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Multifamily Housing Development - Rental Housing Works (RHW)

These RHW Guidelines are updated effective August 1, 2013and are applicable to all applications received on or after this date. Except as otherwise provided below, the updated guidelines will also be applicable to RHW applications in process with DHCD prior to this date.

Purpose of Rental Housing Works (RHW)

The purpose of RHW is to create jobs and strengthen the Maryland economy by providing gap financing for the creation and preservation of affordable rental housing financed through DHCD’s Multifamily Bond Program and Low Income Housing Tax Credit Program. RHW is funded at $17.5 million for FY 2013 and $20 million for FY 2014.

Overview

RHW is subordinate gap financing to be used solely for projects financed using DHCD’s Multifamily Bond Program (MBP) and 4% Low Income Housing Tax Credits (Tax Credits). Therefore, projects requesting RHW funding must meet the requirements for both MBP and Tax Credits, including those described in the Maryland Qualified Allocation Plan (QAP) and Multifamily Rental Financing Program Guide (Guide).

RHW funding requests will be evaluated and processed in conjunction with the project’s MBP and Tax Credit application. For RHW projects also requesting other DHCD sources of funding, such as Partnership Rental Housing Program (PRHP), EmPOWER or other energy efficiency programs, the projects must also meet the criteria for these additional funding sources.

RHW Requirements

RHW funding is governed by the laws (statutes, regulations and the Guide) applicable to MBP, with the following changes:

  • RHW loans shall be subordinate loans with the terms and conditions described below and will be funded from State general obligation bonds and not CDA bond proceeds.
  • RHW must be used in conjunction with DHCD’s tax-exempt bonds and 4% LIHTC and RHW applications should be submitted in conjunction with a MBP application.
  • RHW loans may not be used as cash collateral for short-term bonds
  • RHW loans are not subject to the requirements of MBP that are strictly applicable to the issuance of tax-exempt bonds.
  • In addition to meeting DHCD’s MBP, LIHTCs, and RHF requirements, RHW applicants must satisfy the following additional threshold criteria:
    • Required zoning for use and density of development must be in place at the time of application and properly documented. A letter from the local zoning office would be proper documentation. An approved PUD resolution or a local jurisdiction’s equivalent to a PUD resolution satisfies this requirement. Development or site plan approval is not required at application. Conditional use or special exception approval also is not required at threshold and is up to the developer to obtain before closing.
    • The award of any competitive public and private sources of funding necessary for the project’s financial feasibility must have been made; and
    • The project’s projected FTE must be documented using the FTE Job Calculator .
  • The Board of Public Works must approve all RHW funding awards because the source of the RHW funding is general obligation bonds.

Requests for RHW Funding

RHW began accepting applications on May 14, 2012. RHW Applications are accepted on an ongoing basis in conjunction with an application for the MBP and 4% LIHTC.

Application Processing

The RHW Application Form is attached to this notice and may be downloaded from the DHCD website at: http://www.mdhousing.org/website/programs/RHW/documents/RHW_application.docx

  • RHW applicants must submit and sign the RHW Application Form and provide the required threshold documentation, including the number of full time equivalent (FTE) jobs created by the project. FTE per project will be determined using DHCD’s Resource Allocation Model (RAM). The FTE Job Calculator to determine FTE is available at: http://www.mdhousing.org/website/programs/RHW/documents/RHW_calculator.xls
  • DHCD will track applications based on date of receipt.
  • Applications will be reviewed in conjunction with MBP applications.
  • If the project does not meet the RHW threshold criteria, the RHW application shall be rejected and removed from processing, and the Applicant notified in writing.
  • The rejection notice shall state the reason the application has been rejected.
  • The Applicant may address the threshold issues and submit a new application, which will receive a new date of receipt.
  • Projects that pass threshold will be scored using the Evaluation Criteria in the Guide and must meet the scoring criteria for bond loans as outlined in the Guide.
  • Kick-off meetings will be scheduled for MBP/RHW projects after scoring is complete.
  • At the kick-off meeting, a timeline and critical path schedule will be distributed.
  • Projects must proceed in accordance with the agreed-upon schedule.
  • Projects that fail to meet processing timeframes or encounter financing gaps or other issues that affect threshold or financial feasibility may be withdrawn from processing until such problems are addressed.
  • Projects will be funded on a “first-ready, first served” basis.

Applicants should be aware that failure to meet processing timeframes and requirements for the Multifamily Bond Program, RHW, and other necessary sources of funding for the project may affect the project’s ability to receive RHW funding.

Limitations on RHW Funding Amounts

The maximum amount of DHCD State loans per RHW project is $2.5 million. This limit does not apply to Partnership Rental Housing Program funds, Empower or other energy efficiency funding, or the assumption of existing DHCD debt. DHCD may waive this maximum loan limit in accordance with COMAR 05.05.02 and the Multifamily Rental Financing Program Guide. Generally, increases in the RHW loan amount above the $2.5 million limit will be limited to circumstances addressing:

  • unexpected interest rate volatility affecting a project’s financial feasibility;
  • a need to balance various DHCD resources, which may increase RHW funding for a project with a corresponding decrease in another DHCD funding source;or
  • the opportunity to support a project with significant economic impact and job creation.

Loan Terms

DHCD expects repayment of its RHW loans on an amortizing basis from surplus cash and reserves the right to adjust loan terms based on its underwriting and subsidy layering reviews. It will generally provide RHW loans under the following terms:

  • Loans will be provided with a 40 year term but will be due on sale, refinancing, any voluntary or involuntary transfer of the property or the occurrence of an event of default;
  • 2% simple interest will be charged; and
  • Payments to DHCD will be limited to 75% of annual cash flow.

In the alternative, DHCD has developed an alternate method of repayment of its RHW loans as described below. DHCD reserves the right to adjust these loan terms based on its underwriting and subsidy layering reviews. DHCD will not apply these terms retroactively to RHW loans approved and closed before the effective date of this updated Guidance. The project sponsor may choose whether to follow the alternate repayment method described below to repay its RHW loan. This choice generally must occur prior to DHCD’s issuance of a commitment letter for the loan.

The alternative RHW loan terms include the following provisions:

  • Loans will be provided with a 40 year term but will be due on sale, refinancing, and any voluntary or involuntary transfer of the property or the occurrence of an event of default.
  • 0% interest will be charged.
  • DHCD surplus cash splits will generally be between 50% and 75% of annual surplus cash, depending on outstanding deferred developer fees and soft debt participation by the local government.
    • Borrower’s surplus cash split will be a minimum of 25% and will range between 25% and 50%.
    • Local government surplus cash split will vary based on the amount and terms of the local capital contribution. If the local government’s capital contribution equals or exceeds $250,000 and is on the same or better terms than DHCD’s loan terms, the local government will share cash flow proportionately with DHCD up to a maximum of 25%. If the local government’s capital contribution (share of soft debt) is greater than 60% of the project’s total public subordinate debt, DHCD will share the available surplus cash on a 50/50 basis with the local government.
    • Until deferred developer fees are paid, DHCD will take only 50% of surplus cash and the remaining surplus cash (portion not paid to local government) will be paid to the borrower.
    • The surplus cash payments to DHCD and the local governments will not be limited to the annual amounts which would be due had the loan been a fully amortizing loan and additional payments will be applied to the principal outstanding.
  • DHCD and local governments may require equity participation or contingent interest agreements with borrowers to share in the proceeds generated by the sale, refinancing or other disposition of assets of the project.

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