HOME Funds and Strings Attached

[Thomas Hildebrandt]

Hello,

I am a partner on a project to rehab a 12-unit apartment building in Ohio.  We intend to hold this building long-term for income.  We are getting state and federal historic rehabilitation tax credits, and we accept the restrictions associated with doing a historic rehab.  We are also getting a 15-year property tax abatement, which requires us to be Enterprise Green Communities certified.  Again, we are OK with that, as the energy efficiency helps us go all-electric to avoid gas infrastructure and will save us money on water, which we intend to include in the rent (landlords are responsible for unpaid water bills in this jurisdiction).

On top of this, we have an opportunity to get a $300,000 loan from federal HOME funds. Most of the loan is projected to be forgiven after 10 years without repayment. This represents approximately 30% of the financing for the project. In exchange, we have to designate 8 of the 12 units as affordable units for 10 years, with income limits (80% of area median income) and rent limits (HUD market rate). We also have to accept Section 8 tenants. There are a lot of compliance items, including reporting, inspections, racial quotas, low-income employee quotas, requiring tax returns of low-income contractors, affirmative marketing requirements, evictions only for repeated violations and good cause, no waiver of jury trials, environmental oversight, etc.

A lot of these local and federal compliance requirements are a real pain.  But given the area that the apartment building is in, we will likely charge rents within the range of the affordable rents, and our tenants likely will be within the income ranges.  We probably will meet the quotas anyway.

Does anyone have experience with HOME funds?  Thoughts on whether we should take the "free" money or bridge the gap with other financing?  Thanks!