Tip:
Highlight text to annotate it
X
Welcome to the CHDO Roles webcast session,
part of HUD's introduction to the New HOME Final Rule
webcast series.
The 2013 HOME rule clarifies and establishes new roles
for Community Housing Development Organizations
as owners, developers, and sponsors of housing.
This webcast introduces these changes.
The new rule contains significant changes relating to CHDOs.
It includes changes to staff capacity requirements
in the CHDO Definition and new requirements related to the
commitment and expenditure of CHDO set-aside funds.
This webcast focuses on the definitions of
"own, develop and sponsor" established in the rule.
The HOME statute has always required that 15 % of HOME funds
be used only for housing that is
"owned, developed or sponsored" by CHDOs.
Previously, HUD described
each of these roles in administrative guidance.
The new rule codifies each of these roles in regulation
for the first time at 24 CFR 92.300(a).
HUD has made some changes to these roles,
which we will review in a moment.
The new rule also established
more stringent capacity requirements
for nonprofit organizations to qualify as CHDOs.
CHDOs are required to have paid staff with experience relevant
to the specific role that they will undertake
as either the owner, or the developer or the sponsor of housing.
So, the required experience would be development experience
for a CHDO acting as a developer or sponsor of housing.
A CHDO acting as an owner
would need to demonstrate experience owning and managing housing.
One of the most significant changes in the new rule
relates to the role of a CHDO as owner of rental properties.
In the past
the roles of owner and developer were essentially identical
because, in either case, the CHDO acted as the developer of the property.
In the new rule, HUD has changed the role of a CHDO rental owner
so that the CHDO owns the rental property in fee simple
during the affordability period
but does not directly undertake the development of the property.
The CHDO can purchase standard rental housing
that it will own and operate.
Or, in projects involving
rehabilitation or new construction
the CHDO purchases the land or project and contracts
with a developer to carry out those development activities.
The CHDO must maintain control of the development process.
If it lacks in-house capacity, it may hire or contract
with an experienced project manager
to oversee the project on it's behalf.
This new role is significant because it will enable
many nonprofits that lack in-house development capacity
to access the CHDO set-aside for the first time.
Neighborhood-based nonprofits that operate on too small a scale
to sustain development capacity, nonprofits in rural areas,
and other private nonprofit housing organizations
will be eligible to receive CHDO set-aside funds
so that they can own and operate housing
that serves the low- and very low-income residents of their neighborhoods.
The definition of Developer is largely unchanged
although some clarifications have been made.
In the developer role,
the CHDO must own and directly develop the property.
For rental projects, the CHDO is required to own the housing
act as the developer in sole charge of the development process
and then continue to own the project
in fee simple absolute and maintain
effective project control during the period of affordability.
For homebuyer projects,
the CHDO must be the owner and developer of the project,
arrange project financing,
and remain in sole charge of the development process
until it sells the unit to an eligible homebuyer.
Finally, the new rule revises the CHDO sponsor definition
so that there are now two models.
The original sponsorship model remains largely unchanged.
Under this model, a CHDO owns and develops a rental project
on behalf of another nonprofit organization and then
transfers ownership of the project to that nonprofit
at a pre-determined point in the development process.
The CHDO must obtain title to the project before development begins.
It must also identify the nonprofit that will eventually
own the property before it enters into a written agreement
for HOME funds with the participating jurisdiction.
The new rule states that the nonprofit to which ownership
is transferred cannot be an entity created by a governmental entity.
If transfer does not occur for any reason,
the CHDO retains responsibility for both the HOME funding
and the HOME project.
The new rule also establishes a new sponsorship model
that applies to CHDO set-aside projects that will be owned
by a wholly owned subsidiary of the CHDO
or a partnership of which the CHDO or it's
wholly owned subsidiary is the sole managing member
or sole general partner.
Rental project partnerships are still permitted under the
sponsor definition, but with some additional clarifications
regarding the required project control under such scenarios.
The CHDO, or it's wholly owned subsidiary,
must be the sole general partner of a limited partnership
or the sole managing member of a limited liability company.
The previous rule did not reference LLCs
which are a more recent and increasingly popular form of ownership.
When a CHDO set-aside project is owned by a Limited Partnership
or Limited Liability Company under this sponsorship model,
the PJ must ensure that the partnership agreement
does not permit the CHDO or it's subsidiary to be removed as
sole general partner or sole managing member
except for cause - such as mismanagement of the project.
If the partnership agreement permits removal of the CHDO
or its subsidiary for cause, it must also stipulate
that the new sole general partner or managing member
can only be another CHDO.
These new and revised roles apply to CHDO projects for which
HOME funds are committed on or after August 23, 2013.
Consequently, PJs must ensure that they commit set-aside funds
only if the CHDO is functioning in one of these capacities.
If that is not the case, the PJ can still commit regular,
non-CHDO HOME funds to the project.
HUD will issue additional guidance on these provisions.
However,
PJs must immediately begin implementing these changes.
First, PJs must update their policies and procedures
to ensure that all projects to which they are about to commit
CHDO set-aside funds meet the new requirements.
This may also include revisions to applications
for CHDO designation and CHDO set-aside project applications.
PJs should also assess all potential set-aside projects
moving through their pipeline for compliance with the new provisions.
HUD recommends that PJs pay particular attention
to the ownership structure of proposed Low-Income Housing Tax Credit projects
that will be owned by partnerships including CHDOs.
Finally,
PJs should conduct outreach to existing CHDOs
and to nonprofit organizations that may be considering
applying for CHDO status.
PJs should ensure that these partners understand the new
requirements for housing owned, developed and sponsored by CHDOs
and that the projects they propose
for set-aside funding in the future will comply.
Thank you for joining in the webcast session on "CHDO Roles."
Be sure to tune-in
to the additional webcasts in this series,
including the CHDO "Qualifications and Certification" session.
You can also visit the New HOME Final Rule page
on the HOME website
for additional guidance and resources.