782-786 Madison, Brooklyn, NY 11221-6566 6! 1 5/201 1 Pace 1 Introduction: Habitat for Humanity - NYC hereby seeks approval from the Real Estate Investment Committee to enter into a purchase agreement with a 60 day non-binding due diligence period to acquire three properties known as 782386 Madison Street. The properties consist of three S-unit, 2?bedroom, multifamily buildings (the ?PrOperty?) located within I~labitat?NYC?s approved NSPZ target area in Brooklyn, NY. Habitat NYC proposes to purchase the Property completely rehabilitated for $6,000,000 We propose to ?nance the project with a portion of a revolving line of credit facility with which we having a pending loan application with Enterprise Community Loan Fund Inc. The revolving line of credit will be prescnted to the appropriate Board committee for approval prior to the expiration of the due diligence period on the Property. The per unit purchase price is based on converting the current 24 2-bedroom units to 18 units consisting of 12 3?bedroom units and 6 2-bedroom units. While we are reducing the total number of units, we believe it is a investment, as a great proportion of our family partners require 3 bedroom units. Having larger units in this project allows us to serve our core constituency of family partners.) The seller initially presented us the property with an asking price of $7,200,000 or $2,400,000 per building. An appraisal was performed by Aaron Valuation on May 6, 2011 and established a Prospective Market Value Upon Completion of $2,000,000 per building. The seller has requested staggering the closings on the three properties over a 6 month period to reduce his cash outlay for doing the renovation work and avoid bringing in an equity partner in order to meet our offer of $2,000,000 per building. The three buildings will combine to form a single 18 unit condominium. The units will be sold to families earning 540/0-800/0 of Area Median Income. Families will obtain ?nancing for these homes through the State of New York Mortgage Agency (SONYMA) Habitat for Humanity Mortgage Program. The program provides qualifying families 2% ?xed rate 30 or 40 mortgages with a 1% down payment. Additionally, SONYMZA offers families up to $15,000 in down payment and closing cost assistance. Property: The Property consists of three 6,200 square foot, 4-st0ry walk?up buildings that were built in 1903 and currently undergoing a complete gut rehabilitation. The buildings will be rehabilitated LEED certi?ed. Each floor currently contains two 2? bedroom railroad style apartments with almost identical ?oor plans. Each 275? 57? building sits on a 27.5? 100? lot. The backyards will be accessible to all units within a building through the cellar. Posturenovation we will have 12 duplex three bedrooms that are generous in size and 6 simplex 2 bedroom units. 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BY, Property Survey Location: The property is located on the southern side of Madison Street between Patchen Avenue and Ralph Avenue in the Bedford Stuyvesant neighborhood of Brooklyn (Block 1648, Lots 11?13, Census Tract 385, Community Board 3). Madison Street is mainly residential (ll?story walkups). The Property is zoned R613. Public School 309 is located on the same block as the Property and PS 005 is 4 blocks from the Pmperty offering after school programs. (See Map A-l below) There is a very large playground directly across the street and the Property is 6 blocks from Saratoga Square Park. It is 0.40 2 blocks from the nearest police station and ?rehouse. The Property is easily accessible through the] Subway line at Gates Avenue, 3 blocks away. Map A?i: 782?786 Madison Street Neighborhood Map 782?786 Madisen, Bmoklyn, NY 11221~3566 {3/15/20} I Page: 4 Map 78?.?786 Madigon Street - Large Area Map Fm ?mm g1} Ham? 3 Em?gvmg 782-786 Madison, Brooklyn, NY 11221?3566 5/201 1 Page 5 Current Status: Habitat NYC proposes to purchase the Property from a group which is controlled by Mr. Issac Katz, a private investor active in the Bedford Stuyvesant market. 0% have purchased 3 other of our NSPZ properties from Mr. Kate. Our development budget includes line items for an owner?s representative and LEED consultant to ensure the rehabilitation is performed to our standards. Katz will contract directly with the LEED consultant and we will reimburse him at closing for each of the buildings. The buildings are in the demolition stage of rehabilitation. Mr. Katz has had preliminary drawings prepared redesigning the buildings to incorporate 3 bedroom units at our request (see attached). The Property is entirely vacant. Habitat NYC would be purchasing it based on this vacancy under NSPZ Eligible Use E. A Phase I Environmental Assessment, Property Inspection and Lead Based Paint and Asbestos Inspections will be performed during our due diligence period. Premises: Sellee Purchase Price: Downpayment: Number of Units: Condition: Appraisal: Title: Progerty Tax Exemption: Due Diligence Period: Seller Consents: Transfer Taxes: Broker: CONTRACT SUMMARY 782-786 Madison Street, Brooklyn NY Isaac Katz $2,000,000 per building or $6,000,000 $300,000 held by Purchaser?s attorney, Hirschen, Singer Epstein LLP 18 The building will be delivered completely renovated to floor plans approved by HFH - NYC. Seller is to contract with Steven Winter Associates as LEED Consultant. Reimbursable at closing by purchaser. Due diligence reports to include Phase 1 Environmental Study, Property Inspection, Lead Paint and Asbestos Inspections and HUD Environmental Review. Appraised value of $2,000,000 {Prospective Market Value Upon Completion). To be ordered during due diligence. Purchaser to apply for ?51 exemption. Seller to provide all supporting documentation to our -51 consultant prior to closing on each property. 60~day due diligence period TBD Purchaser to pay State transfer tax. The transfer is exempt from City transfer tax as a transfer to a not?for?profit Imagine Marketing. 3% fee paid by purchaser. 782486 Madison, Brooklyn, NY 11221?3566 6/5/20! I Page 6 Development Budget: REHAB 18 1 UNITS I gammy; SOURCES Saurces of Total per Unit Permanent of Total per Unit NSP 2 3,088,977 38.91% 171,610 3,810,701 48.00% 211,706 Construction Loan 3,897,236 49.09% 216,513 0 0.00% Habitat Equity 231,024 2.91% 12,835 222,259 2.80% 12,348 Developer Fee 721,724 9.09% 40,096 0 0.00% - Sales proceeds - 0.00% 3,906,000 49.20% 217,000 TOTAL 7,938,960 100.00% 441,053 7,938,960 100.00% 441,053 USES Uses of Total per Unit per SF Total 5! Hard Costs 0.00% 17,115 Hard Cost Contmgency 0.00% - 10% Soft Casts 1,163,481 14.66% 64,638 67.08 Soft Cost Contingency 53,755 0.68% 2.986 8.14 5% Acquisition 6,000,000 75.58% 333,333 350.57 Developer Fee 721,724 0.09% 40,090 42.17 10% TOTAL 7,938,960 100.00% 441,053 463.86 Habitat Equity and Develcper Fee: This transactimn. requires $231,024 in Habitat cash during the construction period. The devalopmem budget abaer shows us taking 21 full developer fee of $721,724 and leaving $222359 in, (iquify permanently in the transaction. A1 project completicm, equity and developer fee funds are essentially fungiblc. \V?c could also decide: to reduce our fee: an agfecd upon amount. such as. $500,000, and all 0f our equity out of the transaction. \We would, like to have a conversation with the REIC at a fumre date to disarm the best allocatiou of permanent: equity and developer fee. far this transaction. Sales Prices: r?lssumlng first mortgages unclear the mortgage program, this budget allows us to sell the homes to households of 2?6 peaple with an average: area median incom? of 66.7% and home prices ranging from about: $200,000 t0 $240,000. unit type 194332) 31910311) 35(338) 4124233) 413031-11 minimum household size m" nimum heusehold size m1 mum area medfan income at 'medzan area median mcame "3m? square footage of each unit group indiw'dual units mortgage payment 782-786 Madison, Brooklyn, NY 11221-3566 61/157201 1 Pace 7 Building Oyerations: The llwlomeowner?s Operating Budget of $128,340 is detailed below. NOTES 6/1/2011 date 18 units 17,623 sf (gross) /du/yr ldu/mo ldu/yr kin/mo RECEIPTS 1 Annual Common Charges 128,340 7,130 594 02,135 3,455 288 Total 128,340 7,130 594 62,195 3,455 288 EXPENSES 2 Electricity $6,000 333 28 3,000 167 14 3 Water Charges and Sewer Rents $18,000 1,000 83 9,000 500 42 4 Maintenance and Repairs $5,000 278 23 - 0 5 Supplies and Extermination $3,300 183 15 - 0 6 Service Contracts - Sprinkler, Fire $7,500 417 35 3,750 208 17 7 insurance $6,000 333 28 6,000 333 28 8 Management Fee $10,800 600 50 0 9 Legal $5,000 278 23 - - 0 10 Accounting and Audit Fees $5,000 278 23 - - 11 Operating Reserves $7,200 400 33 - 0 12 Labor $27,040 1 ,502 125 - 0 13 Common Gas for Laundry and Cooking $7,500 417 35 0 14 Gas for Space and Hot Water Heating $20,000 1,111 556 15 Base taxes (during construction)* $0 Total 123,340 7,130 [Totai per month 0.61 Based on 2/18/11 statement of account, increased by: K782 taxes per quarter 0153131221, increased annuaiised 10,148.38 1$37821 taxes per quarter of $1,812.21, increased 8: annuafised 10,148.38 ?786 taxes per quarter 0131,81221, increased annualised 10,148.38 30,445.13 The Madison Operating Budget assumes that the individual. dwelling units are metered separately for electricity, but: that: the condo association pays gas for marking and heating, as well 113 common electric, and water/sewer. la.) 1131311211: NYC: fully expects that 782-786 Brlaclison will qualify for partial real estate tax exemption under 11?243 (formerly Sec Wile will obtain a j~51 tax abat?cn?icnt prior opiniom letter from a quali?ed 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, \?Vl?llCl?l is equal to an annual, tax liability of approximately 354548 (included in the development budget). 3. YC will contribute ,00 per: unit to capitalize an operating reserve. 782-786 Madison, Brooklyn, NY 11221-3566 6/ 1 Pace 8 Sweat Equity and Volunteer Opportunity: The seller has agreed to stall the delivery of one building to accommodate 4 months of volunteer and sweat equity opportunities. Families will complete 200 hours of sweat equity per adult household member including attending First Time Homebuyer and Home Maintenance education classes. The typical duration for completing sweat equity and the mortgage process ranges from 6-8 months. Environmental Review: To be completed during due diligence. Risks and Mitigants: Risk: It takes longer for Habitat NYC to ?nd family partners and get them through the closing process than the 9 months anticipated. Mitigant: Purchase prices for the homes have been set at a signi?cant 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. The marketing program for NSPZ is now in full gear. Since the program began in earnest this pastjanuary, we have qualified 27 families with 22 families pending final selection. Our goal is to identify 6 families per month and we are confident we can continue at this pace. NSP2 has afforded us a marketing budget of $150,000 which has allowed us to supplement our historical grass roots community outreach with increased print media and radio advertising. Our Habitat for Humanity NYC ?Champion? initiative is also gaining momentum as we leverage support from local of?cials, existing family partners, faith based partners and longtime volunteers to help find families for 100 Homes in Brooklyn. Recommendation: Habitat NYC strongly recommends the purchase of 782?786 Madison as it meets all the criteria of NSP2 and will provide affordable, attractive and safe housing to 18 new homeowners. Development risk is signi?cantly reduced when buying completed units. Next Steps and Approximate Timing: - Purchase Contract is drafted, reviewed by Chris McGuinness and signed by all parties. 0 A good faith deposit of $300,000 of purchase price) is escrowed with buyer?s attorney but doesn?t go hard until conclusion of due diligence period 0 Conduct due diligence 0 Submit to for Environmental Review 0 Contract goes hard Approval: Approval to put down the aforementioned good faith deposit and enter into a purchase agreement to acquire the Property is hereby granted by the Habitat NYC Real Estate investment Committee as of this 10?h day ofjune, 2011. From the REIC Meeting ofjune 2011: 0 Potential acquisition of three contiguous buildings to be rehabbed by seller to LEED standards and to consist of 12 3BR units and 6 213R units. 0 plans to utilize part of a revolving line of credit facility from Enterprise in addition to SBIVLM in NSPZ funds for this deal. 0 Purchase agreement would call for a 60 day non?binding due diligence period with 5% deposit to go hard after 60 days but not to be released until closing. 782-786 Madison, Brooklyn, NY 11221-3566 6/ 141?201 I Page 10 0 Potential reputational risk to Habitat due to past legal troubles of Isaac Kata. (seller) and she Yeshiva that previously owned the properties. 0 Karim moved to enter into a purchase agreement based on the following conditions: 0 Russ will perform research into any potential connections between Isaac Katz and the Yeshiva. REIC will meet prior to the end of the 60 day due diligence period to review due diligence findings. 0 Contract will include an out clause regarding Isaac Katz remaining in good legal standing with no pending investigations 0 will engage an owner?s rep to monitor progress and quality of construction. 0 Russ to request title company conduct an exhaustive research of the property 0 Motion was carried unanimously. From the REIC Meeting of June 2011: 782?786 Madison Street- The Committee discussed the attached Katz Yeshiva Information document. A vote was taken after the discussion to determine if the Committee wanted to proceed with what was previously ed on me 6th, 2011. The vote passed with Peter Knitzer, Aileen Gribbin, Peter Murray and Chris uinnes to favor and Karim Hutson opposed. [go/Selidlf offh? REIC- Chairman- Karim Hutson 782-786 Madison, Brooklyn, NY 11221-3566 6/ 1 5/20! 1 Pane 9 40 Potential reputational risk to Habitat due to past legal troubles of Isaac Katz (seller) and the Yeshiva that previously owned the properties. 0 Karim moved to enter into a purchase agreement based on the following conditions: 0 Russ \viil perform research into any potential connections between Isaac Kate and the Yeshiva. REIC will meet prior to the end of the 60 day due diligence period to review due diligence ?ndings. 0 Contract will include an out clause regarding Isaac Katz remaining in good legal standing with no pending investigations. 0 will engage an owner?s rep to monitor progress and quality of construction. 0 Russ to request title company conduct an exhaustive research of the property 0 Motion was carried unanimously. From the REIC Meeting ofjune 2011: 782~786 Madison Street~ The Committee discussed the attached Katz Yeshiva Information document. A vote was taken after the discussion to determine if the Committee wanted to proceed with what was previously approved on june 6th, 2011. The vote passed with Peter Knitzer, Aileen Gribbin, Peter Murray and Chris McGuinness in favor and Karim Hutson opposed On behalf of the Chairman? Karim Hutson 782?786 Madison, Brooklyn, NY 11221-3566 6/151201 Fare 10 TO: HABITAT FOR HUMANITY YORK CITY, INC. REAL ESTATE INVESTMENT COMMITTEE FROM: HIRSCI-IEN SINGER EPSTEIN LLP RUSSELL A. KIVLER, ESQ. DATE: 9, 2011 RE: REGARDING CRIMINAL SUITS INVESTIGATIONS CONCERNING ISSAC KATZ In connection with the potential acquisition of 782?786 Madison Street, Brooklyn, New York (the ?Troperty?), we have been asked to provide a summary of information we have found based on internet and Lexis searches concerning past criminal suits involving the principal of the seller, Mr. Issac Katz (?Mn Katz?), and Mr. Katz?s involvement with the entity that sold him the Property in June 2010. \Ve have also been asked to draft a provision giving Habitat for Humanity New York City, Inc. (?Habitat?) to terminate the contract that may be entered into for the Property in the event it is discovered that Mr. Katz is the subject of criminal or other investigations. ATTORNEY GENERAL SUIT CONCERNING REAL ESTATE FRAUD In November 2006 a lawsuit was filed by the NYS Attorney General alleging that a group of real estate sellers, mortgage brokers, attorneys, and appraisers were involved in a fraudulent real estate flipping scheme targeting minority neighborhoods in Brooklyn, New York. According to the lawsuit, from 2002?2006 Mr. Katz and his partners purchased distressed properties and then enlisted a front?man to ?nd prospective buyers to purchase the properties for investment purposes by assuring the buyers that the mortgage payments would be covered by rental income. - It is alleged that the mortgage brokers then prepared false loan applications on behalf of the buyers and the appraisers inflated the appraised value of the properties. The buyers of the investment properties were saddled with large mortgages and some of the properties went into foreclosure. - In 2007, Mr. Katz entered into a consent decree with the Attorney General and along with the other defendants agreed to pay $1.8m1n in restitution and penalties. The Attorney General also monitored Mr. Katz?s real estate transactions until last year. - \We have not located any other criminal investigations concerning Mr. Kata. RELATIONSHIP WITH SELLER OF THE PROPERTY . It is alleged that Mr. Eli Weinstein is involved in the entity that sold Mr. Kata the Property, Yeshiva Gedolah of Sea Gate (the ?Yeshiva?), and that the Yeshiva diverted funds to Mr. \Weinstein for his personal use. Based on searches of New York City real estate records, we were not able to connect Mr. Weinstein or Mr. Katz to the Yeshiva. Further, in conversations with Habitat staff, Mr. Katz stated that the purchase of the Property was an arms length transaction. - The Property was held by the Yeshiva for approximately nine years before it was sold to Mr. Katz. Based on the transfer taxes paid, it appears that Mr. Kata purchased the property on June 21, 2010 for approximately $2.4mm. In August 2010, Mr. \Y/einstein was arrested for a real estate investment fraud scheme, headquartered in Lakewood, that has resulted in losses to victim investors of at least Allegedly Mr. Weinstein targeted fellow members of the Orthodox Jewish community in Newjersey, New York, Florida, California, and abroad by selling property he did not own or selling the same property multiple times. PROPOSED CONTRACT PROVISION If a contract of sale is entered into for the Property, we will incorporate a provision that gives Habitat the right to terminate the contract and receive its downpayment as follows: If it is determined by Habitat, in its sole discretion, that Seller or its principals, member, officers, agents or employees are the subject of any threatened or pending criminal actions or investigations or are alleged to be involved in fraud, misrepresentation or misconduct of any kind by any government agency, court or individual whether related to the Property or otherwise, than Habitat shall have the right to terminate this Agreement and the downpayment shall be immediately returned to Habitat.