secondary financing - ACME Housing Corporation
201 Elm St. (7 units)
203 Oak St. (34
PROBLEM: The subject
property is in need of restorative work to both structures, including:
to Elm St. ($84,000):
- replace deck membrane over garage, install
new wooden deck.
- some structural repairs to framework (eg:
door & window headers) on 2 lower units on south side.
- strengthening 4 upper balconies.
- replace ceiling of parking garage,
- new siding.
Repairs to Oak St. ($30,000):
- siding to be installed over exterior
tile-work which has deteriorated.
- re-parging of underside of various
OBJECTIVE: To obtain
management approval to allow the housing corporation to obtain secondary
financing to a maximum of $120,000 in order
to finance the cost of repairs as detailed above, including a small
Housing Corporation received a commitment on September 9, 1982 for Phase
I. On December 23, 1983, the second
phase of the project was committed. The Interest Adjustment Dates
are January 1, 1983 for Phase I and March 1, 1985 for Phase II.
consists of two structures. The first phase is an existing 34 unit
high rise which was purchased and renovated. Phase two is a 7-unit
row-house structure which was newly built. Although the high rise
was already 20 years old when Phase I was committed, it has held up
rather well. Other than the above noted repairs, and some other
minor problems, the high rise poses no particular
threat to the project's financial well-being.
On the other
hand, the row-house structure has been a source of problems since the
beginning. The original architect designed the structure to have a
green-space deck between two separate buildings, with the deck forming
part of the roof of the parking structure. The deck was filled
with approximately .5 metres of soil, and planted with grass and small
trees and bushes.
drainage for this was not adequate, the soil became saturated, and its
moisture penetrated the structure, causing water damage at the floor
levels of several units. Also, the saturated soil resulted in a
load higher than the deck was designed for, causing enough stress on the
underground parking support tenants to result in deterioration.
The original contractor is no longer in business --
attempts to pursue the builder have been futile.
inspections have been carried out over the last few years. The
latest, dated 93/11/15, indicates that approximately 50% of the above
repairs have been carried out to date on 201 Elm, and that approximately
$40,000 worth of repairs remain to be completed on this building this
year before the onslaught of winter. The work on 203 Oak need not
be done before winter, but is included in the total loan amount for this
The latest work
has been tendered and an architect, whom the landlord is very satisfied
with, is managing the repair work. He will continue to manage the
remaining repairs needed, but has not been paid in a while, and his bill
is part of the $18,000 in invoices that are currently outstanding.
Our office has reviewed the specifications for the repair work on
the row-house and finds them acceptable.
The project is
administered on a volunteer basis only. The housing corporation
spent $12,000 on a technical
1990/91, which the current landlord feels is useless.
landlord Board of Directors, which also carries out day-to-day
administrative duties, has threatened to resign en masse and contact the
media if no help is forthcoming from our office.
RENTAL MARKET: An
analysis of the project's rents indicates that they are slightly below
the market. The proposed increases, which
include the cost of additional debt load, will not price these units out
of the market. Rent increases effective 93/03/01 have been approved.
Tenants who are unable to pay full rents are income tested.
At present, the number of tenants receiving RGI assistance is
approximately 25%, which is acceptable. This is a substantial
improvement since several years ago, when a high proportion of tenants
were receiving RGI assistance.
At April 30,
1993 the balance of the subsidy surplus fund was $773. In 1992/93,
the housing corporation used slightly more Income-Tested Assistance than
it received, but this imbalance will not continue next year, as the
landlord is being diligent about the availability of the Income Tested
assistance budget in line with government funding.
MARKET VALUE: The
appraised market value of this project is $1,650,000 "as improved".
Since the total current balance of both existing mortgages is
approximately $1,230,000 and this will increase to $1,344,000 if this
workout proposal is approved, there is sufficient equity is available to
support the proposed 2nd mortgage financing.
FINANCIAL ANALYSIS: A
cashflow forecast is attached and is an integral part of this workout
proposal. It includes the repayment of a
$120,000 2nd mortgage at 6.5% over 10 years, assuming that the
recommendations in this workout proposal are agreed to. The
forecast also assumes that the housing corporation will continue to
receive approximately $4,500 annually in net revenue from
the commercial space on the high rise ground floor that it rents to a
grocery store and a physical therapist.
To date, the
housing corporation has used several means to finance the current work.
During the past year, a total of $52,000 has been spent on the
above repairs, of which $36,000 was from the Replacement Reserve.
This action has totally depleted the Replacement Reserve.
The additional $16,000 was spent from the Maintenance budget to
allow the repairs to continue. To effect continued repairs, the
housing corporation has been spending from a line of credit whose limit
is $30,000 and of which little remains.
The project has
recently been billed in the amount of $18,000 which must be paid as soon
as possible for work to continue. The housing corporation has
threatened to withhold mortgage payments in order to pay the
construction invoices which are now due.
Replacement Reserve contributions shown in the attached cash-flow
forecast are higher than required, in order to bring the Replacement
Reserve rapidly to acceptable levels within the 5-year frame of the
forecast. This is particularly important for the high rise, as the
building is twenty years old and, while in good condition, may require
funds for future replacement of other capital items.
in the amount of $1.2 million ($801,000 for Phase I, $431,000 for Phase
II) is held by ABC Trust. They were renewed on January 1, 1990
under CFRP. They will renew again on January 1, 1995. The
attached cash flow statement indicates that the project will be able to
carry additional debt load and also fund the Replacement Reserve.
However, should there be a cash flow problem, the proposed
allocation to the Replacement Reserve will be phased over a longer
period of time.
FACTORS: In arriving at
our recommendations, we considered the following factors:
- the impact that the 2nd mortgage financing
will have on the project's operations, and
- the protection of the mortgage security
and health and safety factors.
given to the group to obtain secondary financing to undertake the
- Project improvements will be
realised therefore improving the health and safety of
tenants and protecting the assets of the housing corporation.
- Costs associated with the secondary financing will not jeopardise the
- The Board of Directors has approved the 2nd mortgage financing and
- our office's inspection reports support this repair work.
- None, repairs are required.
group's request. This alternative is not recommended.
The project requires the repair work and has the capability to
carry additional debt load.
- the Board might resign,
leaving the project without management.
- building will deteriorate further, thus increasing the cost of
repairs if done later.
approval be granted to ACME Housing Corporation to obtain a 2nd mortgage
through our loan department to carry out repairs as detailed above.
This approval would be subject to the following conditions:
- that rents be raised to market levels as
detailed in Appendix B of this proposal, once repairs are complete,
- that the housing corporation contribute to
the Replacement Reserve at a higher level, as per the cashflow forecast,
- that a part-time coordinator be hired to
provide bookkeeping and property management services,
- that the Board improve their Financial
Management and Maintenance Planning through training, eg: IHM & CREA
- that the 2nd mortgage commitment through
Direct Lending is not to exceed $120,000, and
- compliance to all applicable building
codes is confirmed.
Appendix B -
-- RENT SCHEDULE
AND INTEREST CALCULATIONS
MTGE...................... $ 1,231,696
Interest Rate %
(1st mtge will renew
in 1995 at
year am., annual
payments = 100,687)
Interest Rate %