06. Big Sky Manor/Hampstead Partners - Funding RequestMONTANA
DEPARTMENT OF COMMERCE
Montana Board of Housing Mors-i— (4M) 4 -3M
M Front Stree 7DD: {4W "4.2M
Helena, MT 5%2U- =
February 10, 1999
Susan Moyer, Housing Division Manager
City of Kalispell
P.O. Box 1997
Kalispell, MT 59903
Dear Susan:
The Montana Board of Housing has been working for several months now on a
Preservation Project with .Hampstead Partners and its partners on a group of eight
projects around the state. Two of these projects are in Kalispell, Big Sky Manor and
Valley View Apartments. At this -point the Board has not received formal applications,
but we expect to within the nw three weeks.
The Board anticipates a complete underwriting of these eight projects, as the Board will
be considering the projects for Multifamily. Risk Sharing, Low lncorne Housing Tax
Credits, and soft mortgages using Federal Dome Loan Bank Grant funds. As part of its
Multifamily loan underwriting, the Board will have a bank do a complete credit check,
and will have HUD do a "previous participation" review.
In addition, the Board of Housing will not put the Federal Home Loan bank funds into
the projects unless approximately 70% of the units are targeted to tenants at 50% of
median income (with commensurate rents), in the aggregate for the eight projects. In
addition, as past :of the Federal Home Loan Bank funds, the projects must be
conunitted to providing rents at these levels for 51 years.
Board of Housing staff have been working on preservation of these eight projects for
over two years, because preserving the projects is substantially less expensive than
replacing them with new units. These 508 units are approximately 10% of the existing
HUD stock of housing.
I hope this information is helpful. Please call me if you have any further questions.
Sincerely,
Maureen J. Rude, Executive Director
"Working rogerar to MAC It Work'
DATE: February 11, 1999
TO: Al Thelen, Interim City Manager
FROM: Susan Moyer, Housing Manager
SUBJECT: Big Sky Manor
A1,1 believe there is some confusion regarding the issue of rents at the above elderly complex. I
would like to clarify some issues raised.
Fair Market Rents are rents established by HUD for housing units assisting low -to -moderate
income individuals and families. Governmental funding involving Tax Credits, Federal or State
grant dollars, or Section 8 Rental Assistance for this type of housing cannot exceed the FMRs.
Market rents are established by individual landlords and are based on what the market will bear.
Over the past ten years we have seen rents in Kalispell escalate due to supply and demand.
Many private sector landlords are unwilling to rent to LMI families who are fortunate enough to
have the type of Section 8 Rental Assistance that goes with them wherever they wish to live.
This reluctance is usually caused by the fact they can command higher rents on the open market
or because of the paperwork involved with any governmental program. There is no new funding
of this type of Section 8 Rental Assistance, and Northwest Montana Human Resources has
averaged 400 new applications for Section 8 assistance per year for several years.
The current Section 8 Rental Assistance at Big Sky Manor is to the individual units not the
tenants residing therein. Thus, tenants who might be forced to move out of Big Sky Manor
would loose the Section 8 assistance which ensures they pay no more than 30% of their gross
monthly income for rent and utilities. Should the apartment acquisition by Hampstead Partners'
and Northwest Montana Human Resources not succeed, all the units would be without Section 8
Rental Assistance and the current owners would be in a position to rent them for whatever the
market commands.
In regard to the letter from the Flathead Landlord Association, they are incorrect when they state:
■ There is no back up financial plan to repay the loan. Hampstead Partners and the various
Human Resource Agencies commit to a non -forgivable mortgage for all funding to this total
project. In order to qualify for the tax credits, MBOH requires the City to have a binding
mortgage without the ability to forgive the debt owed by the participating partners.
■ The compliance period is not just for 15 years. The compliance period is 51 years of using
the project for the same purpose and renting the units at below FMR levels. This compliance
criteria becomes a deed restriction on the properties.
■ Finally, the issue of using tax generated dollars is not 100% correct This is Program Income
off a UDAG Grant awarded to the City in 1987 and loaned to the Kalispell Limited
Partnership for the specific purpose of creating jobs for LMI individuals and families.
If you need further clarification of anything, please let me know.
C:\myfiles\PECDD\UDAG Programincome\BigSkyManor
INTER OFFICE MEMORANDUM
DATE: February 11, 1999
TO: Al Thelen, Interim City Manager
FROM: Susan Moyer, PECDD
SUBJECT: UDAG Program Income
An Urban Development Action Grant in the amount of $3,100,000 was awarded to the City of Kalispell for the sole
purpose of making a low interest loan to the developers of The Kalispell Center Mall. The national benefit was in
economic development by creating 447 low and moderate jobs on the site. The Grant Closeout Agreement between
the City of Kalispell and HUD for the UDAG Grant to the Kalispell Center Mall was entered into on September 24,
1987. This agreement states:
"Section B: To the extent that Program Income is received by the Recipient prior to completion of the UDAG-funded
Recipient Activities, the use of such funds shall be governed by the provisions of the Grant Agreement and 24 C.F.R.
Part 570. Any income received after completion of UDAG-funded Recipient Activities shall be deemed miscellaneous
revenue, the use of which is not governed by 24 C.F.R. Part 570. Such miscellaneous income revenue, however, shall
be used by the Recipient only for activities eligible under Title I of the Housing and Community Development Act of
1974, as amended, and consistent with the following additional requirements: None."
The first threshold for the use of program income is that it must meet one of the following three criteria:
■ Benefiting low and moderate income (LMI) persons,
■ Addressing sums or blight; or,
■ Meeting a particularly urgent community development need.
Additionally, "each activity address through UDAG Program Income must benefit persons at least 5 1 % of whom are
L/M income."
Activities which have utilized UDAG Program Income since 1987 are:
Matching grant dollars required for CDBG and HOME grants which funded the: $2+ million Courtyard
Apartments Construction; the $1.6 million construction of the Fernwell Apartments (private sector tax credit
project); the $7+ million First Time Home Buyer Program; the $1.2 million Westside Living Units for the
developmentally disabled clients of Flathead Industries; and the $2.3 million Samaritan House Expansion;
Additionally $333,000 was invested in the Southwest Kalispell sewer and water project which provided new
roads, curbs, sewer and water lines, and rehabilitation of existing housing stock in an area housing
predominately LMI home owners and renters. When this project was completed, the total investment of
UDAG and grant funds to this area amounted to $1,066,000.
The complete funding of the Community Development Department since 1987. Thus, the City was able to
compete for grants without having to reduce their amounts to cover the administration costs of the various
programs.
J. icn.'i, t"sY}
9t'2tt•:':c. ';fit,#C.c...�3 j�ti:
February 11, 1999
Ms. Susan Moyer
Kalispell Planning Department
Fax #: (406) 758.7739 (3 Pages)
RE: Big Sky Manor
Preservation Funding
Dear Ms. Moyer
Thank you for your continued assistance to our efforts to maintain affordability for Big Sky Manor
Apartments. Please also convey my sincere thanks to the Mayor, Council and other City staff for
giving me time to present our request at the committee meeting last Monday evening.
Although I was unfamiliar with the intricacies involved in UDAG vs. Tax Increment funding, I
thought that the group brought up some very insightful questions and comments pertaining to our
efforts. Please allow me to address some of the issues raised at the meeting and others that you have
brought to my attention now that I have had time to think about them for a couple of days.
Statewide Effort As I mentioned in the meeting, Big Sky represents one of eight conversion
eligible properties that we are attempting to preserve for low income, affordable use. Like Big Sky,
the other seven are all located in western Montana, including another 52-unit property, Valley View
Apartments, in Kalispell. Others include 34 units of senior housing in Libby, 36 units in Columbia
Falls, 24 units in Deer Lodge, 100 units in Bozeman, 96 units in Great Falls and 104 units in
Missoula. All total, there are 506 units. Total cost of the preservation effort is estimated to be
approximately M 9,250,000, of which Big Sky represents $1,975,000.
The Montana Board of Housing has been one of the primary forces behind our efforts. They have
provided extensive support in working with our nonprofit partners, applying for and being awarded
a $1.5 million, soft FHLB loan in support of the acquisition, sponsoring legislation to make it
possible to get a property tax exemption, agreeing to provide tax exempt bonds, providing a
guarantee for the bonds, etc.
Affordand*. One of the primary reasons for the State's participation, that of our nonprofit
partners, the Federal Home Loan Bank Board, etc. is the fact that the transaction will provide
ongoing affordability and enhanced services for the seniors and families residing at the properties
C 1WDM0WSSStan Mesw\Chris's Applick"d New Sriefease\Morema projertiesTsliss.doc
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2
both now and in the future. Moreover, the plan avoids wholesale displacement of low and very low-
income residents who might not be otherwise able to find suitable housing elsewhere.
The parties recognize that, unlike typical new construction tax credit projects aimed at moderate
income residents, this effort reaches down to the lowest income individuals by stipulating that at
least 50% or more of the units will be set aside to be affordable for persons earning less than 50% of
area median income. Importantly, residents will continue to receive rental assistance (Section 8)
making it possible for even extremely low-income individuals to continue residing at the properties.
Post acquisition rents will be set at limits designed to be affordable to the above individuals. We
understand that there may be some confusion as to the difference between F-,VRs (Fair Market Rents)
and street or true market rents. FMRs are HUD published rent levels (set at 40% of a random
sample for a given area) irrespective of project amenities, neighborhood, services, etc. They are
rarely reflective of a project's true rental potential. In the case of Big Sky, we believe that it could
command rents significantly exceeding FMR if it were converted to market rate use resulting in
levels which were out of reach to the individuals served there. Our proforma rents at Big Sky are
among the very lowest of any of the properties in the preservation portfolio.
Rehabilitation. While the goal of providing affordable housing is extremely important, it is just as
important to recognize that unless older properties are continuously maintained, it will eventually
become impossible to adequately serve the residents at all. We believe that Big Sky provides much
more than minimum shelter for the residents. It is a well -designed seniors facility providing the
following amenity package important to quality senior life:
➢ Security and limited access.
➢ Full kitchens and baths.
➢ Extensive common space including a large meeting room, community kitchen, family style
- porch area, etc.
➢ Elevator service.
➢ Wide, well -lit hallways with grab bars.
➢ Well laid -out handicap accessibility.
➢ ADA compatible units (six to be constructed as a part of our upgrade plans).
➢ A convenient downtown location ideally suited for senior living.
➢ Adequate and attentive staff ready to meet the special needs of the residents.
Even if displaced residents were able to find other housing which was affordable to them, it is
unlikely that they would be nearly so well served as they are at Big Sky.
Notwithstanding the amenity package and good overall condition of Big Sky, it is in excess of 25
years old and in some need of repair. We plan to expend in excess of $275,00 (inclusive of
contractor's costs) to meet capital needs, provide for better handicapped accessibility and to
recapitalize it.
Development Team. I asked Susie Martin from our office to send you some materials related to
Hampstead Partners and its extensive experience in the affordable housing industry. We have also
----------------------------- ......................
! rya..., ..._;'.i_t .)"0, ,
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brought on a team of other experts to assist us in this effort. These include two individuals with
unique experience important to the cause.
As you may be aware, many of the properties in the preservation portfolio are Section 236
subsidized projects that have been awarded Interest Reduction Payment (IRP) contracts effectively
reducing the current mortgage interest rate to I %. Our plans call for a continuation of the steam of
income from the IRP subsidy that will assist us in keeping the projects affordable. Robin Soloman,
a team member, is the only developer in the nation to successfully utilize this methodology thus far.
Steve Wallace of Peabody and Brown, our counsel, represented Mr. Soloman in his efforts.
Time Is Of The Essence. As I mentioned during the Monday night meeting, it is critical to our
efforts that we make application with the State for 9% credits related to Big Sky by the 26 h of this
month. In order to do so, we must show financial viability, necessitating the commitment of the
requested city funds.
Again, we very much appreciate your assistance with this important effort and believe that our
request represents an excellent use of City funds allowing it to leverage its resources for an
important cause. If I may provide you with any additional information or answer other questions
that you might have please do not hesitate to call.
Sincerely,
Chris Foster
President
Hampstead Partners
3
---------------------------- -------------------------------
INTER OFFICE MEMORANDUM
DATE: February 2, 1999
TO �: Al Thelen, Interim City Manager
FROM: Susan Moyer, PECDD
SUBJECT: February 8, 1999 Council Workshop Agenda
The attached letter is self-explanatory. The writer has been aware for quite some time of the
valiant efforts of Montana Board of Housing and numerous Human Resource agencies to save
the eight complexes across the State from coming on the open market at market rents. Many of
the 60 low income residents in Big Sky Manor have resided there since the early years of
construction. By policy adopted last night, the City can provide the needed gap financing
through a 15 year 3 % TIF loan to the new buyers.
If you concur with placing this item on Monday night's agenda, I will contact Hampstead
Partners immediately.
C
Cc: Theresa White, Clerk of Council
C:\myfiles\TIF\Affordable House
FEB 12 '99 10:12PM HAMSTEAD PARTNERS
P.1
1/26/99
Ms. Susan Moyer, Housing Manager
Department of Planning, Economic, and Community Development
City of Kalispell
Fax #: (406) 758-7739
Re: Request For City Tax Increment Funding
Big Sky Manor
Dear Ms. Moyer. -
(619) 551-5302
Pax (619) 456-9590
(3 Pages)
Thank you for taking the time to speak with my partner Tay Wentz and myself about the
possibility of accessing a portion of the City of Kalispell's tax increment fiends for the
purpose of filling a financial gap related to the purchase and renovation of Big Sky
Manor Apartments in Kalispell.
Ae Property. As you know, Big Sky Manor is a well -maintained 60-unit multifamily
property located at 110 Second Avenue West in Kalispell. It is currently HUD regulated
under Section 221(d)(3). The property is made even more affordable due to the fact that
it is covered under a project based Section 8 rental assistance payments contract. Without
this assistance, many of the project residents might not be able to .afford adequate
housing. Clearly, Big Sky is a significant asset to the community and dowatoana
vibrancy.
Statewide Preservation Effort. Hampstead Partners contemplates the purchase of Big
Sky in conjunction with the Northwest Montana Human Resources non-profit
organization as part of a larger effort to purchase and preserve the affordable status of
seven other western Montana Section 8 apartment complexes, all totaling 504 units.
For Big Sky, we plan to utilize 9% Low Income Housing Tax Credits allocated through
the Montana Board of Housing. The project -based rental assistance contract would be
maintained in place. As you can well imagine, there are many moving pieces we have to
put in place given eight projects, four sellers, and five non-profit partners.
We have been working on this for over six months and are excited about the enthusiasm
and support of the Montana Board of Housing and Montana Board of Investments for this
11=pstead Partners, ine.
3 205 Prospect Strad, Suitc 454, La Jolla, California 92037
FAUnERSlTiDVtftMk $v Pro;4%1CnWA!rmtrtn�4i�ycr9i
rLb id yy 10:12AM HAMSTEAD PARTNERS
P.2
venture. The City's participation will leverage the significant state and federal resources
contemplated to be a part of the effort -
Future Operations. It is important to the communities involved that Big Sky Manor
Apartments and the others maintain their long-term affordability. If this property and the
others are not preserved as contemplated by this transaction, the owners are likely to
make the determination to prepay the mortgages and raise the rents to market which will
undoubtedly involve the loss of the units to the seniors who are currently residing there.
Just as importantly, these properties now exceed 20 years in age and must be
recapitalized in order to continue to operate succ u%Uy. Although well maintained,
each of the properties contains project systems in need of replacement or upgrade. Such
systems include heating, air-conditioning, flooring, kitchen cabinetry, plumbing, etc.
Unless the repairs or upgrades are completed, it will only be a matter of time before
significant problems arise.
There will be significant involvement in the future operation of the building by our non-
profit partner, especially as it relates to providing more and better services for the
residents.
Long Term Use. There will be at least 30 years of restrictions imposed on the project's
new owners, thereby guaranteeing continued affordability. Our proforma for Big Sky
contemplates keeping 50% of the units rented to residents at 50% or less of median area
income (affordable to Very Low Income residents) and 50% of the units rented to
residents at 60% or less median area income. This is a noble goal which all the parties
want to achieve, but completing the renovation and assuring that the property can
maintain operations over the long-term is financially challenging under such
circumstances. It is for this reason that we seeks the City's assistance.
Request We have preliminarily determined that $124,000 is needed from the City of
Kalispell's tax increment funds as soft money to successfully complete the purchase and
upgrades.
I understand that we have set a tentative date of February 8'h to appear before the City's
committee in Kalispell. After you have had a chance to review this letter, we would very
much like to discuss any additional information with you that may be necessary to have
in place or to be provided beforehand to make the appropriate presentation.
I have enclosed a Preliminary Improvement Schedule and Project Summary on Big Sky
for your review. We anticipate closing this transaction no later than the second quarter of
this year, so time is of the essence to move forward.
2
Thanks again for assisting us to date and considering our request. T look forward to
speaking with you further.
Sincerely,
HAMPSTEAD PARTNERS
Chri Foster
President
Preliminary Schedule of Improvement Summary
Big Sky Manor
60 Units
Item Work to be Done Quantity Unit Cost Total Comment
1 R&R Unit Carpet
2 R&R Unit Tile
3 R&R Kit. Cabinets
4 Refinish Kit. Cabinets
5 R&R Kit. Counters
6 R&R Ranges
7 R&R Range Hoods
8 R&R Refrigerators
9 R&R Garbage Disposals
10 R&R Windows
11 Refinish Tubs
12 R&R A/C Units
13 R&R Bath Fans
14 Misc. Unit Refinishing
15 Retop Parking Areas
16 Upgrade Landscaping
17 Install Playground
18 Rework Existing Rec. Room
19 Upgrade Signage
20 Upgrade Hallway Carpeting
Convert Units To Comply W/
21 ADA
22 Upgrade Office
23 Install Plug -ins For Parking Lot
24 Repaint Building Exteriors
25 Roof Replacement
26 Misc.
27
28
29
30
Subtotal
Total Cost
60
6 $
54 $
60
58
59
57
60
0
60
9
60
60
N/A
N/A
N/A
N/A
N/A
509
225
1,100
200
12
400
80
430
100
800
350
540
50
500
0
0
0
0
0
609
$30,540
$13,500
$6,600
$10,800
$720
$23,200
$4, 720
$24, 510
$6, 000
$0
$21,000
$4,860
$3,000
$30,000
$0
$0
$0
$0
$0
$36,514
Revised 10/28/98
Per C.N.A. w/ only 1 Yr. remaining useful life.
Per C.N.A. w/ only 1 Yr. remaining useful life.
10%
90%
20%
Per C.N.A. w/ only 1 Yr. remaining useful life.
Per C.N.A. w/ only 1 Yr. remaining useful life.
Per C.N.A. w/ only 1 Yr. remaining useful life.
Per C.N.A. w/ only 1 Yr. remaining useful life.
Not Needed
Repair cost per management
15%
Carpet, paint and lighting.
500
$30,000
6 Units
N/A
0
$0
N/A
0
$0
N/A
0
$0
Per bid price.
200
$12,000
60
300
$18,000
$0
$0
$0
$0
$231,924
$3,865
$0
$0
$3,865
$231,924
F:\USERS\H PARTNERSOEV PROJSWONTANA\REHAB COSTS\Big Sky costAs\Big Sky cost.As
Hampstead Partners Inc.
1205 Prospect St #450
La Jolla, CA 92037
619-456-6500
i1n,us-4ea Pay -r- e> s. -till'.
ln. ,�stn.: nt DIVision (0191 -_ 0-6i00
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REPOSITIONING OPPORTUNITY
PRELIMINARY INVESTMENT SUMMARY
PROJECT: BIG SKY APARTMENTS
LOCATION: 110 Second Avenue West
Kalispell, Montana
AGE: Constructed 1970 in a very good downtown location.
TYPE: Section 221 (d)(3) with Section 8 Assistance
DESCRIPTION 4 60 unit senior apartment property subject to LMSA contract. 20
handicapped units. Property is in better than average condition.
• _ Low-rise four story elevator building with a recreation room and
community laundry facilities. Open parking spaces. Security entry
system.
O Electric heat. Sleeve air conditioning units. Mastered metered for
electric.
CURRENT OCCUPANCY: 99%
AREA MEDIAN INCOME: $36,400 (effective 1/7/98 for Flathead County)
Census Tract #0010 is a Montana Designated QCT
Flathead County is not a Montana Designated DDA
UNIT MIX:
At &RBA SUZ
I PSE
i
CUR t" CURR HUD
&1SIC ht4RIQ t
I RENTS RF.MS FNI R :.
PROPOSIM i
VL (W/-)
M1 REMIN ;
YROPOSM
6o%INc
RENTS
; r»eriw PuNised
••s tREer !MAX 50'/ MAX 6o%
RENTS TC RENTS ! TC RENTS
28' Izero/one j 4151
$O
S269 5289 j
S249 1
S294 I
SO i
5318 i
S382
321 !ortdorc 4671
$O
1 $334 S335
5335 1
S335 !
$0 !
S341 1
S409
0 'two/one
SO
SO: $01
SO I
$01
so
SOI
So
01 ttaee/one
1 $O
1 SO SO i
SO !
SO
SO
Sol
SO
0' fots/one
I Sol
SO SO i
SO !
$O I
SO 1
$0 i
SO
60 :TOTAUAVF 26,564I
$01
18,220 18,812!
$17,692:
S18,672I
$O
I
'INDIGO RENTS ARE NET OFUT1UTYAU.OAPME,IFANY.
" STREET RENTS AS YET UNDEfERMW ED. PROPOSED RENTS UMTED BY FMR
Mabmm Proposed Rents are capped at 90%d Market, FMR or TC Rents
I I
'
F:IUSERSUiPartnerslDev. ProjtsWiontana PropertiesUnvestment Sums,,Big Sky Invest Summary.doc
2
UTILITY METERING Mastered metered for all utilities.
INFORMATION:
NUMBER OF SECTION 8 25 efficiency and 28 one bedroom units: Total 53 units of 60
UNITS: units.
1 ST MORT. INT. RATE: 8.5% (effective rate)
1 ST. MORT. BALANCE: $428,275 @ 7/31/98
DEBT SERV. ON 1 ST.: $56,362
FINANCING: Refinance existing debt with lower loan constant. Keep existing
project based HAP contract and utilize 9% LMCs.
ESTIMATED REHAB. $4,000 per unit
AND IMPROVEMENT See attached Preliminary Schedule of Improvement Summary.
COSTS:
1997 OPER. EXP. BEFORE
DEPRECIATION: $ 146,807 ($2447/u) Does not include mortgage interest or AHP
PURCHASE Purchase price is $1,315,875 ($21,931/u)
INFORMATION:
CONTACT: Chris Foster
Hampstead Partners
(619) 551-5302
F:WSERS\HPartners0ev. Projts\Montana Properties\Investment Sums\Big Sky Invest Summary.doc
. m 1
REPOSITIONING OPPORTUNITY
PRELIMINARY INVESTMENT SUMMARY
PROJECT: BIG SKY APARTMENTS
LOCATION: 110 Second Avenue West
Kalispell, Montana
AGE: Constructed 1970 in a very good downtown location.
TYPE: Section 221 (d)(3) with Section 8 Assistance
DESCRIPTION 0 60 unit senior apartment property subject to LMSA contract. 20
handicapped units. Property is in better than average condition.
0 Low-rise four story elevator building with a recreation room and
community laundry facilities. Open parking spaces. Security entry
system.
Electric heat. Sleeve air conditioning units. Mastered metered for
electric.
CURRENT OCCUPANCY: 99%
AREA MEDIAN INCOME: $36,400 (effective 1/7/98 for Flathead County)
Census Tract #0010 is a Montana Designated QCT
Flathead County is not a Montana Designated DDA
UNIT MIX:
Hi
BRlBA
SIZE
PBE
CUR. HUD I CURB HUD 1 I PROPOSED
BASIC MARKET VL (501/6)
{ RENTS RENTS FMR INC. RENTS
I PROPOSED PuhAwal HrGliw d
60 % INC f *"STREET 1 MAX 50% 1 MAX 60
RENTS RENTS TC RENTS ( TC RENTS
i
I
28
zero/one
415
$0
$269 $289 r $249
$284 $0 i S318 I $382
321
one/one
467
$0
$334 " { $335 1 S335
S335 $0 1 S341 1 $409
of
two/one
$o
$0 Sol $o
Sol Sol $o $0
0j
d.,Jone
$0
$0 , Sol $0
Sol Sol $0 i $0
01
fouenne
$0
$0 Sol $o
Sol Sol $0 I $0
601
TOTAUAVE
26,5641
$0
18,220 18,8121 $17,692
$18,672 1 $o I
*INDICATED RENTS ARE NET OF UTIUTY ALLOAANCE, IFANY.
—STREET RENTS AS YET UNDETERMINED. PROPOSED RENTS UMITED BY FMR.
Malamam Proposed Rents are capped at 90%of Market, FMR or TC Rents
P:\USERS\HPanners\Dev. Projts\Montana Properties\Investment Sums\Big Sky Invest Summary.doc
2
UTILITY METERING Mastered metered for all utilities.
INFORMATION:
NUMBER OF SECTION 8 25 efficiency and 28 one bedroom units: Total 53 units of 60
UNITS: units.
I ST MORT. INT. RATE: 8.5% (effective rate)
1 ST . MORT. BALANCE: $428,275 @ 7/31/98
DEBT SERV. ON 1ST.: $56,362
FINANCING: Refinance existing debt with lower loan constant. Keep existing
project based HAP contract and utilize 9% LIHTCs.
ESTIMATED REHAB. $4,000 per unit
AND IMPROVEMENT See attached Preliminary Schedule of Improvement Summary.
COSTS:
1997 OPER. EXP. BEFORE
DEPRECIATION: $ 146,807 ($2447/u) Does not include mortgage interest or MIP
PURCHASE Purchase price is $1,315,875 ($21,931/u)
INFORMATION:
CONTACT: Chris Foster
Hampstead Partners
(619)551-5302
FAUSERSWartners0ev. ProjtsWontana Properties\Investment Sums\Big Sky Invest Summary.doc
FACSIMILE TFtANSMSSION
RETURN FAX: (619) 456-9590
PHONE: (619) 551-5307
12 February,1999
TO: Theresa White
SENDER; Pam Henderson
FAX #.: 406.758.7758
SENDERS DIRECT DIAL #: (619) 551.5300
PAGES TO FOLLOW:
3
BARD COPY TO FOLLOW: No
Susan Moyer asked us to send this to you.
The Information contained in this facsimile message is privileged and conj1dential and is intended for the Use of the addressee. If the
reader o}'ihis message is not the addressee, or the person responsible for delivery to the addressee, you are hereby notified that any
dissemination, distribution or copying of the message is strictly prohibited Ifyou have received this message in error, please notify
us by telephone in order that we make arrangement for the reh" of the original information to us at our expenses, Thank you. 9HP
4HAMPSTEAD PARTNERS♦1205 PROSPECT STREET, #450+ LA JOLLA♦CALIFORNIA♦ 92037♦
Hampstead .inns, Inc.
Investment Division Voice (019) 456-6500
FU 1,6J 9) 456-9590
Dirtc:t (619) 5; I-5302
February 12, 1999
Ms. Susan Moyer
Kalispell Planning Department
Fax #: (406) 758-7739 (3 Pages)
t.2E: Big Sky Manor
Preservation Funding
Dear Ms. Moyer
Thank you for your continued assistance to our efforts to maintain afi'trdabillty for Big Sky
Manor Apartments. Please also convey my sincere thanks to th Mayor, Council and other City
staff for giving me time to present our request at the committee meeting last Monday evening.
Although I was unfamiliar with *,e intricacies involved in UDAG vs. Tax Increment funding, I
thought that the group brought up some very insightful questions and comments pertaining to our
efforts. Please allow me to address some of the issues raised at the meeting and others that you
have brought to my attention now that I have had time to think about them for a couple of days.
Statewide Effort. ort. As I mentioned in the meeting, Big Sky represents came of eight conversion
eligible properties that we are attempting to preserve for low income, affordable use. Like Big
Sky, the other seven are all located, in western. Montana, including another 52-unit property,
Valley View Apartments, in Kalispell. Others include 34 units of senior housing in Libby, 36
units in Columbia Falls, 24 units in Deer Lodge, 1.00 units in Bozeman, 96 units in Great Falls
and 104 units in Missoula. All total, there are 506 units. Total cost of the preservation effort is
estimated to be approximately 519,250,000, of which Big Sky represents S1,975,000.
The Montana Board of Housing has been one of the primary forces behind our efforts. They
have provided extensive support in working with our nonprofit partners, applying for and being
awarded a $1.5 millions, soft FHLB loan in support of the acquisition, sponsoring legislation to
make it possible to get a property tax exemption, agreeing to provide tax exempt bonds.
providing a guarantee for the bonds, etc.
AffordabUity. One of the primary reasons for the State's participation, that of our nonprofit
partners, the Federal Horne Loan Bank Board, etc, is the fact that the transaction will provide
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ongoing affordability and enhanced services for the seniors and fwnilies residing at the properties
both now and in the future. Moreover, the plan avoids wholesale displacement of low and very
low-income residents who might not be otherwise able to find suitable housing elsewhere.
The parties recognize, that, unlike typical new construction tax cmdlt projects aimed at moderate
income residents, this effort reaches down to the lowest income individuals by stipulating that at
least 50% or more of the units will be set aside to be affordable for persons earning less than
50% of area median income. Importantly, residents will continue to receive rental assistance
(Section 8) making it possible for even extremely low-income individuals to continue residing at
the properties,
Post acquisition rents will be set at limits designed to be affordable to the above individuals. Wc
understand that there may be some confusion as to the difference between Fivfps (Fair Market
Rents) and street or true market rents, FNEts are HUD published rent levels (set at 40% of a
random sample for a given area) -irrespective of project amenities, neighborhood, services.. etc.
They are rarely reflective of a project's true rental potential. In the case of Big Sky, we believe
that it could command rents significantly exceeding FMR if it were converted to market rate Use
resulting in levels which were out of reach to the individuals served there. Our proforma rents at
Big Sky are among the very lowest of any of the properties in the preservation portfolio.
Rehabilitation. While the goal of providing affordable housing is extremely important, it is just
as important to recognize that unless older properties are continuously maintained, it will
eventually become impossible to adequately serve, the residents at all. We believe that Big Sky
provides much more than minimum shelter for the residents. It is a well -designed seniors facility
providing the following amenity package important to quality senior life:
> Security and limited access.
> Full kitchens and baths.
> Extensive common space including a large meeting room, community kitchen, family
style porch area, etc,
> Elevator service.
> Wide, well -lit hallways with grab bars.
> Well laid -out handicap accessibility.
> ALGA compatible units (six to be constructed as a part of our upgrade plans).
> A convenient downtown location ideally suited for senior 'Living.
> Adequate and attentive staff ready to meet the special needs of the residents.
Even if displaced residents were able to find other housing which was affordable to them, it is
-unlikely that they would be nearly so well served as they are at Big Sky.
Notwithstanding the amenity package and good overall condition of Big Sky, it is in excess of 25
years old and in some need of repair. We plan to expend in excess of $275,00 (inclusive of
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1205 ?rospou Street, Suito 450, faJolla. Califbrula 92037
contractor's costs) to meet capital needs, provide for better handicapped accessibility and to
recapitalize it.
Development Team. I asked Susie Martin from our office to send you some materials related to
14ampstead Partners and its extensive experience in the affordable housing industry, We have
also brought on a team of other experts to assist us in tltls effort. These include two individuals
with unique experience important to the cause.
As you may be aware, many of the properties in the preservation portfolio are Section 236
subsidized projects that have been awarded Interest Reduction Payment i IRR'} contracts
effectively reducing the current mortgage interest rate to 1 %. Our plans call for a continuation of
the steam of income from the IRP subsidy that will assist us in keeping the projects affordable.
Robin Soloman, a team member, is the only developer in the nation to successfully utilize this
methodology thus far. Steve Wallace of Peabody and Brown, our counsel, represented Mr.
Soloman in his efforts.
27me Is Of The Essence, As I mentioned during the Monday night meeting, it is critical to our
efforts that we matte application with the State for 9% credits related to Big Sky by the 26`' of
this month. In order to do so, we must show financial viability; necessitating the comr itment of
the requested city funds.
Again, we very much appreciate your assistance with this important effort and believe that our
request represents an excellent use of City funds allowing it to leverage its resources for an
important cause. If I may provide you with any additional information or answer other questions
that you might have please do not hesitate to call.
Sincerely,
/terChris Fo
President
Hampstead partners
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1126I99
Ms. Susan Moyer, Housing Manager
Department of Planning, Economic, and Community Development
City of Kalispell
Fax #: (406) 758-7739
Re: Request For City Tax Increment Funding
Big Sky Manor
Dear Ms. Moyer:
(619) 551-5302
Fax (619) 456-9590
(3 Pages)
Thank you for taking the time to speak with my partner Tay Wentz and myself about the
possibility of accessing a portion of the City of Kalispell's tax increment funds for the
purpose of filling a financial gap related to the purchase and renovation of Big Sky
Manor Apartments in Kalispell.
The Property. As you know, Big Sky Manor is a well -maintained 60-unit multifamily
property located at 110 Second Avenue West in Kalispell. It is currently HUD regulated
under Section 221(d)(3). The property is made even more affordable due to the fact that
it is covered under a project based Section 8 rental assistance payments contract. Without
this assistance, many of the project residents might not be able to .afford adequate
housing. Clearly, Big Sky is a significant asset to the community and downtown
vibrancy.
Stattewide Preservation Effort. Hampstead Partners contemplates the purchase of Big
Sky in conjunction with the Northwest Montana human Resources non-profit
organization as part of a larger effort to purchase and preserve the affordable status of
seven other western Montana Section 8 apartment complexes, all totaling 504 units.
For Big Sky, we plan to utilize 9% Low Income Housing Tax Credits allocated through
the Montana Board of Housing. The project -based rental assistance contract would be
maintained in place. As you can well imagine, there are many moving pieces we have to
put in place given eight projects, four sellers, and five non-profit partners.
We have been working on this for over six months and are excited about the enthusiasm
and support of the Montana Board of Housing and Montana Board of Investments for this
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venture. The City's participation will leverage the significant state and federal resources
contemplated to be a part of the effort.
Future Operations. It is important to the communities involved that Big Sky Manor
Apartments and the others maintain their long-term affordability. If this property and the
others are not preserved as contemplated by this transaction, the owners are likely to
make the determination to prepay the mortgages and raise the rents to market which will
undoubtedly involve the loss of the units to the seniors who are currently residing there.
Just as importantly, these properties now exceed 20 years in age and must be
recapitalized in order to continue to operate successfully. Although well maintained,
each of the properties contains project systems in need of replacement or upgrade. Such
systems include heating, air-conditioning, flooring, kitchen cabinetry, plumbing, etc.
Unless the repairs or upgrades are completed, it will only be a matter of time before
significant problems arise.
There will be significant involvement in the future operation of the building by our non-
profit partner, especially as it relates to providing more and better services for the
residents.
Long Term Use. There will be at least 30 years of restrictions imposed on the project's
new owners, thereby guaranteeing continued affordability. Our proforma for Sig Sky
contemplates keeping 50% of the units rented to residents at 50% or less of median area
income (affordable to Very Low Income residents) and 50% of the units rented to
residents at 60% or less median area income. This is a noble goal which all the parties
want to achieve, but completing the renovation and assuring that the property can
maintain operations over the long-term is financially challenging under such
circumstances. It is for this reason that we seep the City's assistance.
Request. We have preliminarily determined that $124,000 is needed from the City of
Kalispell's tax increment funds as soft money to successfully complete the purchase and
upgrades.
I understand that we have set a tentative date of February 8'n to appear before the City's
committee in Kalispell. ,After you have had a chance to review this letter, we would very
much like to discuss any additional information with you that may be necessary to have
in place or to be provided beforehand to wake the appropriate presentation.
I have enclosed a Preliminary Improvement Schedule and Project Summary on Big Sky
for your review. We anticipate closing this transaction no later than the second quarter of
this year, so time is of the essence to move forward.
2
Hanipstead Partners, Inc,
February 11, 1999
Ms. Susan Moyer
Kalispell Planning Department
Fax 4: (406) 758-7739 (3 Pages)
RE: Big Sky Manor
Preservation Funding
Dear Ms. Moyer
Thank you for your continued assistance to our efforts to maintain affordability for Big Sky Manor
Apartments. Please also convey my sincere thanks to the Mayor, Council and other City stafffor
giving me time to present our request at the committee meeting last Monday evening.
Although I was unfamiliar with the intricacies involved in UDAG vs. Tax Increment funding, I
thought that the group brought up some very insightful questions and comments pertaining to our
efforts. Please allow me to address some of the issues raised at the meeting and others that you have
brought to my attention now that I have had time to think about them for a couple of days.
Statewide Effort. As I mentioned in the meeting, Big Sky represents one of eight conversion
eligible properties that we are attempting to preserve for low income, affordable use. Like Big Sky,
the other seven are all located in western Montana, including another 52-unit property, Valley View
Apartments, in Kalispell. Others include 34 units of senior housing in Libby, 36 units in Columbia
Falls, 24 units in Deer Lodge, 100 units in Bozeman, 96 units in Great Falls and 104 units in
Missoula. All total, there are 506 units. Total cost of the preservation effort is estimated to be
approximately $19,250,000, of which Big Sky represents $1,975,000.
The Montana Board of Housing has been one of the primary forces behind our efforts. They have
provided extensive support in working with our nonprofit partners, applying for and being awarded
a $1.5 million, soft FHLB loan in support of the acquisition, sponsoring legislation to make it
possible to get a property tax exemption, agreeing to provide tax exempt bonds, providing a
guarantee for the bonds, etc.
Affordability. One of the primary reasons for the State's participation, that of our nonprofit
partners, the Federal Home Loan Bank Board, etc. is the fact that the transaction will provide
ongoing affordability and enhanced services for the seniors and families residing at the properties
C MDTDOWS\Star[ Menu\Chris's ApplicationslNew BriefesseWontana PropertiesTaliss.doc
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2
both now and in the future. Moreover, the plan avoids wholesale displacement of low and very low-
income residents who might not be otherwise able to find suitable housing elsewhere.
The parties recognize that, unlike typical new construction tax credit projects aimed at moderate
income residents, this effort reaches down to the lowest income individuals by stipulating that at
least 50% or more of the units will be set aside to be affordable for persons earning less than 50% of
area median income. Importantly, residents will continue to receive rental assistance (Section 8)
making it possible for even extremely low-income individuals to continue residing at the properties.
Post acquisition rents will be set at limits designed to be affordable to the above individuals. We
understand that there may be some confusion as to the difference between FMRs (Fair Market Rents)
and street or true market rents. FMRs are HUD published rent levels (set at 40% of a random
sample for a given area) irrespective of project amenities, neighborhood, services, etc. They are
rarely reflective of a project's true rental potential. In the case of Big Sky, we believe that it could
command rents significantly exceeding FMR if it were converted to market rate use resulting in
levels which were out of reach to the individuals served there. Our proforma rents at Big Sky are
among the very lowest of any of the properties in the preservation portfolio.
Rehabilitation. While the goal of providing affordable housing is extremely important, it is just as
important to recognize that unless older properties are continuously maintained, it will eventually
become impossible to adequately serve the residents at all. We believe that Big Sky provides much
more than minimum shelter for the residents. It is a well -designed seniors facility providing the
following amenity package important to quality senior life:
➢ Security and limited access.
➢ Full kitchens and baths.
➢ Extensive common space including a large meeting room, community kitchen, family style
porch area, etc.
➢ Elevator service.
➢ Wide, well -lit hallways with grab bars.
➢ Well laid -out handicap accessibility.
➢ ADA compatible units (six to be constructed as a part of our upgrade plans).
➢ A convenient downtown location ideally suited for senior living.
➢ Adequate and attentive staff ready to meet the special needs of the residents.
Even if displaced residents were able to fmd other housing which was affordable to them, it is
unlikely that they would be nearly so well served as they are at Big Sky.
Notwithstanding the amenity package and good overall condition of Big Sky, it is in excess of 25
years old and in some need of repair. We plan to expend in excess of $275,00 (inclusive of
contractor's costs) to meet capital needs, provide for better handicapped accessibility and to
recapitalize it.
Development Team. I asked Susie Martin from our office to send you some materials related to
Hampstead Partners and its extensive experience in the affordable housing industry. We have also
------------------------------------------------------------
LIN
DATE: February 11, 1999
TO: Al Thelen, Interim City Manager
FROM: Susan Moyer, Housing Manager
SUBJECT: Big Sky Manor
Al, I believe there is some confusion regarding the issue of rents at the above elderly complex. I
would like to clarify some issues raised.
Fair Market Rents are rents established by HUD for housing units assisting low -to -moderate
income individuals and families. Governmental funding involving Tax Credits, Federal or State
grant dollars, or Section 8 Rental Assistance for this type of housing cannot exceed the FMRs.
Market rents are established by individual landlords and are based on what the market will bear.
Over the past ten years we have seen rents in Kalispell escalate due to supply and demand.
Many private sector landlords are unwilling to rent to LMI families who are fortunate enough to
have the type of Section 8 Rental Assistance that goes with them wherever they wish to live.
This reluctance is usually caused by the fact they can command higher rents on the open market
or because of the paperwork involved with any governmental program. There is no new funding
of this type of Section 8 Rental Assistance, and Northwest Montana Human Resources has
averaged 400 new applications for Section 8 assistance per year for several years.
The current Section 8 Rental Assistance at Big Sky Manor is to the individual units not the
tenants residing therein. Thus, tenants who might be forced to move out of Big Sky Manor
would loose the Section 8 assistance which ensures they pay no more than 30% of their gross
monthly income for rent and utilities. Should the apartment acquisition by Hampstead Partners'
and Northwest Montana Human Resources not succeed, all the units would be without Section 8
Rental Assistance and the current owners would be in a position to rent them for whatever the
market commands.
In regard to the letter from the Flathead Landlord Association, they are incorrect when they state:
■ There is no back up financial plan to repay the loan. Hampstead Partners and the various
Human Resource Agencies commit to a non -forgivable mortgage for all funding to this total
project. In order to qualify for the tax credits, MBOH requires the City to have a binding
mortgage without the ability to forgive the debt owed by the participating partners.
The compliance period is not just for 15 years. The compliance period is 51 years of using
the project for the same purpose and renting the units at below FMR levels. This compliance
criteria becomes a deed restriction on the properties.
■ Finally, the issue of using tax generated dollars is not 100% correct. This is Program Income
off a UDAG Grant awarded to the City in 1987 and loaned to the Kalispell Limited
Partnership for the specific purpose of creating jobs for LMI individuals and families.
If you need further clarification of anything, please let me know.
C:\myfiles\PECDD\UDAG ProgramIncome\BigSkyManor