North Carolina Housing Finance Agency’s Rental Production Program (RPP) makes loan funds available for qualifying affordable housing projects in the state. RPP funds come from a variety of state and federal programs: HOME funds (federal), HOME Match funds (state), North Carolina Housing Trust Funds (state).
Projects receiving an allocation of tax credits are eligible for RPP loans. Projects requesting tax-exempt bonds are ineligible, however. All projects applying for RPP funds must submit a Notice of Real Property Acquisition with their preliminary tax credit application. Underwriting guidelines follow:
- At least 40% of the qualified units must be income restricted to at most 50% of AMI.
- RPP loans will have a 20-year term and a maximum interest rate of 2%. NCHFA may reduce the interest rate to ensure project feasibility at its discretion. Rural Development properties will be underwritten at the Rural Development-approved interest rates.
- Projects will be underwritten assuming a 7% vacancy rate. USDA-RD 515 properties will be underwritten at the Rural Development-approved vacancy rates.
- Projects requesting RPP funds will be underwritten assuming that rents will escalate at 2% per year and operating expenses will escalate at 3%. Replacement reserves will be trended at 4% however. Projects with HOME funds will be underwritten assuming that rents will escalate at 1.50% per year.
- New construction projects must budget a minimum of $3200 per unit per year in operating expenses (not including taxes, replacement reserves or resident support services). Rehabilitation and adaptive reuse projects must budget a minimum of $3400 per unit.
- New construction projects must budget $250 per unit in replacement reserves. Rehabilitation and adaptive reuse projects must budget a minimum of $350 per unit.
- RPP loans are cash flow loans. All projects must demonstrate an ability to repay at least a portion of the RPP loan. NCHFA will establish loan payments so that the project will maintain a debt coverage ratio (DCR) of 1.15. This may result in a large balloon payment due at maturity.
RPP loan funds sometimes require Davis-Bacon wages. Also, use of the funds sometimes reduces the qualified basis for tax credit projects. Developers should carefully weigh these facts when considering RPP funding.
Feel free to contact me (Jeff Carroll) at 704-905-2276 with any questions you may have regarding your tax credit development.