales must have a written contract with a deposit appropriate for the end-loan financing requirement. NLP should have a commitment letter from the permanent lender, or a letter certifying that the residence-buyer currently qualifies for a permanent first mortgage loan as provided by either the permanent lender or the agency that qualifies the residence-buyer on behalf of the permanent lender. NLP reserves the right to analyze the underwriting agency for experience, historical performance, and relationships with the permanent lenders/brokers it does business with to determine adequacy of its program and NLP’s ability to rely on it. If the down payment is not provided 100% by the buyer, then the source of the subsidy funds needs to be identified.
F e e S t r u c t u r e
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: Generally 1.0% of the loan amount. Final determination of fees based upon such factors as size, turnover, type, and complexity of loan, and project sponsor.
Loan Processing Fee: An applicable fee will be charged, typically $1,000.
Loan Draw Fee: The fees associated with loan advances (construction draws) ranges from $150 to $300 for each draw request funded by NLP after the initial funding at loan closing.
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
and 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. The sponsors/borrower must provide sales history and work-in-process reports. The experience should be adequate for the type and size of development.
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. 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. 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. If the scope of the development/construction is to deliver a number of residential units at one time, then the appraised value will be based on a bulk sale to one buyer and NLP will also obtain a gross sell-out value along with a feasibility study to verify demand.
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/ rehabilitation loans of $1,000,000 or greater on non-revolving lines of credit; and interest and operating reserves as required by Loan Committee. In the case of a Borrower/GC, a payment and performance bond must be issued to cover the major subcontractors, which will be determined by NLP. 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, community support, and parking adequacy.
Project Management: An experienced management agent, management plan and project manager acceptable to NLP. There must be a developed sales plan and a demonstrated experience of sales management.
Condominium
Documentation: When the line of credit is for the construction of a condominium project, the commitment must conform to all legal and regulatory requirements for specialized condominium financing within the State of Florida. The condominium declaration is not to be recorded until 50% pre-sales have been evidenced. No closing/ partial releases are to be permitted until the declaration has been recorded.
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.
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. A total of three surveys will be required: (1) a boundary survey, (2) a slab survey once the slab(s) are poured, and (3) an as-built survey upon completion.
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 one 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. Calculation of a reasonable expectation of the qualifying first mortgage for the affordable home buyers;
4. Identification of all cash and non-cash proceeds at time of condo sale to verify adequate cash to satisfy release requirements of NLP financing, by product type (i.e., affordable home buyer versus market home buyer), and verify buyer subsidy limitations are not being over-utilized.
5. Monthly cash flow proforma to identify and track all cash and non-cash transactions, inclusive of developer profits and selling costs.
6. Experience of developer, general contractor, and sale’s management.
7. Financial statements and/or financial summary of the borrower(s) and, when applicable, guarantor(s). |
