19 January 2016 Due diligence memo: 836 Jefferson Avenue, Brooklyn Front of 836 Jefferson Avenue INTRODUCTION Habitat for Humanity New York City, lnc. (?Habitat-NYC?) hereby seeks approval from the Real Estate investment Committee to enter into a purchase agreement to acquire one vacant property, known as 836 Jefferson Avenue (?the Property"), which is located within Habitat approved NSP2 target area in Brooklyn, NY. On July our non-binding offer letter was accepted by the seller. The 60 day non- binding due diligence period regarding the property expires on September 5th, 2011. As we have all the due diligence completed, we are ready to seek approval from the to move into contract on the property. The Property currently consists of eight 3 or 4-bedroom units, although the units are legally 2-bedroom units as confirmed by the conceptual plans prepared by OCV Architecture (Exhibit D). Habitat-NYC proposes to purchase the Property in its current condition and renovate it providing eight 2?bedroom units. 19 January 2016 The proposed purchase price is $940,500 (being 99% of $950,000 or appraised value). Seller?s initial asking price was $1,100,000. Our offering price equates to $117,563/unit or $120/sf of gross floor area. We anticipate spending an additional $2,078,210 (recognizing a developer fee of $274,428 or 9% of total development costs) to renovate the Property. The total development cost will be $3,018,710 or $387/sf of gross floor area). An appraisal was performed by Aaron Valuation on July 11, 2011 and established a Prospective Market Value Upon Completion of $2,400,000 ($307/sf of gross floor area), with an ?as is? value of $950,000 ($122/sf of gross floor area). We propose to finance the project through a combination of NSP2 funds and Habitat? NYC equity, the latter being replaced with sales proceeds as the permanent source of funds. The project will allow us to meet $1,175,000 of our $20,600,000 NSP2 spending requirements. The Property will form a single 8 unit condominium, with the units being sold to families earning 59%-80% of Area Median Income. Family partner homebuyers will obtain financing for these homes through the State of New York Mortgage Agency (SONYMA) Habitat for Humanity Mortgage Program. The program provides qualifying families 30- or 40-year mortgages with 2% fixed rate and a 1% down payment. Additionally, SONYMA offers families up to $10,000 in down payment and closing cost assistance. PROJECT SPECIFIC INFORMATION Property: The PrOperty is a 7,809 square foot (gross building area), 4?story, walk?up apartment building on a 3,086 square foot lot (2683? 115?). It was built in 1906 and each floor consists of two apartments, which we understand were used as 3 or 4?bedroom apartments, although legally are only 2-bedroom. The Property will be rehabilitated and LEED certified, to provide eight 2?bedroom units. The backyard will be accessible to all units. Pictures of the Property can be found in Exhibit A, and a copy of the Property survey can be found in Exhibit B. The proposed plans are contained in Exhibit C. Loca?on: The Property is located at 836 Jefferson Avenue between Patchen and Ralph Avenues (Block 1658, Lot 40, Census Tract 383, Community Board 3, City Council District 41, Congressional District 10), part of Habitat?s NSP2 target area. It is zoned R68. Refer to Exhibit for Property?s location in reference to our other NSP2 properties. Jefferson Avenue is a one-way street which traverses from West to East and consists mainly of 3-4 story residential properties. 19 January 2016 The Property is approximately 0.28 miles from the nearest police station (81st precinct) and approximately 0.65 miles from the nearest firehouse (Engine 214 Ladder 111). The nearest school, Public School 005, is less than 2 blocks South of the PrOperty, and Public School 309 is less than 3 blocks away. The Property is easily accessible through the and Subway lines at Gates Ave (0.4 miles) and line at Halsey Street (0.4 miles). There are also local bus lines running along Gates and Ralph Avenues, Halsey Street and Malcolm Boulevard. The Property is located less than 3 blocks from the 2.53 acre Police Officer Reinaldo Salgado Playground and just over 3 blocks from the 3.21 acre Saratoga Park. Maps are included in Exhibit C. Current Status and Third Party Report Conclusions: The current owner of the Property is 836 Jefferson LLC, whose members are Steven Makowsky, Yosef Davidson, Abraham Halpert and Proctr Inc. A search of Google, Westlaw, and ecourts for local cases, NY supreme, and criminal cases did not produce any negative information that would deter us from conducting business with the various ownership entities. The property is vacant, so we would be purchasing it under NSP2 Eligible Use E. We have received written confirmation from New York State Historic Preservation Office (SHPO) that the project will have No Effect upon cultural resources in or eligible for inclusion in the National Register of Historic Places. - ALC Environmental has conducted a Phase I environmental assessment, together with asbestos and lead based paint inspections. They have identified the presence of mold, asbestos and lead based paint, all of which will be remediated during rehabilitation of the Preperty. HUD ER approval was received on August 18, 2011. - KOW, Habitat?NYC?s property inspection consultant, has completed a property condition report, which has identified the current condition of the Property as ?poor?. in the report they recommend that the rehabilitation should include: new roofing, new windows, new exterior and interior doors, exterior wall repair, fire escape repair/replacement, selective joist replacement, new mechanical systems (rough and finish plumbing, electric and HVAC), new apartment layouts, and new finishes. 19 January 2016 a The NYC Department of Buildings website shows an active boiler violation dating back to 1995. This will be remedied as part of the rehabilitation. CONTRACT SUMMARY A Purchase Agreement will be drafted by the seller?s attorney a summary of the main anticipated provisions is below. Premises: 836 Jefferson Avenue, Brooklyn, New York (between Patchen and Ralph Avenue in the Bedford Stuyvesant neighborhood) Block: 1658 Lot 40 Seller: 836 Jefferson LLC. The principals are Steven Makowsky, Yosef Davidson, Abraham Halpert, Proctr lnc. Westlaw, Google and ecourt searches returned the following against the seller and principals: 836 Jefferson LLC $23,320 lien against 836 Jefferson Avenue, Brooklyn and is on the Dept. of Finance list of potential lien sales, as of 7/1/201 1. Steven Makowsky - nothing Yosef Davidson one consumer credit case in Kings County that was settled. Abraham Halpert - 7 Kings County cases as defendant, all disposed. One foreclosure case in Kings County on 3/19/2010. - Proctr nothing Purchase Price: $940,500 (being 99% of the appraised value of $950,000) Down Payment: $47,025 (being 5% of the contract value), to be held by Habitat-NYC?s attorney, Hirschen, Singer Epstein LLP Number of Units: 8 two-bedroom units Condition: The building will be conveyed vacant. Purchaser will undertake a complete, gut rehabilitation of all units. Seller will be required to satisfy all violations and encumbrances that are capable of being cured by the payment of money. Environmental Reports reveal lead and asbestos that will be remediated as part of the rehabilitation project. HUD ER approval has been received. 19 January 2016 Appraisal: Title: Property Tax Exemption: Due Diligence Period: Agreement Execution: Closing: Seller Consents: Transfer Taxes: Broker: Appraised value ?as is? of $950,000. A tax lien in the amount of $12,419 was filed against the Premises on August 5, 2011. The lien will be satisfied at closing. There are 2 open ECB judgments against the Premises with fines totaling approximately $75.00. Seller is obligated to pay the monetary violations at closing, but the Premises is being transferred subject to nonmonetary violations. There are numerous ECB judgments against the previous owner that are being investigated by the title company. Emergency repair fees in the approximate amount of $3,500 will be satisfied at closing. Approximately $17,603 in open water and sewer charges, which will be paid at closing. Real estate taxes are $1,908.67 per quarter. Tax arrears will be paid at closing. Habitat-NYC ?11-243 (formerly exemption. to apply for 60 day due diligence period commenced upon execution of the term sheet. We are awaiting a draft of the contract from seller. The closing is to occur on or about 30 days after expiration of the due diligence period on or about October 7, 2011). Within 10 days of the end of the Due Diligence Period. On or about 30 days after the end of the Due Diligence Penod. Habitat?NYC to pay State transfer tax (exempt from City transfer tax as transfer is to a non-profit). All brokerage fee are to be paid by Seller. 19 January 2016 PROJECT DEVELOPMENT COSTS Development Budget: {836 Jefferson 1 8 REHAB SOURCES Sources of Total per Unit Permanent of Total per Unit NSF 2 1,174,553 38.91% 146,819 1,448,981 48.00% 181,123 Habitat Equity 1,569,729 52.00% 196,216 13,729 0.45% 1,716 Developer Fee 274.428 9.09% 34,304 0.00% - Sales proceeds - 0.00% - 1,556,000 51.55% 194,500 TOTAL 3,018,710 100.00% 377,339 3,018,710 100.00% 377,339 USES Uses of Total per Unit per SF (net) Hard Costs 1,341,197 44.43% 167,650 227.32 net sf Hard Cost Contingency 149,022 4.94% 18.628 25.26 10% gross sf Soft Costs 298,631 9.89% 37,329 50.62 Soft Cost Contingency 14,932 0.49% 1,866 2.53 5% Acquisition 940,500 31.16% 117,563 159.41 Developer Fee 274,428 9.09% 34,304 46.51 TOTAL 3,018,710 100.00% 377,339 511.65 Habitat?NYC Equity Developer Fee: As shown above, we expect to use $1,569,729 of Habitat?NYC cash equity (from the Capital Construction Account) for the project, $1,556,000 of which we anticipate recovering on completion through sales proceeds. The remaining $13,729 in equity will be used to fund a reserve account for the Condominium. A developer fee of $274,428 will be received. Sales Prices: mortgages will allow us to sell the units to households of 2-4 family members earning 59%-80% of Area Median income at prices ranging from $190,000 to $200,000. (The appraiser established a Prospective Market Value Upon Completion of $300,000 per unit.) This gives an overall average AMI across all the units of 70.3%. Details of the calculations are below: 19 January 2016 A (28R) (28R) 3 (23R) 8 (28R) marketing band for each unit group square footage of each unit group individual unit?s mortgage payment 695 695 717 732 Building operations: The Homeowner?s Operating Budget of $47,400 or $494/unit/month is detailed below: ldu/yr Idu/mo RECEIPTS 1 Annual Common Charges 47,400 5,925 494 Total 47,400 5,925 494 EXPENSES 2 Electricity $3,600 450 38 3 Water Charges and Sewer Rents $8,000 1,000 83 4 Maintenance and Repairs $2,000 250 21 5 Supplies and Extermination $2,000 250 21 6 Service Contracts - Sprinkler, Fire $1,500 188 16 7 insurance $8,000 1,000 83 8 Management Fee $4,800 600 50 9 Legal $2,500 313 26 10 Accounting and Audit Fees $3,000 375 31 11 Operating Reserves $1,600 200 17 12 Labor $10,400 1,300 108 13 Common Gas for Laundry and Cooking $0 14 Gas for Space and Hot Water Heating $0 - 0 15 Base taxes (during construction) $0 0 Total 47,400 [Total per month 0.67 I The budget assumes that the individual dwelling units are metered separately for electricity and for gas used for heating and cooking, but that the condo association pays for common electricity and water/sewer. 19 January 2016 Tax Exemption and Abatement: Habitat-NYC anticipates that the Property will qualify for a partial real estate tax exemption under ?11-243 (formerly We will obtain a ?11- 243 tax abatement prior opinion letter from a qualified consultant for the Condominium offering plan, which will estimate the amount of the exemption. For budgeting purposes, we have projected that a full abatement will be received regarding the taxes attributable to the increased assessed value as a result of the renovation, but that homeowners will continue to pay taxes on the current assessed value. Reserves: Habitat-NYC will contribute approximately $1,700 per unit to capitalize an operating reserve. Sweat Equity Volunteer Opportunities: Since we will perform a gut-rehabilitation of the Property, there should be many opportunities for sweat equity and volunteers. 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. Risks Mitigants: Risk: it takes longer than anticipated for Habitat-NYC to find family partners and get them through the closing process. Mitigant: The marketing program for NSP2 is now in full gear and since January 1 we have qualified 47 family partners with a further 14 families pending final selection. We anticipate being able to identify families for all of these units (in addition to the other properties). NSP2 has provided us with a marketing budget of $150,000 which has allowed us to supplement our usual grass-roots community outreach with print media and radio advertising. Our Habitat-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?. Risk: The development costs are under budgeted and Habitat-NYC incurs cost over- runs in order to complete the project. Mitigant: The budget has been prepared based upon the experience that Habitat- NYC has from all the other rehabilitation projects that are currently being undertaken. In addition, there are hard and soft cost contingencies of $149,022 and $14,932 included within the budget. 19 January 2016 Risk: The pricing of the units is not attractive to family partners and/or the units do not appraise for the sales price. Mitigant: The appraisal states that the average price of comparable properties is $375 psf. Our 2?bedroom units are priced from $287 to $291 psf. The availability of the mortgages with 1% down?payment and 2% interest rate should ensure that all units are affordable to families earning 59%-80% of AM and so the pricing should be attractive to our family partner buyers. Next Steps Approximate Timinq: - Purchase Agreement is being drafted and will be submitted to Chris McGuiness for her review prior to execution. - A good faith deposit/down payment of $47,025 will be used. . 0 An NSP2 draw request will be made to obtain the funds required at closing. 0 Habitat-NYC will make arrangements for: 0 property insurance to go into effect the day of closing, 0 utilities to be transferred into Habitat?NYC?s name, and a security contract (for the windows and doors to have metal security grilles installed) to go into effect the day of closing. Apgroval: Approval to enter into a purchase agreement to put down the good faith deposit and acquire the Property is hereby granted by the Habitat-NYC Real Estate investment Committee as of this day of August, 2011. On behalf of the Chairman Karim Hutson 19 January 2016 Exhibit A EXTERIOR PHOTOGRAPHS Eastelevation 1O 11 cal room Typi rom' Typi at ki Typical ki tche Typi cal bathroom INTERIOR PHOTOGRAPHS 19 January 2016 19 January 2016 STREET VIEWS m, Wt . Jefferson Avenue looking West Mt; View from the property looking across the street 12 19 January 2016 Exhibit PROPERTY SURVEY ?mg. Maw ?:4th vww?ai?h gi?ss?m 3? M. a a? wait @333? mm ?xing? ?was, . mgzi1m1.?wg? if - .4 as in K's?xwm r. a. . mfmy. Pi (5315? #141735! mwwaaw .m W. B?i?m? {m ?mai mum ?w-:mwamw?~w . *7 -mwmmas ?may,? paw? er??m m; Wirin? ?9 h: . wm?s A I a L. ?mm JEFFERSQN AVENUE 25?? 16? mm: gm,? m" 2m (magmas?) MW am AW man" A mvwwihw. m?x$zus?mzmm, mama m, FIMW MW . m; 13 19 January 2016 Exhibit NEGHBORHOOD MAP Pubi?c 3mm: ire ste Pc?ice F?recmci Home Property Property 14 19 January 2016 MAP SHOWING LOCATION OF PROPERTY AND OTHER ACQUIRED PROPERTIES ?31 35:1 (235:; gag? g, a I M??xame I I . We 6% $5 ?graiwa A Iraawlm{was A. $23 ?93 35? ,3 rs; 'aa??fsmi 'rvv I xvi? ?62 A. ti, wmwi X, if; 36? if .32 rid/am 4m ?391 Bamb?dga 3t Bmsa?ya, NY "?1233 ?43482 mtg-sag: St Eiwai?yn, NY 11233 2&3 Mama St B?i'm??yay NY @1233 ?3275.? Mmme St Bma?tziy? NY ??122? 836 Je?egwn Ave Bmakiyn, NY 1223 15 19 January 2016 Exhibit Proposed Floor Plans 16