How We Work, Pt. 3: Initial Closing
By Marcus Smith
How We Work is a series that takes you inside CHFA’s multifamily department, explaining the “who”, “why” and “how” of all that we do. Check out Parts 1 and 2 here.
In the previous installment of How We Work, we outlined the process by which we seek the Board’s input on and approval of affordable housing developments that we intend to finance. By this point, staff has evaluated all aspects of the application against our underwriting and design standards to confirm that the proposed development meets our funding and construction criteria. Up next: the initial closing process, where we verify all assumptions made to date, and secure critical materials needed to begin construction. If we think of the development process as a cross-country flight, this part of CHFA’s process is like the extensive pre-flight check that is done before the plane is given clearance to take off.
Multifamily staff coordinates with CHFA’s legal team to draft and collect core documents such as the Commitment Letter, partnership agreements, and other loan-specific materials. Staff works closely with the borrower’s development team to procure appraisals, market studies, and third-party environmental review reports. Technical Services reviews the general contractor and architect contracts, environmental reports, construction schedule and architectural drawings and specifications to ensure these materials are complete and consistent with hard costs presented in the development budget. Based on feedback received from this review, costs are then analyzed to verify that the developer has the appropriate financial and technical resources to meet its commitments to CHFA and other stakeholders. Management, marketing and tenant selection plans are submitted for review, as are building permits and assurance of completion documents.
In 2015, CHFA updated the initial closing process to give borrowers the ability to lock in interest rates ahead of the initial closing date, guarding against potential shifts in the interest rate market. In order to maximize this new feature, the initial closing shall take place within nine months of the Board-approved loan resolution. As part of the updated process, certain fees are collected leading up to the initial closing date, including a Loan Origination fee, Good Faith Deposit fee, and Bond Cost of Issuance fee. Complete details on the Multifamily financing parameters can be found here.
The motivation behind this entire process is embedded in CHFA’s Values: Take Care of Our Resources. We are empowered by our mission to help provide affordable housing to the residents of Connecticut. And in order to best fulfill this mission, housing that we finance must be quality, safe, and sustainable. In Part 4 of How We Work, we will see how all of this comes together in the construction and completion of the development.
Marcus Smith is a Manager in the Planning, Research and Evaluation department with the Connecticut Housing Finance Authority.
