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Affordable HousingProgram&Underwriting GuidelinesApril 2014
Affordable Housing Program & UnderwritingGuidelinesTable of ContentsINTRODUCTION . 6Purpose . 6Policy Objectives. 6DEFINITIONS . 7DISCLAIMERS. 10FEDERAL AND OTHER REGULATIONS . 11Identity of Interest Transactions . 12ELIGIBILITY . 13Eligible Activities & Costs . 13Eligible Applicants . 14Minimum Project Requirements . 14Ineligible Costs . 14GENERAL PROJECT REQUIREMENTS . 15Site Control. 15Appraisal . 15Reasonable Costs. 15Work Write-Ups . 16Cost Estimate . 16Procurement . 16Debarment and Suspension . 16Davis Bacon Weekly Payrolls . 16Affirmative Marketing. 16Waiver Requests .17AFFORDABILITY REQUIREMENTS .17Assisted Units.17Affordability Period .17Income Determination Method . 18Income Recertification Schedule. 18Occupancy & Rent Restrictions . 19April 20142
Affordable Housing Program & UnderwritingGuidelinesGeneral Restrictions . 19HOME Assisted Units . 19CDBG Assisted Property and Units: . 20Temporary Exceptions to Rent Limitations . 20UNDERWRITING GUIDELINES . 20General . 20Types of Development and Limits . 20Acquisition Only . 20Acquisition and Rehabilitation . 21New Construction . 21Financing . 21Amortized Loans . 21Deferred Payment Loans . 21Forgivable Loans . 22Grants . 22Non-Interest Bearing Loans . 22Surplus Cash Loan . 22Market Analysis . 23Subsidy Layering . 23Developer Capacity . 24Developer Fee . 24Reserves and Operating Expenses . 25Loan Position: Subordination to Senior Debt . 25Loan-to-Value Limits . 25Debt Service Coverage Ratio (DSCR) . 26Inter-Creditor Agreement. 26Funding Conditions - Pre-Development Phase: . 26Funding Conditions - Acquisition Phase . 26Funding Conditions - Construction Phase . 26Loan Repayment . 26Assignment . 27Recourse . 27April 20143
Affordable Housing Program & UnderwritingGuidelinesSITE SELECTION AND NEIGHBORHOOD COMPATIBILITY . 27Site Design Principles . 27Affordable Multi-Unit Family and Senior HousingConcentration Policy . 27Proximity to Site Amenities . 28Connectivity Requirements and Proximity to Transportation. 28Proximity to Negative Site Features . 28Zoning . 28Building Placement . 29Open Space . 29Sidewalks & Bike Facilities. 29Parking . 29Landscaping . 30Lighting . 30DEVELOPMENT REQUIREMENTS . 30Minimum Units . 30Code Compliance. 30Capital Needs Assessment . 30Sustainability and Energy Efficiency. 31Accessible and Adaptable Units . 31Acquisition of Existing Units (not slated for Demolition) andRehabilitation Projects . 31New Construction . 31Distribution of Accessible Units . 31Occupancy of Accessible Dwelling Units Policy . 32Development in the Floodplain . 32APPLICATION PROCESS . 32Pre-Application Meeting . 32Submission and Requirements . 33Evaluation . 33Notification . 34LOAN PROCESS . 35April 20144
Affordable Housing Program & UnderwritingGuidelinesDocuments . 35Loan Funding . 35REPORTING . 36MONITORING . 36DEFAULT ACTIONS AND SANCTIONS . 37April 20145
Affordable Housing Program & UnderwritingGuidelinesINTRODUCTIONThe City of Colorado Springs, Housing Development Division (HDD) administersfederal funds received from the US Department of Housing and UrbanDevelopment (HUD). The City receives funding under the Community DevelopmentBlock Grant Program (CDBG), the HOME Investment Partnerships Program (HOME)and the Emergency Solutions Grant (ESG). The City uses the funds to preserveneighborhoods, create and preserve affordable housing and stimulate economicrevitalization.PurposeThe purpose of the Affordable Housing Program & Underwriting Guidelines is toidentify the City’s affordable rental housing policy objectives, describe the activitiesavailable to advance the objectives and the manner in which the activities will beevaluated, underwritten, and selected for funding. The guidelines are intended toachieve compliance with federal, state and local regulations and set the standardsfor all affordable rental housing projects funded by the City of Colorado Springs,regardless of funding source.Policy ObjectivesThe City’s 2010-2014 Consolidated Plan and associated Annual Action Plansestablish the policy objectives for the Rental Housing Program. To receive federalfunding under the abovementioned programs, HUD requires that the City submit afive-year Consolidated Plan, which describes the City’s priorities and objectives foreach funding source. Additionally, the City must submit an Annual Action Plan foreach year of the Consolidated Plan. The Annual Action Plan identifies the activitiesthat will be funded during each fiscal year and the amount of funding allocated toeach activity.Per the 2010-2014 Consolidated Plan, The City’s policy objectives include:1. Supporting local affordable housing development and preservation2. Increasing the supply of affordable housing (rental and homeownership)3. Support a housing continuum that includes support to those agencies thatprovide emergency, transitional, permanent supportive and permanentaffordable housing opportunities in the community4. Increase funding opportunities, as appropriate, for affordable and accessiblehousing for special needs populations.April 20146
Affordable Housing Program & UnderwritingGuidelines5. Support neighborhood preservation through capital improvements,infrastructure and housing preservation activities in designatedneighborhood strategy areas6. Support local efforts to assure that households in crisis are able to obtainand/or maintain housing stabilityDEFINITIONSThe following terms are defined for the purpose of this document:Accessible – as defined by Section 504 of the Rehabilitation Act of 1973, accessibledwelling units or facilities are located on an accessible route and can beapproached, entered and used by individuals with physical disabilities.Adaptable units – certain elements of a dwelling unit or facility can be added to,raised, lowered or altered to accommodate the needs of individuals withdisabilities, or to accommodate the needs of persons with different types ordegrees of disability.Adjusted Income – gross household income limit that has been modified accordingto the number of persons residing within a dwelling unit.Affordable Housing – in general, housing for which the household is paying no morethan 30 percent of its income for gross housing costs, including glossary a.html)AMI – Area Median IncomeCommunity Housing and Development Organization (CHDO) - a type of non-profit,community based service organization that has, as part of its mission, thedevelopment of affordable housing for low- and moderate-income households.HUD requires the organization to meet certain requirements to be classified as aCHDO. See CHDO application for more information.Capital Needs Assessment – rehabilitation activities required to bring a building(s)into compliance with Property Rehabilitation Standards (PRS) or UniformPhysical Condition Standards and other standards as required by HUD.City – City of Colorado SpringsApril 20147
Affordable Housing Program & UnderwritingGuidelinesDebt Coverage Ratio (DCR) – the ratio of net operating income (NOI) to total debtservice (DS) during a given time period (DCR NOI DS).Debt Service – required minimum monthly loan payment of principal and interest.Disability – any person who has a physical or mental impairment that substantiallylimits one or more major life activities; has a record of such impairment; or isregarded as having such an impairment.Eligible Costs – project costs that can be paid with HDD funds. Costs include, but arenot limited to, costs or partial costs of acquisition, verifiable hardconstruction costs, reasonable soft costs, architectural and engineering fees,surveys, market studies, legal fee and materials testing.Extremely Low Income – households whose income is less than 30% of the medianincome for the Colorado Springs Metropolitan Statistical Area (MSA), asdetermined by HUD, with adjustments for smaller or larger families.Fair Market Rents – rental rates as established and updated periodically by HUDthat are determined to be fair, affordable and appropriate rents for ageographical area.HDD – City of Colorado Springs Housing Development DivisionHOME Rent – rental rates established by HUD as fair, affordable and appropriaterents for a geographical area. HOME Rents apply to HOME funded projectsand are revised periodically by HUD.Homeless and Chronically Homeless – as defined in The Homeless EmergencyAssistance and Rapid Transition to Housing Act of 2009 (HEARTH Act) (24 CFR578.3).Household – all persons who occupy a housing unit. The occupants may be a singlefamily, one person living alone, two or more families living together, or anyother group of related or unrelated persons who share living arrangements(24 CFR 570.3).HUD – U.S. Department of Housing and Urban DevelopmentIncome – all reference to “Income” shall mean the annual income as defined in 24CFR 5.609, referred to as "Part 5 annual income"April 20148
Affordable Housing Program & UnderwritingGuidelinesLow Income – households whose incomes are between 51% and 80% of the medianincome for the Colorado Springs Metropolitan Statistical Area (MSA), asdetermined by HUD, with adjustments for smaller or larger families.LMI – low- and moderate-income household. A household having an income equalto or less than the Section 8 low-income limit established by HUD.Moderate Income – households whose incomes are between 81% and 95% of themedian income for the Colorado Springs Metropolitan Statistical Area (MSA),as determined by HUD, with adjustments for smaller or larger families.Neighborhood Strategy Area (NSA) – older areas of the City designated forstrategies to preserve and improve neighborhoods.Net Operating Income (NOI) – income stream generated by the operation of theproperty, independent of external factors such as financing, depreciation,amortization, and income taxes. A property's yearly gross income lessoperating expenses. Gross income includes both rental income and otherincome such as parking fees, laundry and vending receipts, etc. Operatingexpenses are costs incurred during the operation and maintenance of aproperty. They include repairs and maintenance, as well as insurance,management fees, utilities, supplies, property taxes, etc. The following arenot operating expenses: principal and interest, capital expenditures,depreciation, income taxes, and amortization of loan points.Non-profit organization – a not-for-profit, non-sectarian organization which isdesignated by the Internal Revenue Service (IRS) under Section 501(c)(3), as atax-exempt organization.Permanent Housing – housing in which the program participant must be the tenanton a lease for a term of at least one year, which is renewable for terms thatare a minimum of one month long and is terminable only for cause.Permanent Supportive Housing – permanent housing in which supportive servicesare provided to assist special needs populations to live independently.Program Income – gross income received by the subrecipient directly generatedfrom the use of CDBG or HOME funds with some exceptions. (24 CFR 570.500and 24 CFR 92.2))Single Family Housing – a one - to four-family residence, condominium unit,cooperative unit, combination of manufactured housing (including a mobileApril 20149
Affordable Housing Program & UnderwritingGuidelineshome) and lot, or manufactured housing lot. (24 CFR 92.2 & Building HOME 4-1)Special Needs Housing – supportive housing that is designed to meet the housingand service needs of a target special needs population and providessupportive services for residents.Special Needs Populations – homeless persons, larger families (requiring 3 and 4bedrooms) victims of domestic violence, persons recovering from substanceabuse, seniors, veterans and persons with disabilities.Supportive Services – services provided to individuals with special needs whichenable individuals to achieve a greater level of independence and/or selfsufficiency such as health services, housing counseling, employmentcounseling and referral and other services as defined at 24 CFR Section882.802.Transitional Housing – housing where all program participants have signed a leaseor occupancy agreement, the purpose of which is to facilitate the movementof homeless individuals and families into permanent housing within 24months and includes supportive services. The program participant must havea lease or occupancy agreement for a term of at least one month that ends ina maximum of 24 months and cannot be extended.Uniform Physical Condition Standards (UPCS) – the inspection protocol that is usedto evaluate the condition of housing.Very Low Income – households whose income is greater than 30% and less than orequal to 50% of median income for the Colorado Springs MetropolitanStatistical Area (MSA), as determined by HUD, with adjustments for smalleror larger families.DISCLAIMERSThe City of Colorado Springs reserves the right to fund projects at a lower amountthan requested, and the right to deny applications that are not consistent with theCity’s FY 2014-2015 Action Plan goals and policy direction. The City is under noobligation to consider or fund any proposed project that does not demonstratecompliance with national objectives and eligible activities or local programrequirements and does not assist in meeting the City’s affordable housing policygoals and/or objectives.April 201410
Affordable Housing Program & UnderwritingGuidelinesThe City reserves the right to determine project eligibility and select the projectsource to be used for any proposed project. Funding decisions will be based on avariety of factors, not just application scores. Other factors considered are:1. Operational and management capacity of the applicant2. Financial capacity3. The project’s potential for transformative impact on the residents andsurrounding community4. Repayment of funds borrowed from HDD5. Whether the request for funding is for a project that has been previouslyawarded HDD funds6. Dedication of other sources of public and private investment7. HDD will consider how the HDD programs can best maximize the effect ofthe fundingThe Affordable Housing Program and Underwriting Guidelines are not intended toaddress every circumstance that may be encountered in the development process,nor are they a verbatim restatement of all regulatory requirements. Omission ofany federal or local regulatory requirements does not relieve the City or theapplicant from their respective obligations that may be required by the fundingsource.Once a loan agreement has been executed between the City and applicant for thepurpose of developing rental housing according to these guidelines, in case of anyconflict between the program guidelines and the loan agreement, the terms of theloan agreement shall prevail.HDD program guideline changes as a result of federal, state or local regulatory orlegal requirements may be implemented immediately by the Division Manager.Revision of the program guidelines usually occurs annually; however, additionalrevisions can be initiated by the Division Manager at any time. While stakeholderoutreach is the goal of HDD, such revisions may occur without notice and areapplicable to all pending and future applications. Applicants are responsible forcomplying with any changes.FEDERAL AND OTHER REGULATIONSApplicants must comply with all state and federal regulations related to theconstruction, rehabilitation or provision of housing. These regulations include, butare not limited to:April 201411
Affordable Housing Program & UnderwritingGuidelines Community Development Block Grant – CDBGHome Investment Partnerships Program – HOMETitle III of the Americans with Disabilities Act (ADA) of 1990Section 504 of the Rehabilitation Act of 1973Architectural Barriers Act of 1968 – ABAFair Housing ActDavis-Bacon and Related ActsCopeland Anti-Kickback Act of 1934Conflict of Interest RequirementsIdentity of Interest TransactionsEnvironmental RequirementsThe Lead-Based Paint Poisoning Prevention Act and Lead Safe Housing RuleOMB Circulars A-87, A-102, A-133Section 3 - Economic Opportunities for Low and Very Low Income PersonsUniform Relocation Act - URADO NOT MOVE ANY DIRT ON THE SITE OR BEGIN ANY CONSTRUCTION!PLEASE BE AWARE: Once an application has been received by HDD, the projectmust be in compliance with all federal environmental regulations. During thereview period, neither an applicant nor any participant in the developmentprocess, including public or private non-profit or for-profit entities or any of theircontractors may commit or expend any funds, including non-HUD funds, orundertake any activities having either an adverse environmental impact orlimitation on the choice of reasonable alternative. If any funds (public or private)are spent or committed to a development prior to the completion of theenvironmental process, HDD cannot provide federal funding for the project.Identity of Interest TransactionsIdentity of interest refers to situations where the owner, developer or projectsponsor control or own the services to be provided in a project, including, but notlimited to the general contractor, subcontractor, property manager or other serviceprovider. A declaration of subcontractors or suppliers for which there is an identityof interest through joint ownership with the owner or developer must be declaredin the application for funding to HDD. Failure to declare an identity of interestsituation may deem a project ineligible.April 201412
Affordable Housing Program & UnderwritingGuidelinesELIGIBILITYEligible Activities & Costs Acquisition* New construction* Rehabilitation To include essential repairs or improvements to meet local code andUniform Physical Conditions Standards, major systems repair orreplacement, accessibility improvements (ADA, Section 504),abatement of hazardous materials, energy efficiency improvements.Homeless shelters are not eligible. Soft Costs: architectural and engineering fees, financing costs, creditreports, title insurance, recording costs, transaction taxes, appraisals,environmental reviews and builder or developer fees. Project-related softcosts may be awarded on a limited basis and will be at the recommendationof staff and based on need determined during the underwriting review. Operating deficit reserve, up to 18-month, for rental and new constructionprojects for the initial rent-up period. The reserve may be used to pay forproject operating expenses, scheduled payments to a replacement reserveand debt service.It is outside current policy to deliver award proceeds prior to acquisition orcompletion of construction/rehabilitation of the subject property. However, costsincurred prior to settlement of the award may be reimbursed under specificcircumstances. If HOME funds are used to pay off a construction loan, bridgefinancing, or guaranteed loan, the payment of principal and interest for such loan isan eligible cost only if:1. The loan was used for eligible costs specified in this sectionAND2. The HOME assistance is part of the original financing for the project and theproject meets the requirements of the program.*One for One Replacement – If the applicant proposes to demolish units that are occupiableby low- and moderate-income households, these units must be replaced at the developmentsite or at another HDD approved site.April 201413
Affordable Housing Program & UnderwritingGuidelinesEligible Applicants For-profit, non-profit and quasi-public developers with a documentedcapacity to construct (or rehabilitate) and operate multifamily housing thatbenefit extremely low to low-income households Applicants and applicant’s team members must be in good standing withthe City on all previous grants, loans or loan commitments Applicants must affirm that there are no defaults or negative collectionactions relating to any financial obligation, either to the City of ColoradoSprings or to any other public agency or private lender Applicant cannot be on any local, state or federal debarment list No applicant, developer or contractor with compliance issues outstandingwith the City or other public agencies can participate The applicant cannot have any outstanding tax liens on any properties onproperties owned and operated by the applicantThe City may seek references from other lenders, partners, or public agencieswith which the applicant has done business.Minimum Project Requirements Located in the City of Colorado Springs city limits Project must consist of 1 or more residential units Acquisition ONLY projects must meet the Uniform Physical ConditionStandards (UPCS) and have amenities that will allow it to competeeffectively in the local market area as determined by HDD Acquisition and rehabilitation or rehabilitation projects must Meet the UPCS Have amenities that will allow it to compete effectively in the localmarket area as determined by HDD Upon completion pass the Uniform Physical Conditions Standards Complete a third party Capital Needs Assessment (CNA) Project must meet HUD environmental review requirements As determined applicable by HDD, assisted units must be made available tohouseholds with Housing Vouchers from the Colorado Springs HousingAuthorityIneligible CostsProject components may be deemed non-essential elements by HDD and thereforeremoved from the total project cost. Such items may include, but are not limitedto:April 201414
Affordable Housing Program & UnderwritingGuidelines Carpeting for kitchens, bathrooms or patios; window treatments;dumbwaiters; greenhouses, hot tubs or whirlpool baths; mobile homes;outdoor fireplaces or hearths; swimming pools or swimming pool decks(except repair of existing); television antennae; tennis courts; or itemsdeemed to be a luxury.GENERAL PROJECT REQUIREMENTSThe following are general project requirements for all applicants seeking fundingfrom HDD for housing related projects.Site ControlProject applicants must have control of any site that will receive HDD funding foracquisition, rehabilitation and new construction activities. Site control must bedocumented at the time of application. To document site control one of thefollowing must be submitted: a deed or other proof of ownership; an executedlease agreement; an executed contract of sale; or an executed option to purchaseor lease. Please keep in mind URA regulations apply and must be followed orapplications cannot be considered for funding. Please see the URA checklist on theHDD webpage for guidance.AppraisalA property appraisal may be required for projects that will receive HDD fun
The City of Colorado Springs, Housing Development Division (HDD) administers federal funds received from the US Department of Housing and Urban Development (HUD). The City receives funding under the Community Development Block Grant Program (CDBG), the HOME Investment Partnerships Program (HOME) and the Emergency Solutions Grant (ESG).
