What is L H IFT and what is its purpose WhoWhat is LHOP Why a regional affordable housing loan fund What are eligible projects Who are investors How do you get involved Regional revolving loan fund that attracts investment from the community in the form of tax deductible and Com ID: 783808
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Slide1
Ray D’Agostino
Chief Executive Officer
Slide2What is
LH
IFT
and what is its purpose?Who/What is LHOP?Why a regional affordable housing loan fund?What are eligible projects?Who are investors?How do you get involved?
Slide3Regional revolving loan fund that attracts investment from the community in the form of tax deductible and Community Reinvestment Act (CRA) credit-eligible contributions and investment loans.
Available within the 8-county region of south central PA (
Adams
, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Perry and York)
Affordable housing or mixed-use, mixed income projects.
Slide4Flexible
flex·i·ble ˈfleksəb(ə)l/ (
adjective)
Capable of bending easily without breaking.Ready and able to change so as to adapt to different circumstances.Able to be easily modified to respond to altered circumstances or conditions
.
Low
lō
/ (
adj
)
Interest in·ter·est \ˈin-t(ə-)rəst (noun)
A charge for borrowed money generally a percentage of the amount borrowed.
below average in amount, extent, or intensity; small.
Slide5LHOP is a Community Benefit Organization that is a 501(c)3 and a U.S. Treasury Department certified Community Development Financial Institution (CDFI) with a 22-year track record of assisting people access, create and preserve affordable housing.
Vision:
A healthy and vibrant community ensuring housing choices for everyone.
Mission:
To cultivate partnerships and resources to increase the availability of quality, fair and affordable housing.
Slide6Provided over $9 million in down payment assistance loans to over 2,000 first-time homebuyers in Lancaster County.
Invested $4.5 million in loans to create and preserve over 735 units of affordable housing in Lancaster County.
Slide7HOME OWNERSHIP CENTER
Housing CounselingHome Buyer EducationDown Payment / Closing Cost Assistance
Home & Money Fair
Post Purchase EducationHOUSING Equality & Equity InstituteFair Housing Rights & ResponsibilitiesLandlord/Tenant Education, Consultation and Mediation
Landlord Risk Reduction Fund
Coordination with specific populations to empower them on quality, fair and affordable housing choices
PROGRAMS & SERVICES
Slide8PROGRAMS & SERVICES
NEIGHBORHOOD REVITALIZATION & LHIFT of SCPALow interest, flexible loans for the creation, preservation of affordable housing
Neighborhood Improvement & Revitalization
OUTREACH & RESEARCHCounty Housing Market AnalysisInternships
Legislative Forums
Publications
Slide9What Activities Will
LH
IFT
Finance?Pre-development costs, bridge loans or gap closing to developers seeking tax credits for construction of affordable home ownership and rental housing.Construction of new or rehabilitation of existing structures into affordable multi-family housing.
Slide10Physical Improvements
to buildings and living conditions in mixed-income and potentially mixed-use buildings in downtowns of cities, boroughs, and villages.
Acquisition
of homes and/or other properties for renovation and resale for either affordable home ownership or rental opportunities.Set aside of affordable units within market rate multi-family housing.
Slide11Location
:
Borrower
:
City
of
Lancaster SACA
Description
:
Total Cost
/ Loan: Blight Reduction $68,000 / $60,000 Rehab and Resale
Slide12Former rental property was foreclosed and condemned …blighting condition + eye sore in the neighborhood.
Vacant for 2 years with no interest in its purchase and rehab. Wells Fargo, the original mortgage holder, donated the property to the Spanish American Civic Association (SACA).
SACA served as the general contractor, using in-house labor and hiring skilled subcontractors as necessary to complete the renovation. New interior walls, exterior windows, electrical, plumbing, HVAC transformed the dwelling into a neighborhood asset and provided a family with a new home.
The project was completed within 12 months, the home was sold to an income-qualified family under a lease-purchase arrangement and the loan repaid to LHOP.
Slide13Location
:
Borrower
:
City of Lancaster Chestnut Housing Corp.
Description
:
Total Cost
/ Loan: Acquisition / Rental $160,000 / $130,000 Homelessness Reduction
Slide14The Chestnut Housing Corporation (CHC), an integrated auxiliary of the East Chestnut Street Mennonite Church in Lancaster City, wanted to take action to help end homelessness and stabilize housing in their neighborhood.
In 2010, they purchased their first property on E. Chestnut St. for $75,000 and rented it to a family experiencing homelessness.
To do more, CHC decided that they wanted to purchase another property. They needed a loan because of CHC’s sizeable capital investment in the first property. Approaching a traditional lender, CHC found it difficult to handle repayment terms and achieve the rents they needed to rent to low-to-moderate income families experiencing homelessness. They approached LHOP to become pre-qualified for a flexible, low-interest loan in order to purchase their next property.
A $130,000 loan was provided to CHC for the building purchase. Working with Tabor Community Services, two families experiencing homelessness now call 543 E. Chestnut St. their home. One of the families had been living in a car while looking for affordable housing.
Slide15Location
:
Borrower
:
City
of
Lancaster
Huyard
Properties, LLC
Description: Total Cost / Loan: Rehab / Rental $75,000
/ $49,000 Homelessness Reduction
Slide16Huyard
Properties had purchased 343 S. Prince St. which was in deplorable condition and in need of total rehabilitation. All major systems had to be replaced and/or modernized. They were searching for flexible low cost capital to assist in the rehab of the property so that the post-rehab rents would be a price affordable to lower income residents.
LHOP approached
Huyard Properties with the idea of providing a special low-interest rate as an incentive to rent to people who were facing homelessness. Wendell
Huyard
was thrilled at the idea of helping people achieve a fresh start and at the same time have a sustainable business model. A $49,000 loan was provided at a reduced interest rate in exchange for dedicating the apartments to the Coalition to End Homelessness’ efforts.
Working with LHOP staff and Tabor Community Services, both apartments are now rented to families that were experiencing homelessness.
Slide17Location:
Borrower
:
Manor Township Community Basics, Inc.
Description
:
Total Cost
/ Loan:
Construction $13,703,000
/ $350,000
Slide18The project will provide
60 apartments
near 61,000 jobs within a 5-mile radius. The apartments will be affordable to households earning up to 50% of area median income (AMI). In addition, 10% of the apartments will be set aside for people experiencing homelessness and another 10% will be fully handicap-accessible.
Developers such as CBI cannot bring these projects to fruition on their own. From the land development process, to the securing of financing, to final construction, it is a lengthy, expensive and arduous process. Often in such projects, a financing gap still exists that only flexible, low interest loans can fill to bring the project over the hurdle.
LHOP provided behind the scenes pre-development assistance and a loan commitment for their state low income housing tax credit application and closed in October 2014 on a $350,000 loan.
Slide19Sound Financial Investment with Positive Social Impact
Funds for
L
HIFT are raised in a combination of ways:
Contributions
- As an IRS 501(c)(3) non-profit organization, LHOP accepts investments into the fund through donations that are federally tax-deductible to the donor, and CRA credit-eligible for banks. Contributions are vitally important because they provide flexible equity and credit enhancements.
Slide20Loans
– Investments in the form of promissory notes or equity equivalent agreements will be a source of capital. A bank, individual, company or foundation can invest in the Fund through a loan to LHOP. Investment loans by banks are CRA credit-eligible. Interest rates paid on such investments will be below typical market instruments in order to keep the cost of funds low.
Slide21CDFI Funds
– LHOP is a Community Development Financial Institution (CDFI), certified by the U.S. Department of the Treasury. Contributions and investments raised from private and philanthropic sources will enhance LHOP’s ability to leverage and attract U.S. Treasury funds available to CDFIs for such lending activities, thus, furthering the return on investments made by the community.
Slide22Introducing our Initial
“Heavy
LHIFTers
”
Slide23How can you get involved?
Call to discuss a potential project / submit an application
Make an investment through a contribution and/or loan
Serve on the Loan Committee or Leadership Team
Spread the word!
Contact LHOP at 717-291-9945
Fern
Dannis
, COO / CLO (ext 1) – fdannis@lhop.org Ray D’Agostino, CEO (ext 4) –
rdagostino@lhop.org
www.lhop.org/lhift/loan-program/
Slide24CDFI Tools
FORBES, Feb 21, 2013 ”Why Program-Related Investments Are Not Risky Business”
by Nicole
MotterProgram-Related (Charitable) Investments *
As defined by the IRS for foundations: (1) investment’s primary purpose must be to advance the foundation’s charitable objectives; (2) neither the production of income nor the appreciation of property can be a significant purpose; and (3) funds cannot be used directly or indirectly for lobbying or political purposes. Under these criteria, all program-related investments are mission-related investments because they contribute to the foundation’s mission.
* Not all mission-related investments are program-related investments given that some mission-related investments seek a market return.
Slide25BETH LIPSON, Community Investments, March 2002
Equity Equivalent (EQ2):
Capital product for community development financial institutions and their investors.
Financial tool that allows CDFIs to strengthen their capital structures, leverage additional debt capital, and as a result, increase lending and investing in economically disadvantaged communities.
The EQ2 is defined by the six attributes listed below. All six characteristics must be present; without them, this financial instrument would be treated under current bank regulatory requirements as simple subordinated debt.
Slide261. The equity equivalent is carried as an investment on the investor’s balance sheet in accordance with Generally Accepted Accounting Principles (GAAP);
2. It is a general obligation of the CDFI that is not secured by any of the CDFI’s assets;
3. It is fully subordinated to the right of repayment of all of the CDFI’s other creditors;
4. It does not give the investor the right to accelerate payment unless the CDFI ceases its normal operations (i.e., changes its line of business);
5. It carries an interest rate that is not tied to any income received by the CDFI;
6. It has a rolling term and therefore, an indeterminate maturity.
Slide27Like permanent capital, EQ2 enhances a CDFI’s lending flexibility and increases its debt capacity by protecting senior lenders from losses. Unlike permanent capital, the investment
must eventually be repaid and requires interest payments during its term
, although at a rate that is often well below market. The equity equivalent is very attractive because of its equity-like character, but it does not replace true equity or permanent capital as a source of financial strength and independence.
Slide28For example, assuming a nonprofit CDFI has “equity” of $2 million—$1 million in the form of permanent capital and $1 million in equity equivalents provided by a commercial bank—the bank’s portion of the CDFI’s “equity” is 50 percent.
Now assume that the CDFI uses this $2 million to borrow $8 million in senior debt. With its $10 million in capital under management, the CDFI makes $7 million in community development loans over a two-year period. In this example, the bank is entitled to claim its pro rata share of loans originated—50 percent or $3.5 million. Its $1 million investment results in $3.5 million in lending credit over two years.
This favorable CRA treatment provides another form of “return on investment” for a bank in addition to the financial return. The favorable CRA treatment is a motivating factor for many banks to make an EQ2 investment.