How We Work, Pt. 1: Underwriting the Deal
By Marcus Smith
How We Work is a new series that takes you inside CHFA’s multifamily department, explaining the “who”, “why” and “how” of all that we do.
Put simply, CHFA’s mission is to create and preserve affordable housing for Connecticut’s low and moderate income families and individuals. We exist to support the important efforts of organizations to build and maintain affordable housing in towns and cities across the state. And while that mission has been upheld since 1969, how we work to uphold it has changed considerably over the years. Resources have come and gone. Housing policies continue to evolve and the state’s economy continues to shift. But amidst this constant change, CHFA strives to ensure that our singular mission remains the focus of our work.
We recently updated our core Values to better align them with our vision for the future of housing. These Values are embedded in everything we do. And over the next several issues of Developing Partnerships, we will highlight how the CHFA Multifamily team embodies these Values in the performance of its most critical role: the financing of affordable multifamily housing that improves communities and changes lives. In the “How We Work” series, we will follow an application from submission to Board approval, and demonstrate the steps taken to bring these developments to life.
First up: Underwriting the Deal.
CHFA offers two basic types of support for affordable housing development: financing (both construction and permanent) and tax credits (either the federal Low-Income Housing Tax Credit program or the state’s Housing Tax Credit Contribution program). This financing is typically made available in specific rounds, like the annual 9% LIHTC round that is offered each fall. However, certain programs like the 4% LIHTC program are open for application on a rolling basis. Applications are submitted using the Consolidated Application (or “ConApp”), a streamlined application jointly administered with the CT Department of Housing that allows developers and owners of multifamily housing to use one application format for mortgage loan financing, tax credit allocations and other sources of funding.
While the application submission is often seen as the starting point, applicants spend months (sometimes years) crafting their development’s scope and refining their numbers. Architectural and engineering drawings and specifications, cash flow projections, planning and zoning approvals, environmental and hazardous materials reports — these are just a small sample of the massive amount of energy and investment that goes into just one development proposal. And it is our job to review and analyze these materials as efficiently and effectively as possible.
Once an application is received, an underwriter is assigned to pilot the project through the entire review process, serving as the point of contact for the applicant’s development team. During the initial stage, CHFA’s review team will determine whether the application meets threshold requirements as identified in the ConApp and the notice of funding availability. Our technical services team thoroughly reviews the application with an eye on the technical, architectural and construction elements including the hard costs presented. Technical services reviews engineering, environmental and hazardous materials reports to identify any concerns that could impact hard costs or pose problems during construction. The team also reviews the architectural and engineering drawings and specifications to ensure that the proposed development adheres to the CHFA Multifamily Design, Construction and Sustainability Standards and guidelines and to confirm that the proposed construction costs are consistent with the current economic trends of the regional construction industry and historical data compiled by CHFA.
If an application is seeking funding to renovate an existing building that is currently in CHFA’s portfolio, our Asset Management staff will be consulted during the review to offer greater context into the life of the building, as well as the history of property management and resident engagement. Additionally, CHFA’s Development and Technical Services teams will provide assessment of the development team’s qualifications and capacity.
Throughout the review process, CHFA works hard to maintain a high level of fairness, considering each application consistently and equally. Staff meets regularly during this early stage to identify issues and concerns with each proposal. To achieve the highest possible level of integrity in the process, a typical application will be reviewed by multiple underwriters and members of the technical services staff. Above all, our goal is to be as transparent and responsive as possible while recognizing our responsibility to prudently manage CHFA’s resources.
Coming in the Spring 2017 issue of Developing Partnerships, “How We Work” takes the application before CHFA’s Board of Directors.
Have a question about the underwriting process? Let us know about it!
Marcus Smith is a Manager in the Planning, Research and Evaluation department with the Connecticut Housing Finance Authority.
