Rental Predevelopment Loans:
Structure and Terms

Eligible Property Types

Affordable rental currently receiving federal or state subsidy and regulated by a federal or state use agreement, or an acquisition plan for the property that includes such subsidy or regulation. Loan documents will ask borrowers to represent that they intend to enter into or continue under a use agreement that imposes restrictions at least equivalent to LIHTC standards.

Eligible Borrowers

Borrowers must be Housing Partnership Network members or associate members.

Threshold Criteria

• Executed letter of intent or purchase contract.
• Evidence that the borrower has expended no less than $5,000 in third-party costs or staff time equivalent in pursuing the transaction.
• Budget detailing the expected uses of loan funds. The proposed uses generally must conform to the Fund's list of acceptable uses. Based on the budget, the Fund may create property-specific milestones that must be met before the borrower can draw down subsequent loan amounts.

Minimum Loan Size

$20,000

Maximum Loan Size

$300,000

Loan Terms

• Interest rate. An interest rate of 7.0 percent will accrue and be paid at the discharge of the loan. In most cases, interest accrued is due at loan maturity.
• Term. The term of the loan will be one year. At the borrower's request and the Fund's option, the loan may be extended for up to two six-month periods. An extension fee equal to 0.5 percent of the outstanding loan balance will be due at each extension. These extension fee payments will be credited to the interest owed at loan discharge.
• Commitment fee. Fee of $2,000 or 2 percent of the principal amount, whichever is greater, payable from loan proceeds at origination.
• Repayment. The loans are expected to be repaid from permanent financing sources at the time of acquisition closing.

Eligible Uses of Funds

As part of the initial underwriting process, the borrower will submit a schedule of anticipated costs. The listed costs, sequence, and timing should demonstrate that the uses of funds are consistent with the description below and that the acquisition plan has been constructed to mitigate risk to the greatest extent possible. Costs that can be deferred without jeopardizing the likelihood of success should be deferred until later in the process. The approved schedule of anticipated costs will guide the anticipated draws on the loan. The Fund will allow for reimbursement of eligible costs that have already been expended prior to receipt of the loan (not including the $5,000 expenditure of borrower's own funds called for in the threshold criteria).

• Payments to third-party professionals for due diligence services, including appraisers, capital needs assessors, environmental engineers, surveyors, and attorneys.
• Direct, out-of-pocket costs of pursuing an acquisition, including travel expenses, deposit and option payments, funding application fees, and title fees.
• Payments to third-party professionals involved in pursuing, negotiating, or implementing an acquisition, including consultants, architects, and attorneys.

Collateral and Credit

Borrowers will be responsible for repaying the full amount of the loan in the event that the transaction does not succeed. The Fund will require that the borrower obtain a specific authorizing resolution from its board of directors with respect to the loan. The Fund does not intend to secure cash collateral from the borrower as this would largely defeat the purpose of the loan. However, the Fund must conclude that its loan is likely to be repaid in a failed transaction. Thus, the Fund will evaluate the borrowing record and lender relationships of the borrower as well as the borrower's financial stability and depth.

Loan Administration

Borrowers may draw down funds in increments of no less than $50,000, but single disbursements are usually preferred. Borrowers will be required to document the allocation of outstanding loan funds at the time of each drawdown request and to describe the use of the requested funds relative to the approved schedule of anticipated costs. The Fund may decline to advance funds if the allocation of the outstanding balance is not properly accounted for or if deviations from the approved schedule are not adequately explained. The Fund may require, when no drawdown activity has occurred in a 60-day period, that borrowers provide a brief accounting of funds spent and a description of the transaction status.

To Apply for a Loan

Prospective borrowers should submit the following:

• A brief narrative description of the property being purchased, including name, address, number of apartments, existing financing, and any existing subsidy program and use restrictions.
• Evidence of sale status: either a letter of interest from the seller or an executed purchase agreement or other site control document.
• A proposed sources and uses for the acquisition, identifying likely financing sources and any needed public resources. If the property is not currently under a use restriction or if that restriction is expected to terminate at the acquisition closing, a description of the use restrictions expected to be imposed on the property following the closing.
• A schedule of anticipated uses of the predevelopment funds.
• A timeline for the development.
• Audited financial statements for the past three years, and most recent unaudited interim statement.
• Track record in pursuing and closing similar acquisitions.
• A list of key staff to be involved in the transactions and their resumes.

Please submit these materials to:

Matt Perrenod
Housing Partnership Fund
160 State Street, 5th floor
Boston, MA 02109
(617) 778-1301
perrenod@housingpartnership.net