203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 1 Introduction: Habitat for Humanity New York City hereby seeks approval from its Real Estate Investment Commitment to enter into a purchase contract to acquire the property known as 203 Marion Street, a 6-unit, multi-family building (the ?Property?) located within approved NSPZ target area in Brooklyn, NY. proposes to purchase the Property for $623,700 ($103,950 unit) and spend an additional $1,212,776 ($202,129 unit) to renovate the entire building over a 10?month period. Property: The Property is a 4,500 square foot (above grade) 3?story walk?up that was built around 1906 of brick construction. Each ?oor contains two apartments with almost identical floor plans, which intends to renovate into 2?bedroom, 1 bathroom units. The 25 feet 60 feet building sits on a lot of 25 feet 100 feet. There are approximately 4,500 square feet above grade and 1,500 square feet in the unfinished cellar. The backyard will be accessible to all occupants via the basement, which will be finished as part of the rehabilitation work. Front of Building Additional pictures can be found in Exhibit A to this memorandum. 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 2 Location: The property is located on the northern side of Marion Street between Ralph Ave and Howard Ave in the Bedford Stuyvesant neighborhood of Brooklyn (Block 1513, Lot 61, Census Tract 379, Community Board 3, City Council tract 41). Marion Street is mainly residential (2 and 3~story walkups). The area is zoned R6B Residential. East and West views of Marion St. The Property sits 3 buildings in from the northeast corner of Ralph Ave and Marion St. On the corner is a religious facility and across the street taking up 3/4 of the block is Public School 040 and Carver Playground. The Property is also located across Ralph Avenue from Brevoort Playground, within a couple of blocks of Jackie Robinson Park and within several blocks of Fulton Park and Saratoga Square Park (See Map A-1 below). Brevoort Playground, located on the western side of Ralph Ave. is part of Brevoort Houses, a 17.26-acre NYCHA housing development that consists of 13, 7?story buildings with 894 apartments housing some 2,001 residents, built in 1955. Fulton Ave. two short blocks to the south is a major commercial corridor. The Property is 0.62 miles from the two nearest police stations at 30 Ralph Avenue (precinct 81) and 127 Utica Avenue (precinct 77) and 0.40 miles to the nearest fire station at 423 Ralph Avenue. The Property is easily accessible through the A and Subway line at Ralph Avenue. The B47 bus line also runs along Ralph Avenue and the B25 bus line runs along Fulton Avenue. (See Map below). 12/16/2015 203 Marion St, Brooklyn, NY 11233 gmb?zg: 33am 131% Fia?m ?argarx??m ?mm a Page 3 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 4 Current Status: As per property acquisition policy approved by the Board and the Real Estate Investment Committee in August 2010 and pursuant to the Transaction Overview Memorandum regarding Habitat Bed?Stuy Homes dated August 16, 2010 and presented to the Real Estate Investment Committee during the August 24, 2010 REIC call, 203 Marion is a property that was first targeted for acquisition and inclusion in Bed Stuy Homes Condominium in late June 2010. An acquisition package was presented to the REC Committee in early July and entered into a 60~day non-binding letter of intent to purchase that was accepted by the Seller on July 19, 2010. The 60?day due diligence period was extended by 60 days on August 30, 2010. As of this writing (10 27/ 10), has received clearance from HUD to proceed as further detailed in this memorandum and all due diligence items have been completed except for Title review, which is expected in by Friday 10/29/10. proposes to purchase the Property from 203 Marion LLC., which is controlled by Mr. Issac Katz, a private investor active in the Bedford Stuyvesant market and the same owner for 475 Monroe. There are no current DOB violations. 203 Marion is classi?ed by the City of New York as a ?heretofore erected Old Law tenement.? The building predates enactment of the 1938 code. A certi?cate of occupancy dated March 26, 1986 is on ?le. expects to perform the rehabilitation of 203 Marion under an Alteration Type II permit which does not require an amended Certi?cate of Occupancy upon completion as the use, egress or occupancy does not change. This will require that building plans be submitted and approved and work performed under the 1938 Building Code, although plans will have to comply with current building code for mechanical systems and accessibility requirements, as well as current NYC Energy Code. The Property has been entirely vacant for some time. would be purchasing it based on this vacancy under NSP2 Eligible Use E. As described in the August Transaction Overview Memorandum, it is intention to add the Property?s 6 units to the Habitat Bed?Stuy Homes Condominium, which will ultimately contain approximately 30-40 dwelling units, including 8 units within 100 Ralph Ave, 8 units within 475 Monroe St, and 3 units within 491 Bainbridge St. previously (or in the case of Bainbridge, about to be) approved by the REIC. The Property?s location in relation to these other properties is shown in the map below. 475 Monroe is the furthest from the Property (A), located 1.4 miles to the northwest. Bainbridge is 2 blocks north and east, and 100 Ralph (C) is approximately 8 blocks to the Property?s north. Trafmsw?im 1% i m? ma Qit??gutuukt?: 9.1, $3 g? 25? Raises ?33 2? a? graf?ti a 3; stews.233. ?Eta 31;? {at ?t - as 35?} ?is??ig?t? s: hi3? a a: ?9 Fatima ?St12/16/2015 203 Marion St, Brooklyn, NY 11233 Page 5 The Purchase Agreement has been drafted and a summary of same, prepared by counsel, Russ Kivler of Hirschen Singer Epstein, is appended below: Premises: Seller: Purchase Price: Downpayment: Number of Units: Condition: Appraisal: Title: Property Tax Exemption: Due Diligence Period: Seller Consents: Transfer Taxes: Service Contracts: Broker: CONTRACT SUMMARY 203 Marion Street, Brooklyn, New York 203 Marion Street, Brooklyn, New York (between Ralph and Howard Avenue in the Bedford Stuyvesant neighborhood) Marion Lodge LLC, controlled by Issac Katz $623,700 $31,185 held by Purchaser?s attorney, Hirschen, Singer Epstein LLP, or Purchaser?s title company. 6 The building will be conveyed vacant. Purchaser will undertake a complete, gut rehabilitation of all 6 units. The Property will be purchased AS IS. Environmental Report reveals mold, asbestos and lead paint. The Environmental Report has been approved by HUD per the NSP guidelines and the rehabilitation will include a remediation effort. Appraised value of $630,000. Title has been ordered. To be updated when report is received. Purchaser to apply for -51 exemption. No due diligence period. Seller to pay State transfer tax. The transfer is exempt from City transfer tax as a transfer to a not-for?pro?t Imagine Marketing. Paid by Seller. At execution of the Purchase Agreement, would make a 5% deposit Closing would then occur within 30 days, on or about December 1, 2010. Title has been reviewed and a new survey undertaken. 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 6 DUE DILIGENCE RESULTS Valuation: received an appraisal from Neglia Appraisals, Inc. of Brooklyn, NY. The appraisal, dated as of August 26, 2010, estimated the as?is market value to be $630,000 (equal to original offer), resulting in a reduced purchase price, at 99% of this appraised amount, of $623,700 or $103,950 unit. To arrive at this value, the appraiser analyzed 5 recent sales comparables and concluded an adjusted price per square foot of gross building area in the amount of $140, which when applied to 4,500 SF of net building area renders a value of $630,000. Project Development Costs 1 Plan: commissioned a Property Condition Report from KOW Building Associates of Smithtown, NY. The final report, dated August 27, 2010, notes that the Property requires a complete interior renovation. also commissioned ALC Environmental to test for lead paint and asbestos containing materials They found an abundance of lead paint and some ACMS, which will all have to be carefully removed. intends to carry out a full ?gut? renovation, completing the project according to LEED for Home standards; a highly qualified Energy Consultant will be hired to guide through this process as well as a qualified lead paint and asbestos removal contractor. The Property contains two apartments on each of its three floors with a center staircase. Each apartment contains 2 bedrooms, kitchen, bathroom, and living room and measures approximately 600 SF. The bedrooms are at the front and back of the unit with the common space in between, linked by an open corridor. We do not have as~is layouts, however, the units are similar to another building that we are pursuing (849 Halsey) for which we do have layouts (see Exhibit for as?is layouts of 849 Halsey). The building is also very similar to 830 Halsey, a 6~unit building renovated by the Property?s Seller. As? renovated ?oorplans as well as as?renovated interior photos of 830 Halsey are attached in Exhibit to give the reader an idea of what is possible for the subject space. We may also consider duplexing the ground ?oor units with a portion of the cellar area as was done at 830 Halsey. As can be seen in the below chart, has budgeted $174,304 per unit for hard and soft costs including a 10% hard cost contingency ($68,182) as well as a 10% soft cost contingency Because this building has less than 8 units, the Davis Bacon prevailing wage law does not apply. Based on a purchase price of $623,700, the total project cost is expected to be $1,836,476. The permanent equity of $7,012 will be used to initially fund the Property?s operating reserve. DEVELOPMENT BUDGET CONSTRUCTION PER UNIT TOTAL 3/2 NSP 8 146,918 881,508 48% CASH EQUITY 8 159,161 8 954,967 52% TOTAL 8 306,079 8 1,836,476 100% USES ACQUISITION 8 103,950 8 623,700 34% PROJECT COSTS HARD COSTS 8 113,636 681,818 37% HARD COST CONTINGENCY (10% of hard costs) 11,364 68,182 4% SOFT COSTS 44,822 268,930 15% SOFT COST CONTINGENCY (10% of soft costs) 8 4,482 8 26,893 1% SUB-TOTAL 8 174,304 1,045,823 57% DEVELOPERS FEE 8 27,825 8 166,952 9% TOTAL 8 306,079 1,836,476 100% PERMANENT SOURCES GROSS SALES PROCEEDS 160,330 961,980 109.1% PERMANENT EQUITY (1,169) (7,012) NSP 146,918 881,508 100.0% TOTAL 391,993 8 3,135,943 100.0% 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 7 A detailed breakdown of the soft cost budget is attached as Exhibit to this memorandum. Habitat Equity: The $788,015 in required cash equity for Marion ($954,967 less developer fee of $166,952) will be paid for out of Capital Construction Reserve. Total Available from Capital Construction and Acquisition Rehab Reserve a 0 10/26/10 $3,600,000 Fundraised Funds 750,000 (2) $4,350,000 Cash Equity Money Spent Cash Needed Needed to Date to Date Equity Needed for Marion St 35 788,015 3 7,700 $780,315 Equity Needed for Bainbridge St 3? 492,904 3 $492,904 Equity Needed for Monroe Avenue 1,332,148 8 8,300 $1,323,848 Equity Needed for Ralph Avenue 8 1,186,223 Eli 107.840 31.078.38.72 Sub-Total 5 3,799,290 123,840 $3,675,451 Net Amount of Capital Reserve Remaining in the Reserve (1) Funds from this reserve will be replenished from sales proceeds at project completion, effectively creating a revolving loan fund. (2) In addition to the revolving loan fund existing capital reserve, we anticipate raising $750,000 in new funds for the Habitat Bed Stuy Homes project. \Ve currently have received $85,000 and have prospects identifed for an additional $427,420. As we complete this calendar year and move into 2011, we will continue to identify further prospects as well as receive funds to meet the $750,000 goal. (3) Equity calculation assumes that portion is 52%; however, we are working with HFHI on a strategy to start out at a lower percentage and work our way up over time, so that sales proceeds from the first 5 projects can be used to fund higher leverage requirements on future projects. This strategy will be presented to in full detail at a later date. In addition, it should be pointed out that the Marion and Monroe projects have no cash requirement at acquisition. The is invested slowly over the remaining 8 month period. Assuming SONYMA first mortgages under the mortgage program, this budget allows us to sell the 6 homes to households of 2?3 people with an average area median income of 65.3% and home prices ranging from about $99,000 to $200,500 ($160,330 weighted average). is projected to receive a full return of its equity in addition to receiving its full developer fee of approximately $167,000. Household Max Affordable Family Size Income Purchase Price Unit 1 3 50.0% 35,650 98,711 Unit 2 3 69.0% 49,197 200,520 Unit 3 3 68.6% 48,912 198,377 Unit 4 2 68.0% 43,112 154,790 Unit 5 2 68.0% 43,112 154,790 Unit 6 2 68.0% 43,112 154,790 Total 961,980 Weighted Avg. 3 65.3% 43,849 160,330 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 8 Building Operations: The Homeowner's Operating Budget of $230,330 (detailed below) is based on a condominium association of 31 units, which is then proportioned equally (for budgeting purposes only) among the 6 dwelling units at 203 Marion. At a later date, the Homeowners? unit shares will be further refined based on unit size (square footage) and adjusted to accommodate affordability so that the projected common charges plus mortgage costs will not exceed 33% of each homeowner?s gross income. Because two of the condominium?s five buildings do not pay for cooking and heating gas in the individual dwelling units the operating budget will specially allocate a portion of the common charges; the separately sub?metered tenants (representing 8 units at 100 Ralph and 3 units at 491 Bainbridge) will pay their own cooking and heating gas and will not pay the portion of the common charge associated with gas. The households that are not sub?metered will pay for gas as part of their common charge. The common charge will be determined by first dividing the cost by the number of households that are not separately subemetered and then adjusted for square footage and affordability as mentioned above. Homeowners Operating Budget Total Budget 1 ldu/yr I ldu/mo Electricity '3 i i 3 $20,150 650 54 Water Charges and Sen/er Rents i $34,100 'i 1,100 92 Maintenance and Repairs 3 i i i 4 [$5,000 1 161 i 13 i Supplies and Extermination i 3 $5,000 3161 i Service Contracts - Sprinkler, Fire, Security, By $10,000 3323 i 27 insurance i $22,000 710 59 Management Fee 1 1 $14,880 3 480 0 40 Legal $12,000 387 i 32 Ac00unting and Audit Fees, $10,000" 7 3323 27 Capitalized Expenditure Reserve 3 $17,050 550 i i 46 Labor(1 porter, inc. 10% payroll expense) $18,150 I 585 49 Common Gas for Laundry and Cooking 1 $13,950 450 i 38 Gas for Space and Hot Water Heating 1 i $48,050 1,550 129 Property Taxes (currentAssessed ValuesTotal $230,330] $7,430 $619 1. The Marion Operating Budget assumes that the individual dwelling units are metered separately for electricity, but that the condo association pays gas for cooking and heating, as well as common electric, and water/ sewer. Labor is based on one porter receiving $275 building/ month 275*5*12 $16,500 10% payroll costs 2 $18,150 2. fully expects that 203 Marion will qualify for partial real estate tax exemption under 11-243 (formerly Sec 51). We will obtain aJ?Sl tax abatement prior opinion letter from a qualified consultant, which will quantify the amount of the exemption. For budgeting purposes, we have projected that we will receive a full abatement on the taxes attributed to the increased assessed value due to the renovation, but the homeowners will continue to pay taxes on the current assessment, which is equal to an annual tax liability of $3,637 (included in the development budget). 3. The soft cost budget includes $14,863 to cover 10 months of carrying costs during development (3248 unit) and $3,715 in Homeowner Subsidy (3619/ unit), which represents the cost to carry the unsold units after the first two units have sold, assuming an absorption rate of 2 units per month. In addition to the $14,863 budgeted to cover operating costs during the 10 month development period and the 4 month absorption period, sales proceeds of roughly $7,000 will be set aside as an initial operating reserve for Marion. Sweat Equity and Volunteer Opportunigg: Since 203 Marion Street entails a major rehabilitation, it should provide ample opportunities for volunteer work and allow future homeowners to complete their required sweat equity. 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 9 Environmental Review: engaged ALC Environmental of New York, NY to perform a Phase I Environmental Assessment of the Property. The report, dated August 27, 2010, recognized the following environmental conditions that will require remediation post acquisition: Lead?based paint on the interior and exterior (door and window casings) of the property Asbestos containing materials in pipe insulation and roofing materials (and may be present in other areas too) Solid waste (mainly household items) throughout the property Extensive mold and water damage were observed throughout the building. At the time of the inspection, ALC observed an active leak in the basement of the property. An environmental review report was sent to HUD on September 28, 2010, and was approved by HUD on September 29, 2010. In anticipation of the purchase of the Property, HFH-NYC is preparing a request for proposal in relation to the architectural services, and will formulate and begin implementing an affirmative marketing strategy. Risks and Mitigants: Risk: It takes longer for to find family partners and get them through the closing process than the 13 months anticipated. Mitigant: Purchase prices for the homes have been set at a significant discount to market, as they are affordable to Habitat families earning 50 to 80% of Average Median Income. This includes a large band of people potentially interested in the homes. HFH-NYC is ready to commit 100% of its family partner staff to the task of finding qualified family partners and getting them efficiently through the sweat equity, loan application, and closing process. The marketing strategy for 203 Marion Street is in process of being formulated but will include an updated link on the organization?s website, advertising to draw traffic to the updated website and broad grassroots community outreach. Approximately $50,000 of the soft?cost budget has been allotted for marketing. A large banner will be put up on the building the day after closing and press releases will come out in a variety of publications. Scheduling assumptions are conservative and are based on actual experience in marketing homes in the area (most recently for the Hart?Lafayette project, also in Bedford?Stuyvesant). A carrying cost budget of approximately $18,500 has been factored into the total project cost along with a 10% soft cost contingency of about $27,000 and a $50,000 marketing budget (includes advertising/ website, family partner department salaries, and cost of the required homeowner counseling). In addition, the budget allows for an initial capital reserve of approximately $7,000 to be established by from sales proceeds. Risk: The development costs are under budgeted and incurs cost over?runs in order to complete the project. Mitigant: Director of Real Estate and Construction walked through several similar gut rehabilitation projects with a general contractor experienced in rehabilitation work of this kind. He gave us an idea of what our cost estimates should look like. In addition, the soft cost items were run by architects, attorneys, and consultants that we have worked with in the past, and we used real estimates, whenever possible. In addition, the development budget includes a 10% hard cost contingency ($68,182) as well as a 10% soft cost contingency (approximately $27,000) and approximately $18,500 in estimated operating costs during the development and absorption period. Recommendation: strongly recommends the purchase of 203 Marion Street as it meets all the criteria of NSPZ and will provide affordable, attractive and safe housing to 6 new homeowners. Next Steps and Approximate Timing: - Purchase Contract is ?nalized and signed by all parties Nov.7, 2010 0 A good faith deposit of $3 1,185 of purchase price) is escrowed with buyer?s attorney Nov 7 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 10 0 HFH-NYC purchases property insurance to go into effect day of closing, estimated as Dec 7, 2010 0 HF enters into security contract (windows to be boarded, etc) to go into effect day of closing. 0 Arrangements are made to have utility contracts transferred into our name week of Nov 0 Closing documents are drawn up and reviewed, including HUD RESPA (settlement statement). Week of Nov 22. About three weeks prior to closing, submits an acquisition draw request to HFHI. HFHI submits draw request to HUD. HUD approves draw requests and remits funds to HFHI, who in turn remits to On day of closing, HF wires funds into its attorney?s escrow account. Closing occurs. Documents are signed and monies are disbursed. Deed is recorded. Approval: Approval to enter into a purchase contract, put down the aforementioned good faith deposit and acquire the Property is hereby granted by the Real Estate Investment Committee as of this day of November, 2010. Signature Signature Signature Signature Signature 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 11 EXHIBIT A: ADDITIONAL PICTURES Side yproefty. Housing Pattersip deeloped prperty net door. 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 12 Typ1 cal bathrom mold cal bathfdo 12/16/2015 Page 13 203 Marion St, Brooklyn, NY 11233 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 14 Bedroom Uni 2R 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 15 EXHIBIT B: AS-IS FLOOR LAYOUTS (849 Halsey St similar to 203 Marion) {2:3 EXHIBIT C: AS-RENOVATED FLOORPLANS OF UNITS 2A AND 2B AT 830 HALSEY FOLLOWED BY AS- RENOVATED PHOTOS OF 830 HALSEY 12/16/2015 Recenlly rovat?d 830 Halsey dveoed by Seller. 6?unitbu?ng? (s 203 Marion St, Brooklyn, NY 11233 mm Ame size as 203 Marion during recessionlw Page 16 203 Marion St, Brooklyn, NY 11233 12/16/2015 Page 17 Front Bedroom at 830 Halsey 12/16/2015 203 Marion St, Brooklyn, NY 11233 EXHIBIT D: Soft Cost Budget of SOFT COST DETAIL Total Per Unit Total Phase I Environmental Assessment 1,550 258 0.52% Appraisal 2,000 333 0.68% Inspections 4,150 692 1.40% Title 15,000 2,500 5.07% Legal 30,968 5,161 10.47% Carry 14,863 2,477 5.02% Real Estate Transfer Tax 2,495 416 0.84% Permits 8 Filing Fees 20,000 3,333 6.76% Architect/Expeditor 75,000 12,500 25.35% Controlled inspections 25,000 4,167 8.45% Technical and Design Services 12,000 2,000 4.06% Green Consulting 5,000 833 1.69% Tax Consultant 4,000 667 1.35% Developer HOA Subsidy 3,715 619 1.26% Surveys 2,500 417 0.85% Advertising 10,000 1,667 3.38% SOFT COST CONTINGENCY 26,893 4,482 9.09% Homeowner Counselingfl'raining 2,500 417 0.85% Family Partner Dept. Staff Salaries 38,190 6,365 12.91% 295,823 49,304 100.00% Page 18