CHDO 101

Community Housing Development Organization

(CHDO) Roles

“One of the newest figures to emerge on the world stage in recent years is the social entrepreneur. This is usually someone who burns with desire to make a positive social impact on the world, but believes that the best way of doing it is, as the saying goes, not by giving poor people a fish and feeding them for a day, but by teaching them to fish, in hopes of feeding them for a lifetime. I have come to know several social entrepreneurs in recent years, and most combine a business school brain with a social worker's heart. The triple convergence and the flattening of the world have been a godsend for them. Those who get it and are adapting to it have begun launching some very innovative projects.” - Thomas Friedman, The World is Flat: A Brief History of the 21st Century

Why These Sessions Are Important

Starting with 2017 funding rounds, IHCDA will amend its policies in a way that will give a significant advantage to IHCDA-certified

CHDOs.

Topics To Be Covered

• CHDO Roles

• Capacity Self-Assessment

• IHCDA’s New CHDO Program Policies

– Predevelopment

– Operating Supplement

– Set-Aside for Development Projects

– CHDO Proceeds

What is a CHDO

• Community Housing Development Organization – also known as CHDO

• It is a special kind of non-profit organization that meets certain organizational requirements

• CHDOs are certified by IHCDA

• Special streams of funding are made available to IHCDA-certified CHDOs

Why Are CHDOs Important

• IHCDA must reserve not less than 15% of its HOME allocation each year for investment in housing to be developed, sponsored or owned by CHDOs

CHDO Certification Subpart A, Section 92.2

Governing board of not less than 1/3 low-income persons & not more than 1/3 public officials

501c3 or c4 ruling from IRS

Among its purposes the provision of decent housing that is affordable to low and moderate income persons (charter, articles of incorporation, resolutions, or by-laws)

CHDO Certification Requirements (cont’d)

Demonstrated capacity for carrying out activities assisted with HOME funds

History of serving the community in which the HOME assisted housing is located for a minimum of one year

CHDO Activities - Homebuyer

• Acquisition and/or Rehabilitation of Homebuyer Properties

• New Construction of Homebuyer Properties

• Direct Financial Assistance to Purchasers of HOME-assisted housing that has been developed with HOME funds by the CHDO

CHDO Activities - Rental

• Acquisition and/or Rehabilitation of Rental Housing

• New Construction of Rental Housing

Sub-recipients are not CHDOs

But if you’re already a HOME sub-recipient, becoming a CHDO is

something to seriously consider.

CHDO vs. Sub-recipients

• A subrecipient is a public agency or nonprofit organization that is selected to administer all or a portion of IHCDA’s HOME program activities.

• A CHDO is a special nonprofit that meets certain qualifying criteria

CHDO vs. Sub-recipient Requirements

• Audit requirements may be different

• Conflict of interest provisions (92.356) do not apply to CHDOs, except 92.356(f)

• CHDOs must take on specific roles in order to qualify as a CHDO eligible activity

CHDO Roles

Roles a CHDO Must Play

• CHDO must act as one of the following as part of an eligible set-aside activity

– Owner

– Developer

– Sponsor

Eligible CHDO Activities

• Homebuyer

– Acquisition/Rehab of homebuyer properties

– New construction of homebuyer properties

– Direct financial assistance

• Rental

– Acquisition/Rehab of rental housing

– New construction of rental housing

Homebuyer – CHDO Developed

• Involves development of new or rehabbed housing that will be sold by the CHDO to low-income buyers

• CHDO must solely own the property in fee simple during the development period

• CHDO must be in control of the development project, including at a minimum – Arranging financing for the project; AND

– Being in sole charge of construction

Homebuyer Program Tips

• Find your buyer 1st

– Homebuyer Education

– Down Payment Assistance

– Mortgage Financing

• Invest in the services of a good architect

– Show final reveal

– Work with buyer to customize the product

Homebuyer Program Best Practice

817 W. Charles

What Did You See That You Liked?

Please enter your comments into the conversation pane.

Rental – CHDO Owned

• Involves a HOME-assisted rental project

• CHDO must solely own the property in fee simple

• CHDO will solely own the property for the required affordability period

Rental – CHDO Owned (cont’d)

• CHDO will EITHER – Acquire standard housing to be rented to income

eligible tenants; OR

– Hire a developer/project manager to oversee development of new or rehabbed housing

• PM will, at a minimum: – Obtain zoning & other local approvals;

– Secure non-HOME financing;

– Manage the selection of a GC/builder;

– Oversee work progress including cost reasonableness

Rental – CHDO Developed

• Involves development of new or rehabbed rental housing that will be leased to income eligible tenants

• CHDO must solely own the property in fee simple during development period; and

• Will solely own property for required POA

Rental – CHDO Developed (cont’d)

• CHDO must be in sole charge of development process, including

– Obtaining zoning & other approvals

– Obtaining other non-HOME financing needed for the project

– Selecting architects, engineers, GCs, & other members of the development team; and

– Overseeing progress of work & determining cost reasonableness

Rental Project Example

• Former transitional housing provider

• Working to better align with HUD’s focus on permanent supportive housing

• Owns 40+ properties in need of rehab

• Major undertaking, expensive, limited assistance available

• HOME funds? CHDO funds?

Rental – CHDO Sponsored / Affiliate Developed

• Project involves development of new or rehabbed rental housing to be leased to income eligible tenants

• Eligible types of CHDO affiliates include: – CHDO’s wholly owned subsidiary

– CHDO/wholly owned subsidiary will be sole general partner of limited partnership

– CHDO/wholly owned subsidiary will be sole managing partner of limited liability company

Rental – CHDO Sponsored / Affiliate Developed (cont’d)

• Affiliate must solely own the property in fee simple during development period

• Affiliate must solely own the property for the required POA

• Affiliate must be in sole charge of the development process – Obtaining zoning & other approvals – Obtaining non-HOME financing needed for the project – Selecting architects, engineers, GCs & other members of

the development team – Overseeing progress of work & determining cost

reasonableness

Rental – CHDO Sponsored / Affiliate Owned

• Project involves a HOME-assisted rental project

• Eligible CHDO affiliate owns the project

– CHDO’s wholly owned subsidiary

– CHDO/wholly owned subsidiary will be sole general partner of limited partnership

– CHDO/wholly owned subsidiary will be sole managing member of limited liability company

Rental – CHDO Sponsored / Affiliate Owned (cont’d)

• Affiliate must solely own the property in fee simple

• Affiliate must solely own the property for the required POA

Rental – CHDO Sponsored / Affiliate Owned (cont’d)

• CHDO will EITHER – Acquire standard housing (must meet property

standards) that will be rented to income eligible tenants; OR

– Hire a PM/developer to oversee development of new/rehabbed housing, who will • Obtain zoning & other local approvals

• Secure non-HOME financing

• Manage the selection of a GC/builder

• Oversee work progress including cost reasonableness

Rental – CHDO Sponsored/Turnkey

• Project involves development of new or rehabbed rental housing that will be transferred by the CHDO to another nonprofit upon completion & leased to income eligible tenants

• Nonprofit receiving property upon completion must be – Identified prior to CHDO commitment – Not be created by a governmental entity; and – Assume ownership & all HOME obligations, including

loan repayment requirements, at a specified time following completion of the development

Rental – CHDO Sponsored / Turnkey (cont’d)

• CHDO must own property in fee simple

• CHDO must be in sole charge of the development process, including – Obtaining zoning & other approvals

– Obtaining other non-HOME financing needed for the project

– Selecting architects, engineers, GCs & other members of the development team; and

– Overseeing progress of work & determining cost reasonableness

Rental – CHDO Sponsored / Turnkey (cont’d)

• If identified nonprofit does not assume ownership as planned, CHDO must maintain ownership for the affordability period

Eligible Project Expenses & Fees

• Pre-Development

• Acquisition & Rehab / New Construction

• Developer Fees

• Project Delivery Costs

CHDO Self-Assessment

Is your CHDO prepared to take on one of these roles?

Considerations – Rental

• Ability to manage affordable rental housing projects

• Similar project location, size & scope

• Using multiple subsidies

Considerations –Rental (cont’d)

• History working together

• Similar type of construction

• Developing affordable housing

• Reputation

Skills to Consider - Rental

• Project management

• Market analysis

• Site selection & control

• Design, architecture & engineering

Skills to Consider – Rental (cont’d)

• Planning & construction

• Property management

• Legal & Accounting

• HOME / IHCDA rules

• LIHTC/Other rules

Development Team’s Fiscal Soundness

• Demonstrate financial ability to complete the project (development) & support project (operations)

• Provide evidence of available capital

– Current financial statements

– Need sufficient reserves/LOC to complete project

• Demonstrate stability of the project through pro-forma

Assessments of New Developers

• Capacity of staff

• Use of experts

• Capacity of contractor

• Other team members

• Rental is extremely complex – should a new CHDO with limit experience be considered?

Note on “Use of Experts”

• Sole use of consultants to demonstrate capacity is no longer allowed

• CHDO must have paid staff

Key Areas to be Assessed

• CHDO’s handle on:

– the community’s housing needs

– Market

– Tolerance for risk

Questions so far?

Please enter them into the conversation pane on the right-

hand side of your screen.

FAQ: Ineligible CHDO Activities

• Tenant-based rental assistance

• Homeowner Rehabilitation

• Brokering or other real estate transaction

Let’s Play Name that Role!

Name that Role!

• A CHDO owns the property and contracts with a for-profit to act as developer, and to construct a new housing unit. After completion of the development, the CHDO will retain ownership of the property.

• What’s the CHDO’s Role?

Owner!

Name that Role!

• CHDO owns a property in partnership with a majority interest. In partnership with a wholly owned for-profit subsidiary, the CHDO is involved in all decisions regarding the partnership.

This project is not a CHDO activity because the CHDO must be in decision-making

authority of the project

Name that Role!

• CHDO owns the property and obtains financing & rehabilitates a housing unit.

Developer!

Name that Role!

• CHDO does not own the property, but has a contractual obligation with the owner to obtain financing & complete the rehab for a housing development project. CHDO agrees to assume all risks & rewards associated with this role.

Developer!

Name that Role!

• CHDO enters into a legally binding agreement with Senior Services, an existing nonprofit organization experienced in providing enhanced housing services for the elderly. CHDO agrees to purchase and rehab a vacant 50-unit property and convey the property to Senior Services upon completion of the construction phase. Senior services will assume responsibility for the fulfillment of all obligations and requirements associated with the use of HOME funds.

Sponsor!

Questions?

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Upcoming CHDO Sessions

• 2/8/17 - CHDO Board 1.0 – CHDO Board Accountability

• 3/7/17 - CHDO Board 2.0 – Board Succession Planning

• 3/23/17 - CHDO Board 3.0 – Board Financial Management & Managing Conflicts of Interest

More Sessions to Come!

• 4/11/17 - HOME Rental Guidelines

• 4/27/17 - HOME Homebuyer Guidelines

• 5/10/17 – Project Planning for HOME 1.0 – How to Access Pre-Development Seed Money

• 5/24/17 – Project Planning for HOME 2.0 – Working with the Local Community

• 6/13/17 – Capacity Building 1.0 – Organizational Financing & Project Pipeline

Tools & Resources

• Like us on Facebook

• HUD Webpage for CHDOs: http://www.hud.gov/offices/cpd/affordablehousing/programs/home/topical/chdo.cfm