CDBG_-_Policies_-_Developer_Capacity.pdf

CDBG/HOME PROGRAM

POLICY AND PROCEDURES

SUBJECT: DEVELOPER CAPACITY AND FISCAL SOUNDNESS – RENTAL PROJECTS

PURPOSE

The purpose of these guidelines are to assess the capacity of developers to undertake CDBG and/or HOME funded rental housing projects.

Items marked with an asterisk (*) are included in the Application for New Rental Construction.

BACKGROUND

The Consolidated and Further Continuing Appropriations Act of 2012 (P.L 112-55) (http://www.gpo.gov/fdsys/pkg/PLAW-112publ55/content-detail.html) imposed new requirements on projects that receive FY 2012 funds from the HOME Investment Partnerships Program (HOME). The purpose of these requirements is to improve project and developer selection by participating jurisdictions (PJs) and ensure that there is adequate market demand for HOME projects. (Reference CPD Notice 12-07 http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/notices/cpd ).

Prior to entering into a legally binding written agreement to provide HOME funds to an activity, the PJ must:

• Underwrite the project or evaluate the underwriting of another funder;

• Assess the development capacity and fiscal soundness of the developer; and

• Examine neighborhood market conditions to ensure adequate need for each project.

This requirement is applicable to activities involving acquisition, construction, or rehabilitation of rental or homebuyer projects, including projects involving down payment assistance.

ELIGIBLE ENTITIES FOR ASSESSING DEVELOPER CAPACITY AND FISCAL SOUNDNESS

Depending on the size and scope of the project, Dane County may:

• Review and document the developer capacity and fiscal soundness as identified by another funder in the proposed project;

• Contract with a third party;

• Assess developer capacity and fiscal soundness in-house, using available data and information sources.

TIMING OF ASSESSING DEVELOPER CAPACITY

An assessment of developer capacity is to be conducted prior to the time that the County enters into a legally binding written agreement with the subrecipient or project owner.

http://www.gpo.gov/fdsys/pkg/PLAW-112publ55/content-detail.html http://www.gpo.gov/fdsys/pkg/PLAW-112publ55/content-detail.html http://portal.hud.gov/hudportal/documents/huddoc?id=12-07cpdn.doc http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/notices/cpd

FACTORS

This document recognizes that the level of assessment will vary by project size, scope, complexity, and type of development entity (CHDO, non-profit, for-profit). As such, the level of assessment will be commensurate with the type of project. In general, the following factors will be assessed in determining the capacity of the developer in undertaking the proposed project:

ON SITE REVIEW

An on-site visit will be conducted by County staff as a vital step in understanding the project and to better inform the review process.

EXPERIENCE OF DEVELOPER AND MANAGEMENT COMPANY

The experience of the developer and the proposed management company will be assessed to determine their capacity to undertake the project. As part of the review, the following will be examined:

Experience with Projects of Similar Location, Size, and Scope – undertaken by the developer and/or managed by the proposed management company. If the developer and/or proposed management company lack prior experience, how risks will be reduced.

Experience with Developing Affordable Housing – The experience and qualifications of the developer in developing affordable housing will be examined. If the developer lacks prior experience, this will examine how the risks will be reduced.

Experience with Using Multiple Subsidies – This will examine the types of subsidies previously used in other affordable housing projects undertaken by the developer. If the developer and/or proposed management company lacks experience in working with the CDBG or HOME programs, this will examine how the risks will be reduced.

Experience in Managing Affordable Rental Projects – The experience and qualifications of the organization that will be handling the ongoing property management will be reviewed, including information related to performing income documentation for program eligibility.* If the proposed management company lacks experience in working with the CDBG or HOME program, this will examine how the risks will be reduced.

Prior Experience in Working with Dane County CDBG/HOME – If prior projects have been undertaken with the County of Dane, the projects will be reviewed to determine compliance with project milestones, budget, documentation, and other requirements.

BUSINESS REPUTATION/BACKGROUND CHECKS

Business background checks may be conducted to determine the strength of the developer (business) and the proposed management company to complete the project (development) and to support it long-term (operations). As part of this examination, one or more of the following will be reviewed:

Access Dane – to determine the location of the business, identify the property owners, and to obtain information on whether property taxes are current.

Better Business Bureau – to determine whether the business meets BBB accreditation standards, to examine customer reviews and complaints, and to identify any government actions.

Dane County Register of Deeds – to determine mortgages and liens recorded against the property that is being used for collateral.

Westlaw – to check history of business, associated businesses, and principals throughout the

United States.

Wisconsin Circuit Court Access Program – to check on outstanding litigation involving the business, business owners, guarantors and operators.

Wisconsin Department of Financial Institutions – to verify the legal name of the business, effective date of registration, registered agents, registered office of record, charter document filing history, current status (i.e., delinquent, dissolved), and to verify that annual reports are filed as required. In addition, UCC filings will be examined to determine existing liens on any collateral.

Wisconsin Department of Revenue – to check on filing frequency and on payment of payroll and business taxes.

Dane County Treasurer – to determine the payment history and status of real and personal property taxes involving the business, the applicant, business owners, guarantors and operators.

Reference Checks – references will be checked from other communities in which projects were undertaken.

Additional checks may be done as dictated by the County.

SKILLS AND EXPERIENCE OF DEVELOPMENT AND MANAGEMENT TEAMS

The experience of the key members of the development team and the management team may be assessed to determine their capacity to undertake the project. As part of the review, the following will be examined:

Development Team - The Development Team in a real estate project normally includes the developer, architect, contractor, property manager, syndicator, leasing agents, etc. In small projects, the owner may perform all of the roles. The resumes of each member of the development team will be reviewed to determine recent, relevant experience and skills. If the development team lacks prior experience in any key areas, this will examine how the risks will be reduced.

Management Team - the management team needs to have industry experience in all aspects of the business: sales and marketing, finance, operations, personnel, etc. The resumes of each member of the management team will be reviewed to determine recent, relevant experience and skills. If the management team lacks prior experience in any key areas, this will examine how the risks will be reduced.

Wisconsin Department of Safety and Professional Services and related agencies – to verify that needed licenses and certification are obtained and current.

Reference Checks – references may be checked for key members of the development and management teams.

BACKGROUND CHECKS ON OWNERS, PRINCIPALS, AND GUARANTORS

Background checks on owners, principals, and guarantors may be conducted to determine their capacity to manage the business, provide collateral, and to achieve projections. As part of this examination, one or more of the following will be reviewed:

Access Dane – to verify ownership of property to be used as collateral and to obtain information on the whether property taxes are current.

Credit Bureau(s) to obtain reports including credit scores from at least one of the three major credit bureaus.

Dane County Register of Deeds – to determine mortgages and liens recorded against any property that is being used for collateral.

Wisconsin Circuit Court Access Program – to check on outstanding litigation that may impact the ability to operate the business or to maintain assets.

Wisconsin Department of Safety and Professional Services and related agencies – to verify that needed licenses and certifications are obtained and are current.

Dane County Treasurer – to determine the payment history and status of real and personal property taxes involving the business, the applicant, business owners, guarantors and operators.

Additional checks may be done as dictated by the County.

FINANCIAL BACKGROUND CHECKS ON OWNERS, PRINCIPALS, AND GUARANTORS

Financial background checks may be conducted on owners, principals, and guarantors.

WORKLOAD

Other Commitment – to check on the capacity of the key parties to undertake this project and to meet key deadlines based on other commitments.

THRESHOLD FOR ADEQUATE DEVELOPER CAPACITY AND FISCAL SOUNDNESS

Category Threshold Criteria Experience of Developer and Management Company

Developer has experience with projects similar in size and scope to the project being proposed or is mitigating the risk by using other experts/consultants to compensate for the lack of experience.

Developer has experience in developing affordable housing or is mitigating the risk by using other experts/consultants to compensate for the lack of experience.

Developer has experience with using multiple sources of financing, including use of other federal/state public financing or is mitigating the risk by using other experts/consultants to compensate for the lack of experience.

Property management company has experience in ongoing property management including experience related to performing tenant income documentation for program eligibility or the property management company is willing to work with the County to obtain and maintain documentation for long-term compliance with affordable housing requirements.

If prior projects have been undertaken with the County of Dane, the projects have been completed on time and within budget. All project documentation was received in a timely fashion and accurate.

Housing has been maintained in compliance with all applicable State and local housing quality standards and code requirements. There were no or minimal issues with documentation supporting compliance with tenant protections and income eligibility.

Business Reputation/ Background Checks

There are no unsatisfied judgments against the developer, project management company, applicant/property owner, its principals or related parties.

No party related to the application has been party to any litigation that would negatively impact the application, such as real estate foreclosure or bankruptcy within the past seven years.

Payroll and business taxes are current.

Real and personal property taxes involving the business, the applicant, business owners, guarantors and operators are current and paid on time.

Reference checks are positive.

Skills and Experience of Development and Management Team

The development team has industry experience with projects of similar size, scope, and funding sources or is mitigating the risk by using other experts/consultants to compensate for the lack of experience.

The management team has industry experience in all aspects of the business: sales and marketing, finance, operations, personnel, etc.

or is mitigating the risk by using other experts/consultants to compensate for the lack of experience.

All needed licenses and certifications required by the State and others are held and current.

Reference checks are positive.

Background Checks on Owners, Principals, Guarantors

There are no unsatisfied judgments against the applicant/property owner, its principals or related parties.

No party related to the application has been party to any litigation that would negatively impact the application, such as real estate foreclosure or bankruptcy within the past seven years.

Payroll and business taxes are current.

Real and personal property taxes involving the applicant, business

Category Threshold Criteria owners, guarantors and operators are current and paid on time.

Owners, principals, and guarantors appear to have the capacity to manage the business, provide collateral, and to achieve projections.

Reference checks are positive.

Workload There appears to be sufficient capacity to manage, complete, and support the project in the long-term given other commitments.

RESPONSIBILITY FOR CERTIFICATION

CDBG Program staff will certify that all of the required elements of the assessment of developer capacity and fiscal soundness are in place.

COMPLIANCE DOCUMENTATION

The Developer Capacity and Fiscal Soundness form will be completed by the assigned CDBG Program staff and used in determining compliance. It will be retained in the project file.

Adopted by the CDBG Commission: 5.30.2013

/cdbg – policies – developer capacity.doc

DEVELOPER CAPACITY AND FISCAL SOUNDNESS

HOME Rental Projects

Project

Address

Municipality

Developer

Standard Project Comments Compliance Experience of Developer and Management Company

Developer has experience with projects similar in size and scope or is mitigating the risk.

Developer has experience in developing affordable housing or is mitigating the risk.

Developer has experience with using multiple sources of funding including other federal/state public financing or is mitigating the risk.

Property management company has experience in ongoing property management including experience related to performing tenant income documentation or is mitigating the risk.

Prior projects have been completed on time and within budget. There have been no issues with compliance or documentation.

Business Reputation/Background Checks There are no unsatisfied judgments against any parties related to the project.

No party related to the application has been party to any litigation that would negatively impact the application, such as real estate foreclosure or bankruptcy within the past seven years.

Real and personal property taxes involving the business, applicant, business owners, guarantors, and operators are current and paid on time.

Standard Project Comments Compliance Reference checks are positive.

Skills and Experience of Development and Management Team Development team has industry experience with projects of similar size, scope, and funding sources or is mitigating the risk.

Management team has industry experience in all aspects of the business or is mitigating the risk.

All needed licenses and certifications required by the State and others are held and current.

Background Checks on Owners, Principals, Guarantors

There are no unsatisfied judgments against the applicant/property owner, its principals or related parties.

No party related to the application has been party to any litigation that would negatively impact the application, such as real estate foreclosure or bankruptcy within the past seven years.

Real and personal property taxes for owners, guarantors, and operators are current and paid on time.

Owners, principals, and guarantors appear to have the capacity to manage the business, provide collateral, and to achieve projections.

Workload

There appears to be sufficient capacity to manage, complete, and support the project in the long-term given other commitments.

Reviewer Date of Review

/cdbg – policies – developer capacity.doc

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