MD - Rockville: Mayor and Council

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Mayor and Council

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7:00 PM 1. Convene
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2.
Pledge of Allegiance

7:05 PM 3. Work Session - Topic 1

A.
Presentation and Work Session on RHE Fireside Park Apartments Plans to Refinance Its Existing Loans and Obtain Additional Financing for Modernizing the Property

8:05 PM 4. Work Session - Topic 2

Tagged Passions:property, parks, and refinance

A.
Discussion on Parkland Acquisition Initiative

9:05 PM 5. Adjournment

The Mayor and Council Rules and Procedures and Operating Guidelines establish procedures and practices for Mayor and Council meetings, including public hearing procedures. They are available at: http://www.rockvillemd.gov/mcguidelines.

No additional detail provided

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Mayor Council Meeting Date: February 12, 2018 Agenda Item Type: Work Session

Department: Community Planning Development Services Responsible Staff: Asmara Habte

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Subject Presentation and Work Session on RHE Fireside Park Apartments Plans to Refinance Its Existing Loans and Obtain Additional Financing for Modernizing the Property

Recommendation Staff recommends that Mayor and Council: Staff recommends that Mayor and Council: 1. Receive a presentation from Rockville Housing Enterprises (RHE) on a) its plans to refinance its existing loans and obtain additional financing for modernizing the property; and b) its request for a 500,000 grant from the City to help fund the modernization.

Tagged Passions:property, council, housing, parks, grant, and refinance

2.
Conduct a work session on the refinancing and funding for the modernization of Fireside Park Apartments and RHE's request for funding.

No additional detail provided

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Executive Summary

The Mayor and Council identified the expansion and preservation of affordable housing opportunities as a top priority in the Priority Initiatives it endorsed in 2017. This priority is also contained in various City policies and policy documents1 which promote and set forth the City's commitment to providing a full range of housing choices for all incomes, ages, and family sizes.

The purpose of this work session is for the Mayor and Council to a receive presentation from RHE and discuss RHE s proposal for the refinancing of existing loans on RHE s Fireside Park Apartments, and its planned modernization2 of the property with additional money obtained

Tagged Passions:property, policy, council, expansion, housing, parks, and preservation

1
The City's affordable housing policies are also outlined in three other sources:

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1.
The City's Housing Goals and Objectives adopted in 1985; 2. Chapter 13.5 of the City Code, which governs the Moderately Priced Dwelling Unit program (established in

1990 and last revised in 2009); and 3. The Housing Chapter (Chapter 10) of the City's Comprehensive Master Plan adopted in 2002.
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2
The State of Maryland and Montgomery County characterizes the proposed work as rehabilitation. The staff report uses the term modernization to distinguish from the capital repairs that have been made to date.

3.A Packet Pg. 2 through the refinance. As part of its refinancing strategy, RHE is seeking financing from the City in the form of a grant in the amount of 500,000. RHE s original financing agreements and loan terms for the initial acquisition of the property were structured to be refinanced seven years following the 2012 financial closing date. Background Established in 1957, RHE was created by the Rockville Mayor and Council as the City s public housing agency. RHE owns and manages over 400 public and assisted housing units in the City, including Fireside Park Apartments and 56 Low Income Housing Tax Credit (LIHTC) units. RHE also administers approximately 415 vouchers under the Housing Choice Voucher program (HCVP) throughout the City, and provides supportive services and self-sufficiency programs to public housing residents and program participants. The U.S. Department of Housing and Urban Development (HUD) rates RHE as a high performer for its HCVP program. While RHE was created by the Mayor and Council and RHE s Board is appointed by the Mayor and Council, RHE is an independent agency that functions under Federal and State law. RHE s program and operating funds are almost exclusively funded with HUD dollars. RHE receives operating and limited capital funds from HUD under its public housing program, and receives Housing Assistance Payments from HUD, which are used to pay private landlords for rental payment on the units leased to HCVP voucher holders. HUD also provides an administrative fee under the Section 8 program for the agency to manage and administer the program. RHE also receives rental income from its public housing residents. There has been a steady decline in federal funding, so many housing agencies are forced to continue to provide housing and services with much less. In some communities, local governments are stepping in to fill the void, but some housing agencies have reduced their staffing and programming in response to their financial realities. For example, some agencies will issue fewer HCVP vouchers because of the reduction in the Housing Assistance Payments from HUD. The smaller the housing assistance payments and the higher the market rents, the fewer number of families served. The City of Rockville provides RHE with an annual grant of approximately 42,000 to defray refuse collection costs, as well as Community Development Block Grant (CDBG) funding if RHE qualifies during the competitive process. The CDBG funds are used to fund necessary capital repairs at its public housing units. Given RHE s independent agency status, the City does not have a funding obligation to RHE and the City does not carry any risks by financial actions that RHE may take as it relates to Fireside Park Apartments or other transactions, unless the transaction is structured3 as such. The original financing and proposed financing of Fireside Park Apartments does not lead to any obligations for the City, except to the extent that the City provides funding.
Tagged Passions:leasing, property, taxes, Taxes, human resources, services, appointments, council, development, rental, risk, rates, strategic, finance, housing, cdbg, program, Development, funding, parks, grant, community development, market, and refinance

3
There could be a potential for shared financial arrangements that could lead to the City s obligations and risks in instances where there is the formation of a City-RHE joint venture. The financing of Fireside Park Apartment in 2012 was not structured as such. Likewise, the proposed refinancing is not a joint-venture.

3.A Packet Pg. 3 Pursuant to RHE s Articles of Organization and the Amended and Restated Cooperation Agreement between RHE and the City, RHE must obtain an authorization resolution from the Mayor and Council before, among other things: 1) acquiring or disposing of real property; 2) borrowing or accepting money to undertake a housing project; 3) entering into mortgages; and 4) establishing not-for-profit corporations. Since RHE is seeking to refinance its existing loan and obtain additional financing to modernize the property, it will need an authorization resolution from the Mayor and Council to move forward. Refinancing the property, and the additional money that it will obtain, will facilitate the modernization efforts proposed by RHE. This would be accomplished through a subsidiary entity that will be created by RHE to accommodate the proposed transaction. The creation of this subsidiary entitle will also require Mayor and Council s approval through the authorization resolution. Discussion In 2012, to implement and exercise its policy on the preservation and furtherance of affordable housing, the Mayor and Council voted to support RHE in its acquisition of Fireside Park Apartments by providing financing toward the purchase of the property. On November 5, 2012, the Mayor and Council approved a 1,800,000 loan and 200,000 grant to RHE toward the purchase of the Fireside Park Apartments. In addition to the City s funds, RHE also secured a 3.19 million loan from Montgomery County s Housing Initiative Fund, and a 32.4 million first mortgage from Citibank. The City s support of RHE helped preserve Fireside Park Apartments as a mixed-income affordable community that s a residence for over 230 Rockville families. Fireside Park Apartments is located at 735 Monroe Street. The development was built in the 1960s and includes 236 garden-style, one-, two-, and three-bedroom apartment units contained in 22 buildings. The development is accessible to Metro and I-270 and includes green space, a playground, an outdoor grill/picnic area, and a swimming pool. Of the 236 units, 118 are affordable at up to 80 of the Area Median Income (AMI), and 118 are market rate. The distribution of the affordable units is shown below.
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Table 1. Affordable Units Distribution

Total @ or Below 50 of AMI

@ or Below 60 of AMI

@ or Below 80 of AMI

Market As shown in the following chart below, rents on the affordable units are tiered as they are targeted to households in different income ranges from 50 to 80 of the area median income 3.A Packet Pg. 4
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(AMI). These rents represent affordability to households whose annual incomes range between 46,000 to 95,000. However, the difference between the rental rates of the highest tier within the affordable units and the rental rates for the market-rate units are almost the same.

No additional detail provided

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Table 2. Current Rental Rates at Fireside Park Apartments

No additional detail provided

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Bedroom Count Affordable Units (118 units) Market Units (118 units)

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1
Bedroom 1,100 to 1,200 1,270

2
Bedroom 1,325 to 1,400 1,540

3
Bedroom 1,625 to 1,725 1,860

While the property has affordable and market-rate units as mentioned above, the market rents are significantly less when compared to the market rents of nearby multifamily properties. For example, the listed4 rental rates for one-bedroom units at the Americana Centre range from 1,590 to 1,675, two-bedroom units rent for 1,975, and a three-bedroom unit at 2,200. Among the newer properties, such as the Upton Apartments, the listed rental rate for a one- bedroom unit range between 1,780 to 2,279, while two-bedroom units list between 2,268 to 3,216. Below are the rental rates for Fireside Park Apartments as of December 2017. Current Ownership Management Structure RHE established a non-profit, incorporated single-purpose entity known as RHE Fireside Park, Inc. ( Fireside Park ) to own and manage Fireside Park Apartments. In addition, a third-party manages the property. Fireside Park contracted with Humphrey Management in 2014 to manage the day-to-day operations of the property. Humphrey was replaced by Edgewood Management in July 2017. Current Property Performance Overview The property had an overall occupancy rate of 90 as of December 2017, a major improvement from previous months when occupancy had declined to as low as 83 . The affordable units have typically maintained occupancy rates of 93 or better. The occupancy rate of the market- rate units has typically remained at or below 85 . As of December 2017, the occupancy rate for market-rate units was 85 , with 17 vacant units. RHE and the management agent have cited the property s limited amenities and lack of standard apartment features as contributing factors for the low occupancy rates of the market-rate units.5
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4
www.zillow.com; www.trulia.com January 10, 2018. 5 For example, the units are not equipped with in-unit standalone washers and dryers. In fact, the washing machines in the units must be connected to the kitchen sink because the necessary plumbing and water connection does not exist to support a standard washing machine. The additional funding for modernization of the property is intended to address these standard apartment deficiencies.

3.A Packet Pg. 5 Financially, the property continues to meet its debt service obligations and generate sufficient revenue to maintain the property for continued occupancy. However, due to the higher than anticipated vacancy rates, it did not generate a net operating income (NOI) after debt service, in 2016. Even so, Fireside Park has 1) completed most of the capital repair planned at the 2012 acquisition; 2) carried out unit turnover activities; and 3) continued to address emergency repairs. The property has received satisfactory ratings on its annual assessment of the physical conditions of properties conducted by HUD s Real Estate Assessment Center. Current Project Financial Structure The City s loan terms require that Fireside Park pay interest at 3 annually, and principal payments equal to 15 of annual net cash flow, if available. Fireside Park has paid interest annually. The property also made principal payments in the years it realized net cash flow, bringing the outstanding principal balance on the City loan to 1,705,709. The property did not realize a net cash flow during 2016, and therefore, no principal payments were paid to the City. Similarly, RHE did not earn the allowable management fee of 80,000 in 2016, which was also to be paid with net cash flow, if available. A financial audit is in progress, which will address the property s net cash flow position for 2017. All three loans have similar terms and mature seven years after closing. The County s loan carries the same interest rate as the City at 3 . The Citibank loan carries an interest rate of 3.5 . The remaining principal balances will be due in full when the loans mature in 2019.

Tagged Passions:property, audit, Utility, rates, utility, finance, funding, emergency, parks, and water

Below is the summary of funding sources for the 2012 acquisition of the property:

Table 3. Original Funding Sources Source Amount
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Citibank mortgage loan 32,400,000

Montgomery County Housing Initiatives Fund- soft Loan 2,850,000
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City of Rockville Loan-soft loan 1,500,000

City of Rockville Housing Opportunities Fund soft loan 300,000

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City of Rockville Housing Opportunities Fund - grant 200,000

Rockville Housing Enterprises Cash 500,000 Per the terms and structure of the original funding sources for the acquisition, the intent was for Fireside Park to refinance the property by the end of the seventh year following the 2012 3.A Packet Pg. 6
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purchase. The refinance would allow Fireside Park to repay its outstanding loan obligations to its current creditors, including the City, and to obtain additional funds to undertake planned modernization of the property. Since the original loan closed in 2012, Fireside Park has met and complied with all its obligations to its lenders. The refinancing of the property is part of the compliance.

Tagged Passions:compliance, property, purchasing, funding, parks, and refinance

Below is a summary of the project s current outstanding loan balances as of December 2017:

Table 4. Outstanding Loan Balances

Lender Outstanding Balance

Citibank loan 29,593,373

Montgomery County loan 2,773,224

City of Rockville loan 1,705,709

In addition to the loan and grant funds, the City of Rockville also executed a Payment In Lieu of Taxes (PILOT) Agreement with Fireside Park when the property was acquired. The PILOT Agreement provides Fireside Park a forgiveness of up to 40 of the local real estate taxes assessed on the property. The PILOT Agreement remains in force for as long as the Regulatory Agreement6 is in effect. The Regulatory Agreement, which was entered into by the City and Fireside Park in December 2012, remains in effect for as long as the property is held by RHE or its affiliates, regardless of the Note or terms of other financial assistance provided by the City. RHE s Refinance and Modernization Plan
Tagged Passions:property, taxes, Taxes, finance, funding, parks, regulation, grant, and refinance

Modernization Plan At initial acquisition, RHE included a rehabilitation schedule to address deferred maintenance issues that were present, including roof replacement, re-line copper pipes, prune mature trees, and asphalt repair, among other capital work items. Overall, RHE has spent 1,224,436 to date on continued maintenance and stabilization of the property while deferring major renovations. Deferring major renovations was a strategy contemplated by Fireside Park when the property was purchased in 2012 for the purpose of generating greater tax credit equity proceeds7. With the refinancing, RHE will spend approximately 69,000 per unit in modernizing the property. The preliminary scope of work includes the following:

General Site Work and Landscaping

Tagged Passions:property, taxes, Taxes, purchasing, trees, strategic, and parks

6
The Regulatory Agreement is a document outlining the loan terms, operations, and governance of the property provided that the property remains under the control and ownership of RHE or its affiliates. 7 Tax Credit Equity Proceeds is the money (equity) raised through the sale of tax credits.

3.A Packet Pg. 7 New Trash Enclosures Building Improvements (painting, insulation, architectural enhancements) New kitchen cabinetry, countertops and energy-efficient appliances Extensive plumbing and bathroom improvements Installation of washers and dryers in each unit, along with centralized laundry rooms for bulk laundry Masonry work Hardware and flooring upgrade Waterproofing Storm Water Improvements Accessibility improvements Community room, resident programming and new leasing office Facade Renovation Exterior Paint; Door Treatment; Gutter/Downspouts Replacement; and Security-Controlled Door System Other General Maintenance The existing community operates with one residential unit currently being used as the leasing office. The rehabilitation plan proposes to expand the community space area that will include the leasing office by taking an additional unit offline and incorporating that space as part of the community space. Two new dwelling units will be created by reconfiguring currently- underutilized space, maintaining the number of 236 total revenue units. A Project Capital Need Assessment is in progress, which will be used to develop a more refined scope of work, pricing, and drawings for submission to the State as part of the Tax-Exempt Bond application submission package. As noted above, RHE s plan is for continued ownership of Fireside Park Apartments as a mixed- income community, providing an affordable housing option to a wide range of households and income levels. This mixed-income model requires that the property generate sufficient market- rate rents to sustain the long-term affordability and viability of the property. The income generated from the market-rate units will help make up the difference in rental income from the restricted units. The planned modernization of the property will not only recapitalize the property for the next 30 years or so, but will also assist in the property s ability to attract and retain market-rent payers to the property, thereby generating sufficient income for the property to perform well to ensure the sustainability of the property. The anticipated result of the modernization is achieving greater market-rate rents than the property currently commands
Tagged Passions:leasing, property, taxes, arts, Taxes, Utility, rental, sustainability, energy, sale, utility, bond, stormwater, housing, parks, regulation, security, market, and water

Financing As noted above, the current terms and conditions of the Fireside Park financing agreements require that the property be refinanced by December 2019. The strategy at the time of purchase included the leveraging of non-competitive Low-Income Housing Tax Credit (LIHTC) equity and Tax-Exempt Bonds with other funding sources, including a Federal Home Administration (FHA) 221(d)(4) loan backed by HUD. Tax-Exempt =Bonds and notes, leveraged with LIHTC equity, provide construction and permanent financing by enabling qualified developments to realize lower interest rates.

3.A Packet Pg. 8 Fireside Park is seeking a refinance package of an estimated amount of 56.7 million. It is seeking to maintain some of the same partners for the refinance transaction, including the City of Rockville and Montgomery County. To that end, Fireside Park is seeking funding from both the City and the County. RHE, on behalf of Fireside Park, has approached the County with its request for funding, and the County has expressed interest in remaining in the project financially by lending 2,773,224 for the project.8

Tagged Passions:property, taxes, Taxes, purchasing, poverty, development, rates, strategic, bond, housing, Development, funding, construction, parks, and refinance

RHE is requesting a City grant in the amount of 500,000 for the project. RHE has proposed to program the City funds to specific line items, such as hard costs associated with the modernization of the 236 units. Moreover, the City s funds, if granted, would be drawn down against project invoices submitted to the City by Fireside Park, rather than released at once at closing. Most importantly, RHE s independent agency status means that there are no additional financial obligations or risks for the City.

The currently-proposed sources include the following:9
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Table 5. Proposed Sources of Funds

SOURCE AMOUNT TE Bonds/Permanent FHA Loan 221 (d)(4) 40-year loan 40,239,000 Low Income Housing Tax Credit (LIHTC) Equity 3,244,776 State Energy Subsidies loan 212,000
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Estimated Interim Income (net-operating) 3,428,065

Maryland Partnership loan 3,000,000

Project Reserves (RHE) 626,739

Montgomery County loan 2,773,224

RHE Replacement Housing Factor Fund (HUD grant fund) 197,415

Maryland Rental Housing Works 2,500,000
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City of Rockville Grant Fund (general funds or Housing Opps. Fund) 500,000

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8
Montgomery County has yet to issue a letter of commitment, however, it is anticipated that the loan will be a soft loan, repaid with cash flow, if available, and/or repaid only if the property is sold as a market-rate property. 9 There will likely be changes in the funding amounts due to many factors, including, but not limited to, interest rates, refinement of construction costs, and other lender requirements for set-aside reserve amounts in the Sources and Uses from now to financial closing. These figures reflect the project s estimated financing as of January 9, 2018.

3.A Packet Pg. 9 The currently-proposed uses of funds include the following:
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Table 6. Proposed Uses of Funds USES AMOUNT

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Repayment of Citibank loan 29,593,373

Repayment of County Loan 2,773,224

Repayment of City Loan 1,705,709

RHE Developer Fee 1,000,000

Hard Construction Costs (236 units) 12,376,980 Soft costs 3,771,710
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Outside Counsel (legal) 150,000

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Operating Reserves 1,288,756

Financing Costs 4,061,467 The refinance will allow Fireside Park to meet its obligations of the original loans and obtain additional funds to undertake modernization of the property. Of the nearly 57 million, 60 (or 34 million) will be applied toward repayment of existing loans; approximately 16 million (or 28 ) will fund the hard and soft costs of the modernization. The financing costs, operating reserves (required by lenders, HUD, and tax credit investors) and legal counsel are estimated to cost 10 of the total project expense, or approximately 5 million. RHE will earn a fee of 1 million for the direct costs, coordination and management of the refinance and rehabilitation activities.10 RHE will utilize the funds toward other RHE housing programs and address deferred maintenance issues at other properties owned and managed by RHE. Housing agencies typically employ such strategies where they prioritize and plan their spending to maximize and leverage their funding sources for the most impact. For example, RHE is programming its accumulated Replacement Housing Factor Funds (RHF)11 in the amount of 197,415 towards the modernization of Fireside Park Apartments because it is opportune timing, and the preservation of Fireside Park Apartments is the most impactful project now. RHE took a similar action in its use of its federal funds available at the time in the acquisition of Fireside in 2012. HUD funds are typically not fungible, targeted for specific use and timing. A

Tagged Passions:legal, property, taxes, Taxes, housing, program, funding, parks, preservation, and refinance

10
It should be noted that as the project developer, RHE is permitted to charge the project up to 12 of project soft and hard costs under HUD rules. The 1,000,000 fee represents 6.2 of the project s soft and hard costs, and just 1.8 of the total development cost. 11 With some exceptions, HUD has specific and highly prescriptive rules on the uses of funds and timing.

3.A Packet Pg. 10 developer fee, on the other hand, is not as restricted giving housing agencies flexibility and general use of the funds across other housing programs. Development Team In anticipation of the refinancing, RHE has been preparing for this transaction and modernization of the property for the past two (2) years by promoting the project to lenders and funders; drafting a mixed finance proposal for submission to HUD; and assembling a development team. The team members and their respective roles are as follows: Owner RHE Fireside Park, Inc. (RHE may decide to create a new entity to own the property.)12 Developer an RHE developer entity to be created13 Development Consultants NDEVCO The Hampstead Group, Inc. Architectural Consultants Natura Architectural Consulting Architect The Arcadia Group Inc. Civil Engineer AMT Consulting Engineers Surveyors General Contractor - Harkins Builders Legal Counsel Ballard Spahr LLP Property Management Agent Edgewood Management These firms were procured in a competitive bid process and City staff served on some of the review panels for the selection of the firms RHE is currently reviewing proposals from debt and equity providers. The selected debt and equity providers will issue a Letter of Interest (LOI) for the project, outlining the terms and conditions of financing to be provided for the refinancing of the existing loan and the additional funds. Fireside Park is anticipating LOIs from debt and equity partners over the next several weeks. Similarly, Fireside Park is seeking a Letter of Commitment (LOC) from the City of Rockville and Montgomery County. The LOIs and LOCs will be submitted to the State of Maryland as part of RHE s Tax-Exempt Bonds application, upon receiving the City s authorization to submit the Bonds application as part of RHE s refinancing strategy. RHE is seeking to submit the Tax-Exempt Bonds application in April.

Tagged Passions:legal, property, taxes, rfp, RFP, Taxes, services, development, selection, strategic, finance, bond, housing, program, Development, funding, and parks

Affordability Unit Distribution - RHE will continue to maintain the property as a mixed-income community, whereby 50 (118) of the units will remain affordable to those with incomes at or below 60 of the AMI, as required under the LIHTC program. The remaining 50 of the units will be unrestricted and rented at market-rate when comparable to other equivalent properties.

No additional detail provided

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12
RHE s conceptual organizational chart is provided as part of its proposal to the City. 13 See footnote 11.

3.A Packet Pg. 11 Risk for RHE as Developer and Impact on the Organization- Similar to the current ownership structure, the ownership for the refinanced Fireside Park Apartments will be organized to minimize the risk to RHE. 221(d)(4) is a HUD-backed FHA 40-year non-recourse low-interest loan.14 The loan will be secured by the land and improvements. This type of loan has no direct fiscal impact on RHE because it is asset-based. HUD scrutinizes the property location, the proforma rents and expenses, development, and management team to ensure performance and success. The same scrutiny and due di ligence will be undertaken by the lender, State and tax credit syndicator/investor. RHE's current programs and assets will be insulated by establishing a limited partnership entity as the borrower as required by the tax credit investor. The continued ownership of Fireside Park Apartments will be a stand-alone ownership with no adverse impact on RHE's financial condition. The proforma of Fireside Park Apartments will be based solely on the operations and financial projections of the Fireside Park Apartments and not the parent company, RHE. As required by the tax credit investor, the property will continue to be managed by a third-party management company. RHE management staff and Board of Commissioners will be involved in Fireside Park Apartments policy issues only by providing oversight and quality control of management company operations. Modernization Schedule RHE anticipates commencing the modernization effort immediately following the financial closing in late 2018. The modernization is projected to be completed in 24 months, or by December 2020, from construction to stabilization. Residents will remain at the property while the modernization effort is in progress, with onsite relocation of directly-impacted residents. It should also be noted that there may be some shifts in the project schedule due to potential unforeseen delays. Financial Feasibility of the Project

Tagged Passions:property, taxes, Taxes, policy, development, risk, finance, performance, program, Development, construction, parks, and refinance

Based on the current project operating proforma, the property is projected to generate 4.073 million in effective gross income, including rental income, during the 24-month construction period. The operating expenses are estimated at 1.5 million or 6,559 per unit/per year, slightly less than the average operating expenses for similar types of properties.15 This projected operating cost is also consistent with the property s current operating cost. These

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14
Fixed rate subject to market conditions at time of rate lock. 15 Per National Apartment Association (trade organization), 2016.

3.A Packet Pg. 12 operating expenses also includes a 82,600 set-aside for replacement reserve, or 350 per unit/ year, as typically required by most lenders and HUD. The projected operating expenses reduce the effective gross income to 2.5 million. The annual debt service is estimated at 2.18 million. This results in a debt service coverage ratio of 1.15, which meets HUD s requirement for the loan products contemplated for this project (a 221(d)(4) FHA loan) and for affordable properties like Fireside Park Apartments . The net cash flow after debt service is estimated at nearly 344,000. These figures assume 1) an annual vacancy rate of 5 ; 2) an annual 2 growth in rents; and 3) an annual increase of 3 in operating expenses. The projected vacancy rate of 5 may be somewhat aggressive given the property s vacancy rates over the last few years, however, the substantial modernization is anticipated to help reduce the vacancy rate significantly. Furthermore, RHE has retained a property manager that is widely recognized and respected in the industry. The management firm was able to turnaround the vacancy rates rapidly, bringing the occupancy rate to 90 from 83 four-months following the assumption of the management responsibilities for the property. The overall vacancy rate for the City of Rockville is 5.7 , and 6.1 for the County.16 As noted above, the proforma is based on the property s continued operation during the 24- month construction period. The property will maintain a vacancy rate of 12 to 17 , (or 28 to 40 units) during construction, so that impacted residents can be relocated within the property, as needed. This will allow the property to continue its revenue generation, which is estimated at 3,428,065, net of operating expenses, or 142,844 per month for the 24 months during construction. Debt service is suspended during construction and interest on the permanent financing will be paid from reserves funded at closing, making available project net operating income a funding source for construction. This onsite relocation approach will also allow RHE to move residents within the development and avoid offsite relocation, a cost savings to the project, which will minimize extraordinary disruptions to the families. RHE has budgeted 354,000 for relocation expenses. RHE, through a third-party relocation services contractor, will conduct the relocation in accordance with HUD s Uniform Relocation Act, based on a HUD-approved relocation plan for the project. RHE will be submitting a Relocation Plan to HUD as part of its mixed finance proposal submission package.

Tagged Passions:budget, property, manager, recognition, services, trade, development, rates, finance, Development, funding, construction, parks, growth, and market

It should be noted that there will likely be a change in the amount of projected operating expenses between now and closing on the deal due to lender and investor driven adjustments. It also should be noted that the project s projected proforma is independent of RHE s agency- wide financial conditions and is based solely on the project s performance. Regardless of the movements in sources and costs, there is no direct fiscal impact and no risk to the City.

No additional detail provided

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16
Per CoStar Commercial Real Estate Information Services, January 2018.

3.A Packet Pg. 13 Options to Consider As noted previously, the refinancing of Fireside Park Apartments was always intended as indicated by the terms of the original the 2012 financing. The loans were structured as seven- year loans, maturing in December 2019. Moreover, the refinancing strategy that was explicitly stated seven years ago included tax credits and Tax-Exempt Bonds with the idea that the property would undergo substantial modernization. The purpose was to support the financing that would be sought and required to repay the seven-year loans and to modernize the property for long-term viability. Moreover, the repayment of the outstanding loans is predicated on Fireside Park s ability to refinance the existing loans. The property was not envisioned to generate sufficient revenue to repay is entire debt obligation in seven years time. As such, not refinancing would cause Fireside Park to default on its current loans, including the loan from the City.

Tagged Passions:commercial, property, taxes, Taxes, services, strategic, bond, parks, and refinance

Similarly, Mayor and Council approval of the refinancing for only the outstanding loan amount would not be prudent because the property would not be able to generate the necessary rental income that would be required to carry debt service. The way to achieve the required revenue is through modernizing the property, which would result in higher occupancy rates of the market rate units and thereby greater income. It should also be noted that the funds to be generated from LIHTC equity and the County s anticipated soft loan proceeds are essentially cheap money that would be leveraged with Tax Exempt Bond proceeds, and the FHA backed loan to support the necessary modernization and carry the debt service. Authorizing the refinance for just the outstanding loan would be a missed opportunity for RHE, the City and the County, who all share the preservation of affordable housing as a policy objective.

Given the detrimental impacts of not approving the refinance to allow Fireside Park to obtain additional funding for modernization, below are two primary options for the City to consider.

Tagged Passions:property, taxes, Taxes, policy, council, rental, rates, bond, housing, funding, parks, preservation, market, and refinance

Option 1: The City declines to provide the 500,000 in grant funds as requested by RHE while authorizing Fireside Park to move forward with the refinance of its existing loans and obtain additional funding for modernizing the property.

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Option 2: Provide RHE the 500,000 in grant funds, as requested, while also authorizing Fireside Park to move forward with the refinance to allow Fireside Park to obtain additional funding for modernizing the property.

Staff Recommendation Staff recommends Option 2, providing RHE the grant in the amount of 500,000 while also authorizing Fireside Park to move forward with the refinancing of its existing loan and obtaining additional funds for modernization of the property. The grant would fund hard construction costs and the funds would be drawn down based on invoices submitted to the City. 3.A Packet Pg. 14 Supporting RHE's proposal will continue to preserve the long-term affordability and viability of an apartment community that has a history of offering Rockville residents an affordable, high- quality housing option in a mixed-income community and neighborhood. Given the age of Fireside Park Apartments, lack of modern amenities (i.e. fitness center, standalone in-unit washer and dryer), and dated architectural style, the property is one of the naturally occurring affordable housing developments in the City, with income restricted units targeted to households with income at or below 80 of AMI, while the market-rate units are affordable to households with incomes of up to 120 of AMI, essentially what would be considered workforce housing units in the County and area jurisdictions. As noted previously, this mixed- income model provides for the project s financial stability and affordability for the next 40 years. Should the Mayor and Council decide to provide funding as requested, staff recommends that 500,000 originate from the restricted Housing Opportunities Fund. This fund was established to support and further affordable housing activities. The fund is sourced with excess sales proceeds from the sale and/or foreclosure of MPDU homeownership units, and in-lieu fees from developers who may opt to pay into the Housing Opportunities fund to comply with their MPDU requirements.

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Moreover, while the refinance and modernization of Fireside Park Apartments does not add new affordable units to the City affordable housing stock, the use of the 500,000 from the Housing Opportunities Fund toward the modernization of Fireside Apartments is the highest and best use of the funds because it is a more impactful use. This is because those funds would contribute toward the preservation of 236 affordable units. Without an infusion of a sizable amount of additional funding, the 500,000 alone would be insufficient to increase the City s affordable housing stock beyond a couple of units. It is important to note that, with respect to the refinancing, there is no direct fiscal impact and no risk to the City.

It should also be noted that while RHE is an independent entity, it is the City s housing agency charged with providing affordable housing to some of the City s most vulnerable populations. RHE collectively owns, manages, and administers housing programs that serve many of the City s low and moderate households in the City. RHE is the City s most important partner in achieving the City s policy on affordable housing and in addressing the City s housing needs current and future. Lastly, providing the 500,000 grant for the project is a strong showing of an inter-governmental partnership and cooperation with RHE and Montgomery County. Mayor and Council History RHE presented a conceptual refinance and modernization plan for Fireside Park Apartments to Mayor and Council as part of the annual Fireside Park Apartments report in August 2016 and September 2017. 3.A Packet Pg. 15 RHE has discussed the refinance and modernization of Fireside Park Apartments in its

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monthly Board of Commissioners meetings, which is attended by the Mayor and Council Liaison.

Boards and Commissions Review RHE will be presenting to Mayor and Council during the work session, and members of the RHE Board of Commissioners will be in attendance. City staff also invited the Community Services Advisory Board and the Human Rights Commission to this work session. Fiscal Impact The refinancing will enable RHE to repay its City loan in the amount of 1,705,709. Should the Mayor and Council decide to provide the 500,000 in grant funds to the project, it will be included in the proposed FY 2019 budget. The City could either use its general funds or its Housing Opportunities Special Activities fund ( Housing Opportunities Fund ) to fund the grant request. Next Steps

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The next step is for the Mayor and Council to hold a public hearing on: 1) RHE s plans to refinance the existing loans and modernize the property as originally envisioned; and 2) RHE s request for grant funds from the City in the amount of 500,000 towards the modernization of the property. Per the terms and conditions of the original financing, the refinancing of the existing loan is required. Without the City s authorization of the refinance, RHE will not be able to meet its repayment obligations to any of its debtors, including the City of Rockville.

Following this work session, three additional meetings are scheduled as follows:
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a.
February 26, 2018 Public Hearing as set forth above.

No additional detail provided

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b.
March 19, 2018 Discussion and Instruction (D I). The purpose of the D I will be for the Mayor and Council to provide staff instruction(s) on whether to 1) move forward with the resolution to authorize RHE to refinance the existing loans and obtain additional funding to modernize Fireside Park Apartments; and 2) authorize the City Manager to execute a letter of commitment for RHE s request for funding and possibly identify the source of the funds.

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April 9, 2018 Action. The purpose of this meeting will be for Mayor and Council, if it so

chooses, to act on 1) an authorizing resolution to effectuate RHE s refinance plan; and 2) a letter of commitment to RHE in response to RHE s funding request for 500,000. 3.A

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Packet Pg. 16

Attachments Attachment 3.A.a: FIRESIDE REF COVER LETTER-2 (PDF) Attachment 3.A.b: Fireside Park Apartments - 2-1-18_PP (PDF) Attachment 3.A.c: FPA- RHE Authorization and Grant Request v2 (PDF) 3.A Packet Pg. 17 3.A.a Packet Pg. 18 A tta ch m

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k A pa rtm en ts Re fin an ce an d M od er niz ati on ) Fireside Park Apartments q Fireside Park Apartments, located at 735 Monroe St., Rockville, MD, (the Property ) was purchased by RHE Fireside Park, Inc. in December 2012 through Montgomery County s Right of First Refusal program. q The City of Rockville, Montgomery County, and Citi Community Capital provided loans to RHE to finance the acquisition of the property with a seven year term ending in 2019.

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RHE will refinance the Property and pay off the existing loans to the City of Rockville, Montgomery County, and Citi Community Capital by December 2018.

No additional detail provided

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k Fireside Park Apartments: Loan Repayment

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Sources Refinancing Proceeds 33,681,030

Total Sources 33,681,030

Uses Repayment of Citi Community Capital Loan 29,202,097 Repayment of Montgomery County Loan 2,773,224 Repayment of City of Rockville Loan 1,705,709

Total Uses 33,681,030

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k Fireside Park Apartments: Rehabilitation Project Overview

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k Fireside Park Apartments: Rehabilitation Project Overview q RHE is in a unique position to refinance the property with a long-term, low-interest, non-recourse financing vehicle guaranteed by HUD under the HUD 221(d)(4) program and leverage the financing strategy for modernization and improvements to the apartment homes and community space. q Fireside Apartments is wholly owned by Rockville Housing Enterprises. Under the refinancing plan, the City of Rockville has no ownership or financial liability. q RHE plans to pay off the existing loans and refinance the property through a mixed finance redevelopment strategy. The financing strategy utilizes the State s Multifamily Tax Exempt Bond program, the Maryland Partnership and Rental Works program, as well as 4 Low Income Housing Tax Credits. q The total development cost proposed for the redevelopment is 57,963,791. q This project will serve as a shining example of the City of Rockville and Montgomery County s commitment and investment in the preservation of affordable and mixed-income housing.

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k Fireside Park Apartments: Development Team

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q
Owner/Developer RHE Fireside Park, Inc.

No additional detail provided

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Development Consultants - NDEVCO The Hampstead Group, Inc.

No additional detail provided

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Architect The Arcadia Group Inc.

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Civil Engineer - AMT Consulting Engineers Surveyors

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General Contractor - Harkins Builders

q Legal Counsel Ballard Spahr LLP q Management Agent Edgewood Management

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k Fireside Park Apartments: Proposed Scope of Work RHE and the development team have conducted a detailed site assessment related to project physical needs and have consulted with the management company for areas of increased marketability and asset functionality. The property is in need of widespread improvements and repairs to successfully position itself in the marketplace and operate sustainably.

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Some of those needs include, but are not limited to: General Site Work and Landscaping, New Trash Enclosures Building Improvements (painting, insulation, architectural enhancements) New kitchen cabinetry, countertops and energy-efficient appliances Extensive plumbing and bathroom improvements Installation of washers and dryers in each unit along with centralized laundry rooms Masonry work Hardware and flooring Waterproofing Storm Water Improvements Accessibility improvements Community Room and Resident Amenity Center including programming area, computer station,

outdoor fitness trail, and fitness room Other General Maintenance Total rehabilitation expenditures for Fireside Park Apartments are projected at 12,429,648 (Hard Costs).
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k Fireside Park Apartments: Exterior Site Enhancements

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Facade Renovation Exterior Paint Door Treatment Replace Gutter/Downspouts Security Controlled Door System

Trash Enclosure Brick Trellis Roofline Gated 3.A.b Packet Pg. 26 A tta ch m

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k Fireside Park Apartments: Community Center Leasing Space

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Fireside Park Apartments: City of Rockville Grant Request

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Rockville Housing Enterprises is respectfully requesting a 500,000 Grant to assist with the rehabilitation of the Fireside Park Apartments.

The grant financing would be limited to the following eligible uses: Construction Costs 3.A.b Packet Pg. 28 A tta ch m
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k Fireside Park Apartments: Financing Plan Sources Uses

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Sources Permanent Loan (221-D4) 40,157,000 Energy Subsidies 236,000 Income During Construction 3,488,147 Maryland Partnership Funds 3,000,000 Maryland Rental Housing Works 2,500,000 Reserves 467,584 Montgomery County 2,763,864 Rockville Housing Enterprises 197,415 City of Rockville Grant 500,000 Low Income Housing Tax Credit Equity 3,262,660 Working Capital Escrow Release 803,140 Deferred Fee 587,981

TOTAL SOURCES 57,963,791 Uses Repayment of Citibank Loan 29,740,382 Repayment of Montgomery County Loan 2,773,724 Repayment of City of Rockville Loan 1,705,709 Construction Costs 12,429,648 Due Diligence Third Party Reports 104,500 Legal 150,000 Soft Costs (architect, consultants, legal, taxes, due diligence) 2,753,718 RHE Developer Fee 1,000,000 Operating and Financing Reserves 2,093,174 Financing Costs 5,132,655

Tagged Passions:legal, taxes, Taxes, services, rental, energy, housing, funding, construction, and grant

TOTAL USES 57,963,791

No additional detail provided

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k Fireside Park Apartments: Financing Plan Summary q Permanent Financing The FHA 221(d)(4) loan guaranteed by HUD is a low-cost, non-recourse, fixed-rate loan. 221(d)(4) loans are fixed and fully amortizing for 40 years. RHE has initiated preliminary discussions with private lenders.

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q
Energy Subsidies The State of Maryland has several programs that can be utilized for energy efficiency incentives for Fireside. RHE plans to pursue the most applicable while developing the revitalization program.

q Income during Construction Net operating income from tenant rent proceeds and other tenant income projected over the rehabilitation and stabilization period of 18 months from the start of construction. Interest on the permanent financing will be paid from reserves funded at closing, allowing all Project net operating income to be utilized as a construction source. q Maryland Partnership Funds (MPH) Maryland Rental Housing Works (RHW) MPH is a partnership loan program designed by the State for entities such as the Housing Authority who plan to own and operate affordable housing with units less than 50 AMI. RHW is subordinate gap financing to be used solely for projects financed using the State Multifamily Bond Program and 4 Low Income Housing Tax Credits. q Reserves Comprised of the existing restricted reserve and capitalized replacement reserve.

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k Fireside Park Apartments: Financing Plan Summary q Montgomery County Long term subordinate financing to ensure preservation of affordability. q Rockville Housing Enterprises RHE has secured pre-development grant financing from HUD. q City of Rockville 500,000 Grant investment. Eligible uses of Grant financing are limited to Construction and Rehabilitation costs. q LIHTC Equity 4 Low Income Housing Tax Credit Equity. RHE will procure term sheets from equity syndicators.

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k Fireside Park Apartments: Rent Comparison versus LIHTC Max

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Current Rent Levels

Post Rehab Rents

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LIHTC Maximum Allowed

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Bedroom 1,120 1,154 1,242

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Bedrooms 1,335 1,401 1,489

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Bedrooms 1,650 1,617 1,721

Current Rent Levels Post Rehab Rents

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LIHTC Maximum Allowed

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Bedroom 1,120 947 1,035

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Bedrooms 1,335 1,137 1,241

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Bedrooms n/a 1,330 1,434

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Financing Request for Predevelopment Funding filed with Columbia Bank December 2016 Financing Approval for Predevelopment Funding - Columbia Bank January 2017

No additional detail provided

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Financing Request for Predevelopment Funds filed with US Department of Housing and Urban Development ( HUD )

No additional detail provided

Tagged Passions:development, housing, Development, and funding

Financing Approval for Predevelopment Funding - HUD June 2017

Preliminary Redevelopment Scope of Work September 2017 30 Site Walk and Property Inspection by Owner, GC, Architect and Property Manager November 2017
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Initiate procurement for Debt/Equity Lender for 221(d)(4) Financing and Tax Credit Equity November 2017

Tagged Passions:taxes, Taxes, and purchasing

Schematic Design and Civil Plans Specifications December 2017

No additional detail provided

*Draft* Financing Request to City of Rockville and Montgomery County January 2018

No additional detail provided

Completion of Project Programming January 2018

City of Rockville Mayor and City Council Work Session: Presentation and Request February 12, 2018

Bid Pricing Set for General Contractor February 2018
Tagged Passions:rfp, RFP, and council

City of Rockville Mayor and City Council Public Hearing February 26, 2018

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Letters of Interest from Lenders and Approved Project Budget March 2018

Fireside Park Apartments: Project Timeline
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k HUD Concept Meeting for 221(d)(4) Financing March 2018

City of Rockville Mayor and City Council: Discussion and Instruction March 19, 2018

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City of Rockville Mayor and City Council: Action April 9, 2018

Submission of Financing Application to the State of Maryland for for 4 Low Income Housing Tax Credits, Tax Exempt Bonds, Maryland Partnership Rental Housing Works funding Threshold Approval from State of Maryland Community Development Administration ( CDA ) July 2018 100 Completion of Building Plans and Specifications Building Permit Submission July 2018 Firm Financing Commitments Secured from Lenders August 2018 Mixed Finance Closing Groundbreaking Ceremony December 2018 Notice to Proceed to General Contractor for Start of Construction December 2018 Substantial Completion of Construction May 2020 Stabilization August 2020 Fireside Park Apartments: Project Timeline
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Fireside Park Apartments Rehabilitation Project 734 Monroe Street Rockville, Maryland 20850 Request for Grant Financing from the City of Rockville Submitted to: Mayor and City Council for the City of Rockville 111 Maryland Avenue Rockville, Maryland 20850 c/o: Mr. Rob DiSpirito, City Manager Prepared by: Rockville Housing Enterprises, Inc. 621- A Southlawn Lane Rockville, Maryland 20850 January 19, 2018 3.A.c Packet Pg. 35 A tta ch m
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INTRODUCTION AND FINANCING REQUEST Rockville Housing Enterprises, Inc. (RHE) is seeking authorization and support from the Mayor and City Council for the City of Rockville to submit a financing application to the State of Maryland for Tax Exempt Bond financing, 4 Low Income Housing Tax Credits and a new permanent mortgage. In addition, RHE respectfully requests the Mayor and City Council for the City of Rockville provide a grant in the amount of 500,000 to assist with the rehabilitation of Fireside Park Apartments. The grant would fund construction costs. PROPERTY DESCRIPTION Fireside Park Apartments is located at 734 Monroe Street (the Property ) less than one- mile from the Rockville METRO Station (Red Line) and the Rockville Town Center, which provides a variety of shopping, dining and entertainment options. In addition to being located near the seat of the county and city government, the location is near the Rockville Transit Station served by MARC and AMTRAK, allowing residents to easily access the Washington D.C. metro area and Mid- Atlantic region. The Property is surrounded primarily by detached and attached single- family homes. The Property is directly adjacent to Dogwood Park, a 44- acre City of Rockville park facility that includes full- lit baseball fields, batting cages, basketball courts, tennis courts, sand volleyball court, and miles of walking trails, along with park shelters, picnic tables, grilling areas, playground areas, restrooms and a concession stand. The Property is also within walking distance of the Richard Montgomery High School and a short distance from Julius West Middle School. Both are highly rated schools within the Montgomery County school system. The Property consists of 236 units - 95 one- bedrooms, 128 two- bedrooms, 12 three- bedrooms, and one off- line residential unit serving as the leasing center, all situated within 22 three- story residential buildings amid 10.78 acres. The current income mix of the Property is 50 affordable and 50 unrestricted, market rate. Construction/Building Description Number of Buildings: 22 residential buildings plus pool house Number of Floors: 3 story garden style walk- up Construction: Concrete slab foundation; Brick exterior with painted wood trim Roof: Pitched with asphalt shingle Windows: Double pane vinyl clad Dwelling Unit Doors: Painted Metal insulated core with locking knob set and dead bolt hardware in painted wood framing Balconies: Painted wooden balconies covered by roofline Common Hallways: Brick and drywall, carpeted, elevated floors accessed via fully covered exterior steel stairs with rubber treads, iron handrails. 3.A.c Packet Pg. 36 A tta ch m
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Floor Covering: Wall- to- wall carpeting in living areas, vinyl tile in kitchen and bath. Plumbing: Copper piping water lines. HVAC: Individual split- system air conditioners with gas- fired forced- air furnaces providing heat and AC to each unit. Hot Water: 80 gallon natural gas 250,000 BTU/hr units installed in first floor storage rooms. There are a total of 14 water heaters serving the 22 residential buildings. Electrical: Copper wiring. Fire Prevention: Hard wired smoke detectors with battery back- up. Topography: Slopes moderately downward from southwest to the northeast across the site. Accessibility: The Property is accessed from Monroe Street and is adjacent to Dogwood Park Common Area Amenities: Swimming Pool, Playground, BBQ and Picnic Area, Optional Reserved Parking, Pet Friendly Apartment Amenities: Private Patio or Balconies, Kitchen with breakfast bar, Individually controlled heating/cooling, Large Closets, Wood- burning fireplace in two- and three- bedroom units, High Speed internet/TV access. OWNERSHIP AND DEVELOPMENT TEAM The ownership and development team are well qualified and have a proven track record of successfully executing complex mixed finance transactions similar to the proposed plan for Fireside Park Apartments. The property management team is an industry leader in residential property management and has significant experience in transitioning properties from rehabilitation programs through community stabilization. Ownership Entity RHE was established in 1957 as the City of Rockville's public housing agency providing affordable housing opportunities for the citizens of Rockville. RHE is an independent agency that functions under Federal and State law, but was created by the Rockville Mayor and Council to build, own, and manage affordable housing in the City. RHE has developed and managed both affordable rental, including projects financed with Low Income Housing Tax Credits, and home ownership units. RHE s mission is to be an effective and innovative agency dedicated to enhancing opportunities for self- sufficiency and quality, safe, affordable housing for citizens of Rockville. RHE staff are well qualified and equipped to lead the refinance and rehabilitation of Fireside Park Apartments. RHE Staff assigned to work on Fireside Park Apartments Jessica Anderson, Executive Director. Ms. Anderson will oversee the overall refinance and rehabilitation of Fireside Park Apartments by providing reviews, oversight and checks and balances on the Development Team and Property Management Team. Review contractual agreements, interface with RHE Board of 3.A.c Packet Pg. 37 A tta ch m
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Commissioners, and manage the development team, Property Manager and other stakeholders. Ms. Anderson has extensive experience in the management of large mixed finance redevelopments as well as real estate finance and is well positioned to lead the refinance and rehabilitation of Fireside Park Apartments. Ms. Anderson has managed over 5 mixed income affordable redevelopment projects in South Carolina, Georgia and Louisiana with combined Total Development Costs of over 570 million and a total of 2134 affordable and market rental and homeownership units. Additionally, Ms. Anderson has extensive finance and underwriting experience gained during her tenure as the Manager of the Affordable Housing Program at the Federal Home Loan Bank of Dallas. Christele Etienbla, Finance Analyst. Ms. Etienbla will be responsible for management of public solicitations and procurements, maintenance of financial and asset management records. Ms. Etienbla is a finance professional with extensive banking experience including 13 years in senior leadership roles within the banking and financial services sector , working predominantly in Retail Banking. RHE staff has worked closely with its Board of Commissioners over the past two years to strategically craft the refinancing plan and prepare for the take- out of the existing Project financing. During its monthly Board meetings, RHE has and will continue to provide a full report on project progress from pre- development through project completion and stabilized occupancy. The organizational structure for the refinancing will be comprised of the following: Project Owner/Sponsor RHE will establish a Limited Partnership (LP) entity to serve as the Project Owner and borrowing entity, with RHE operating as a general partner in the LP. At the time of the financial closing, the selected Low Income Housing Tax Credit investor ( Investor ) will serve as the Limited Partner, resulting in an ownership split as follows: Low Income Housing Tax Credit Investor 99.99 and RHE s entity .01 . Developer RHE will likely form a single purpose entity to serve as the Developer for the rehabilitation and refinancing.

Tagged Passions:property, taxes, manager, Taxes, purchasing, services, development, rental, solicitation, finance, housing, program, Development, parks, market, and refinance

RHE Board of Commissioners In addition to the RHE staff, the RHE Board of Commissioners bring a wealth of knowledge and experience in the arenas of affordable housing finance, management and overall business management. Mr. Ed Duffy, Chairman. Chairman Duffy, served as the Chief of Management and Support for the Department of Community Planning and Development Services for

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the City of Rockville. Mr. Duffy worked with the City of Rockville for over 44 years. During his tenure at the City of Rockville, Commissioner Duffy helped develop the MPDU, REACH program and assisted helping displaced families find permanent housing. Mr. Steven Marr, Vice Chairman. Vice Chairman Marr is a banking and finance professional who has over 30 years of experience in real estate finance with an emphasis on multifamily transactions. Commissioner Marr has been a member of the RHE Board for over 10 years, and provides insight into multifamily housing finance and property management. Mr. James Hedrick, PhD., Commissioner. Commissioner Hedrick also brings a wealth of affordable housing experience to RHE. Commissioner Hederick is a Housing and Community Development Specialist for the Federal Housing Finance Agency, and has previously worked in Housing Authorities across the country providing technical assistance in the areas of real estate redevelopment and finance. Commissioner Hedrick previously served as an economic development specialist with the Office of Rural Housing Economic Development for the U.S. Department of Housing and Urban Development (HUD). Mr. Kenric Brooks, Commissioner. Commissioner Brooks is an Operational and Organizational Management Professional. Commissioner Brooks is a retired Army Veteran with over 20 years of direct experience in organizational management. Commissioner Brooks currently manages a team of over 100 persons at Amazon. Ms. Theresa Defino, Commissioner. Commissioner Defino is a journalist and brings many years of experience as a community activist in the City of Rockville. RHE conducts an annual audit for all HUD funded programs, as well as each separate single- purpose real estate entity, including RELP One and Fireside Park Apartments. RHE s record keeping policies are specific to each program. For the HUD public housing and Housing Choice Voucher Programs, RHE keeps records, tenant and program participant related records for 3 years past the transaction date. All audit reports are kept indefinitely, financial reports are kept for 3 years unless otherwise dicated by finance covenants, federal, local or state law. For the Low- Income Housing Tax Credit Program RHE keeps records indefinitely as is required for the program.
Tagged Passions:property, taxes, audit, Taxes, military, development, internet retailers, rental, financial report, retirement, finance, housing, program, Development, rural, parks, community development, and economic development

Development Consultant RHE procured NDevCo as the asset and redevelopment manager for Fireside Park Apartments. NDevCo has strategically partnered with the Hampstead Group and (collectively, the Development Consultant). Together they work as the Project s Development Consultant and will manage the project from predevelopment through construction administration, project completion and stabilization. The partnership s demonstrated capabilities, qualifications and experience with mixed- financed and mixed- income transactions involving the rehabilitation and preservation of affordable housing developments is exceptional. Both firms are well versed in the development process and

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k A pa rtm en ts Re fin an ce an d M od er niz ati on ) 6 P a g e have a demonstrated track record of successfully working with the State of Maryland utilizing Housing Tax Credits, Tax Exempt bonds and multiple equity lenders. Collectively, the team has been planned and developed over 1,000 mixed income, mixed financed developments with a total development cost of approximately 115,561,767 in the Washington metropolitan region. NDevco and Hampstead bring direct experience in virtually every area of community redevelopment and affordable housing finance, creatively layering a variety of financing sources together to create the most advantageous financing structure for the Project to allow for modernization and much needed upgrades and improvements with quality finishes. NDevco, LLC. NDevco, LLC plans, develops, and preserves signature, affordable housing communities. NDEVCO, LLC s mission is rooted in the undertaking of projects that require creative solutions and public/private partnerships to achieve complex community development and neighborhood revitalization objectives. Over the past five years, NDEVCO, LLC has led the planning efforts and co- developed over 525 units of affordable and mixed income housing in the Washington, D.C. metropolitan area. NDEVCO, LLC s past performance includes the master planning and development of projects amounting to approximately 115 million dollars of total development costs. This success is a result of NDEVCO, LLC s community- centric approach and proven track record of developing effective public/private partnerships with clients, community and civic stakeholders. The Hampstead Group. The principals of The Hampstead Group, Inc. are experienced affordable housing developers who have developed approximately 5,800 units across the United States, including the 130 unit R Street Apartments development in NW Washington, DC that was financed by DHCD. The Hampstead Group specializes in the preservation of existing affordable housing for an extended regulatory period, using multiple layers of public and private financing including tax credits. Hampstead focuses its development efforts on infill neighborhoods with other active redevelopment projects underway and typically works with local stakeholders to create a more cohesive development plan to create long term sustainable neighborhoods. Hampstead s extensive track record, combined with broad industry knowledge provides valuable insights into client needs and market conditions to be able to negotiate optimal risk allocation. In particular, the depth and geographic reach of our group makes us an ideal choice when it comes to large portfolio transactions with substantial due diligence requirements. Hampstead has developed a strong reputation and gained valuable experience related to development and repositioning of existing properties. Hampstead is active in the Washington Metropolitan market where participation is limited by the fact that such development requires the assemblage of complex, multi- layered financing and that developers must be prepared to address the issues associated with existing partnerships in order to purchase assets for such redevelopment. Another complexity is the overlay of various regulatory constraints related to the many financing pieces. Every bit as important 3.A.c Packet Pg. 40 A tta ch m

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as purchasing properties and financing them is completing the rehab on budget and successfully operating the properties post rehab. Hampstead often joint ventures redevelopment efforts with both new and existing owners as well as non- profits. Past Performance of Similar Projects in the Region Completed by the Joint Venture of

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NDEVCO The Hampstead Group Name Summary Cumberland Arms Cumberland, MD Acquisition and Rehab of 3 developments Concord Apartments Washington, DC Acquisition and Redevelopment of 81 apartments and the new construction of 7 apartments Completed Valencia Apartments Washington, DC Acquisition and Redevelopment of 32 apartments and the new construction of 2 apartments Completed Vizcaya Apartments Washington, DC Acquisition and Redevelopment of 17 apartments and the new construction of 1 apartment Completed Homestead Apartments Washington, DC Acquisition and Redevelopment of 55 apartments Completed Kingston Apartments Washington, DC Acquisition and Critical Repairs of 23 apartments In Development Architect The Arcadia Group. A Maryland licensed architect is led by a team of architects with extensive skills and experience in affordable housing rehabilitation, design, and construction administration. Arcadia has worked on a number of projects involving public financing through the State of Maryland s Community Development Administration.

Civil Engineer AMT LLC. Based in Montgomery County, Maryland, AMT specializes in engineering services, land development, utility infrastructure, drainage, low- impact development and stormwater management General Contractor Harkins Builders is an industry leader in providing professional preconstruction and construction management services for clients with negotiated and design- build construction projects. With annual revenues of over 225 million and three locations serving the Mid- Atlantic region, Harkins offers a diversified portfolio of commercial, mixed- use, multifamily, healthcare, student housing, senior living, and military construction expertise. Harkins has extensive experience in renovation and historical renovation projects, and working with federal, state, and local governments. 3.A.c Packet Pg. 41 A tta ch m
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Associated Builders and Contractors has recognized Harkins as a nationally Accredited Quality Contractor for its commitment to safety, training, employee benefits, and community relations.

Property Manager Edgewood Management Corporation A leader in the field of affordable housing management, especially HUD subsidized and mixed- income properties, with a management portfolio of over 25,000 units nationwide. Since taking over management of the Property in July 2017, the management team has worked successfully to get the Fireside s occupancy levels above 90 . PROJECT FINANCING RHE is in a unique position to refinance the property with a HUD 221 (d)(4) loan. The advantages of the 221 (d)(4) loan product are: the 40 year term, the low- interest rate, and the fact it is non- recourse and guaranty by HUD. Fireside Apartments is wholly owned by Rockville Housing Enterprises. Under RHE s refinancing strategy for the rehabilitation, the City of Rockville has no ownership or financial liability in the Property. The original acquisition of Fireside Park by RHE occurred in December 2012 and was financed with a 7 year mortgage term. It was originally determined that the original 7 year loan would be refinanced and at the time of refinance the property would rehabilitate the property utilizing the Low Income Housing Tax Credit Program. RHE is excited to be on track with the implementation of the refinance and rehabilitation plan. RHE will pay off the City of Rockville, Montgomery County, and Citibank and refinance the property through a mixed finance redevelopment strategy. The rehabilitation financing strategy includes, but is not limited to the State s Multifamily Tax Exempt Bond program, the Maryland Partnership and Rental Works program, 4 Low Income Housing Tax Credits, subordinate loan financing from Montgomery County and a City of Rockville grant. RHE respectfully requests the following from the Mayor and City Council: A grant in the amount of 500,000 is requested for the project development plan to assist with the rehabilitation and preservation of affordable rents at the Property. The grant financing would be limited to the following eligible use: Construction Costs. 3.A.c Packet Pg. 42 A tta ch m

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Development Budget and Operating Proforma

No additional detail provided

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Sources Permanent Loan 40,157,000 Working Capital Escrow Release 803,140 Energy Subsidies 236,000 Income during Construction* 3,488,147 State of Maryland DHCD Partnership Loan 3,000,000 Reserves 467,584 Montgomery County Loan 2,763,864 RHE Funds 197,415 State of Maryland Rental Housing Works 2,500,000 City of Rockville Housing Opportunities Grant 500,000 Low Income Housing Tax Credit Equity 3,262,660 Deferred Developer Fee 587,981 Total Sources 57,963,791 Uses Repayment of Citi Community Capital Loan 29,740,382 Repayment of Montgomery County Loan 2,773,724 Repayment of City of Rockville Loan 1,705,709 Rehabilitation Costs** 12,429,648 Due Diligence 3rd Party Reports 104,500 Legal 150,000 Soft Costs 2,753,718 RHE Developer Fee 1,000,000 Operating Reserves Escrow 2,093,174 Financing Costs 5,132,655 Total Uses 57,963,791 *estimated projection based on current proforma **redevelopment of 236 residential units Rents

RHE has developed a plan to protect the current rents for each affordable household based on the property s existing rent levels, and to limit future rent levels for new families at or below 60 of area median income. Annual rent increases for the affordable units will be based on Montgomery County s rent control ordinance. 3.A.c Packet Pg. 43 A tta ch m
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Operating Expenses Annual Operating Expenses: 1,546,984 ( 6,555 per unit) based largely on Fireside Park s previous years of operation and the development and management s team experience with similar projects in the Washington D.C. area.

Tagged Passions:development, Development, and parks

REHABILITATION PROGRAM The development team has conducted extensive investigation related to project physical needs and have consulted with the management team with respect to what they believe are the most pressing needs for the marketability and stabilization of the Property. Natura, a professional third party consultant, was engaged to perform a formal physical needs assessment to ensure the team approached the rehabilitation objectively and comprehensively. A significant portion of the rehabilitation activity will be focused on system improvements designed to reduce energy and maintenance expenditures and to make the property viable/sustainable going forward. The Project has 236 apartments. However, only 235 of the apartments are currently operational and contributing economic value. Due to the limited common area/programming space on site, the off- line 1 bedroom unit functions as the leasing office. The rehabilitation program will expand the leasing office and build out a community center area featuring a resident programming area, fitness room, and a computer lab. Additionally, the Project will add a new, 1 bedroom unit to the Property. RHE realizes the importance and value of the economic opportunity of having 100 of the 236 units operational. Total improvement and rehabilitation expenditures for the Project are expected to be approximately 57,963,791 (approx. 245,609 per unit). The rehabilitation program will include the following: Replace bathroom toilet, vanity, sink, tub, showerhead, and hardware Paint kitchen and bath Conversion of basement areas into 2 residential units Hearing and vision impaired alterations for Section 504/UFAS requirements Remodel existing rental/management office and conversion of an apartment unit into a community programming area Conversion of basement space into 3 tenant laundry centers Remodel pool restrooms and enhance pool fence Patch damaged asphalt and replace damaged concrete walks and steps Draining repairs and improvements Upgrade water and sewer infrastructure lines Replace entrance door systems including electronic locks with fob control Balcony and railing repairs and replacements Replace gutter downspouts Waterproof subgrade walls

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Attic insulation Paint, replace flooring in common areas Replace water heater/circulation pumps Replace carpeting with resilient flooring in all areas except bedrooms Replace kitchen cabinets and countertops including sink and hardware Replace kitchen range hood, refrigerator, AC condensing units, and furnace (Energy Star) Replace range Replace thermostat Duct sealing and repairs Replace apt. unit entrance/interior door and hardware New window blinds Replace apartment unit light fixtures with LED smoke detectors Landscape enhancements, including tree trimming New property signage Exterior architectural enhancements Exterior building painting Redesigned trash enclosures The total development cost for the Project will be 57,963,791.

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PROJECT TIMELINE The following is the proposed timeline detailing critical path milestones for the refinancing and rehabilitation of the Project:

Task Date Financing Approval for Predevelopment Funds Columbia Bank 1/2017 Financing Approval for Predevelopment Funds HUD 6/2017 Preliminary Scope of Rehab Work 9/2017 30 Site Walk and Property Inspection by Team 11/2017 Initiate Procurement for Debt/Equity Lenders 11/2017 Schematic Design and Specifications 12/2017 Financing Request submitted to City of Rockville 1/2018 Completion of Project Programming 1/2018 City of Rockville Mayor and City Council Presentation/Work Session 2/12/18 Preliminary Pricing from General Contractor 2/2018 City of Rockville Public Hearing 2/26/18 Letters of Interest and Project Budget Approval 3/2018 HUD Concept Meeting 3/2018 City of Rockville Mayor and City Council: Discussion and Instruction 3/19/18 City of Rockville Mayor and City Council: Action 4/9/18 Submission of Financing Application to State of Maryland 4/2018 Threshold Approval from State of Maryland 7/2018 100 Building Plans and Specifications Permit Submission 7/2018 Firm Financing Commitments 8/2018

3.A.c Packet Pg. 45 A tta ch m
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No additional detail provided

Mixed Financed Closing 12/2018 Start of Construction 12/2018 Substantial Construction Completion 4/2020 Stabilization and Conversion 11/2020 - Italics indicates task completed

AFFIRMATIVE FAIR HOUSING AND MARKETING PLAN RHE and its management team have and will continue to take proactive, meaningful actions through outreach to the local and area contacts, and internal client inquiries about affordable housing availabilities. Currently, the Property has 91 occupancy and is under the management of Edgewood Management. As the rehabilitation project evolves the optimal vacancy will consist of 1 building (approximately 22 apartment units) at a time to allow the general contractor to always have access to a complete building throughout the rehabilitation process. Towards the completion and turnover of the Project, the management team will inform the key community contacts of the bedroom type and timing of unit availability through phone calls, email, leasing brochures, leasing flyers, floor plans, and resident referall flyers to ensure timely lease- up occurs. Since taking over the Property in 2017, Edgewood management launched a new, robust community website for the Property with a market rate appeal. The search engine optimization program is aligned with the overall marketing strategy to allow potential prospects to find exactly what they are looking for within Fireside Park Apartments. The marketing strategy is based on four key principals 1) Create a comprehensive and strategic online presence for the community to improve ratings and reviews, thereby increasing qualified traffic conversion and improving the Fireside brand; 2) Always provide excellent customer service with sense of urgency; 3) Staff must be informed, know the competition in the Rockville market and keep online advertisements fresh with a strong call to action; 3) Training for professional appearance, greeting, product presentation, and building relationships. IMPORTANCE RHE s request for a 500,000 grant will greatly assist the Authority with the rehabilitation of Fireside Park Apartments that is not only consistent with the affordable housing goals of the City of Rockville and Montgomery County but is an opportunity for the Property to serve as a shining example of a successful public/private partnership. ATTACHMENTS 1. Organization Chart (Borrower Developer) 2. Project Sources and Uses 3. Project 20 Year Proforma 3.A.c Packet Pg. 46 A tta ch m
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4. Project Operating Expenses 5. Project Rent Detail 6. Project Income During Construction 7. Preliminary Project Drawings 3.A.c Packet Pg. 47 A tta ch m

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Fireside Park Apartments Rockville, Maryland

Organizational Chart of Owner/Borrower Fireside TBD, LP
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RHE Fireside Park, Inc. (100 MEMBER)

Fireside TBD, LP LIHTC INVESTOR (99.99 LIMITED PARTNER)

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RHE Fireside Park, Inc. (.01 GENERAL PARTNER)

Current Structure Proposed Structure 3.A.c Packet Pg. 48 A tta ch m

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