849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 1 Introduction: Habitat for Humanity New York City hereby seeks approval from its Real Estate Investment Committee to enter into a purchase contract to acquire the property known as 849 Halsey Street, a 6?unit, multifamily building (the ?l7?rope17ty"?) located within Habitat approved NSPZ target area in Brooklyn, NY. Habitat NYC proposes to purchase the Property for $693,000 and spend an additional $1,220,525 to renovate the entire building over a 16?month period. Property: The Property is a 4,826 square foot, 3?story walk?up building that was originally built in 1910 and will need a major renovation. Each floor contains 2 4-toom ?oor~thtough apartments with almost identical floor plans. The 24.75 foot 65.7 foot building sits on a lot of 24.75 foot 3 100 ft. The backyard is currently accessible from the back bedrooms of the two ground ?oor units. Front of Buildi Additional pictures can be found in Exhibit A to this memorandum. 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 2 Location: The property is located on the northern side of Halsey Street between. Howard Avenue and Saratoga Avenue in the Bedford Stuyvesant neighborhood of Brooklyn (Block l49l, Lot 47, Census Tract 377, Community Board 3, City Council tract 4l). Halsey Street is mainly residential and 4?story walltups). The Property is zoned ROB. Public School 005 is 1 block east of the Property and PS 137 is 5 blocks south of the Property. (See Map Awl below) The Property is well located across the street from Satatoga Square Park and withan several of jacltie Robinson Park and Fulton. Park. It is 0.40 miles from the nearest police station at 30 Ralph Avenue (precinct 81) and 0.40 miles from the nearest ?re station. at 32 Ralph Avenue. The Property is easily accessible through the] Subway line at Halsey Street, less than 2 blocks away. The. B26 bus line also runs along Halsey Street and the 87 bus line runs along Satatoga Avenue. (See Map below) 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 3 g} mm Schee? Map 849 Halsey Street Large Area Map ABE ??mmw Ra?; SSW Fae Em page ?>mc?mzi ?ww 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Pass 4 Current Status: As per Habitat 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, 849 Halsey is a property that was ?rst targeted for acquisition and inclusion in BedStuy Homes Condominium in late june 2010. An acquisition package was presented to the RE Committee in earlyjuly and Habitat NYC entered into a 60?day nonbinding 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 September 20, 2010. As of this writing (11/24/10), Habitat NYC has received clearance from HUD to proceed as further detailed in this memorandum. A highly, qualified architect, Michael Ivanhoe McCaw, has been engaged. He has visited the Property and confirmed that our plan to renovate the 6 units into 1-bedrooms with den is viable. Mr. McCaw is in the process of preparing building plans that he will submit to the NYC Department of Buildings within the next 23 weeks as part of the Same Day Review Process. From this meeting, we will be able to ascertain whether our design concept will be acceptable to the DOB. If it is, we will move forward with the acquisition. The Seller has agreed to give us an additional 30? day diligence period as part of the Contract of Sale that so that we may confirm with the NYC Department of Buildings that our design concept is viable. Habitat NYC proposes to purchase the Property from Halsey Towers Corp, which is controlled by Mr. Issac Kata, a private investor active in the Bedford Stuyvesant market and the same owner for 475 Monroe and 203 Marion. There are several DOB violations on record, having to do with failed boiler inspections, which will be remedied during the renovation. 849 Halsey is classi?ed by the City of New York as a ?heretofore erected Old Law tenement.? The building predates enactment of the 1938 code. Habitat NYC expects to perform the rehabilitation of 849 Halsey under an Alteration Type II permit which does not require an amended Certificate of Occupancy upon completion as the use, egress or occupancy does nor change. This will require that building plans he 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 is entirely vacant. Habitat NYC would be purchasing it based on this vacancy under NSPZ Eligible Use E. SHPO has informed us that the Property is a ?contributing historic building to the Saratoga Square Historic District which is eligible for listing on the National Register of Historic Places.? Therefore, they have given us an approval to proceed subject to two conditions (specified facade treatment and their review of the plans and specs at the preliminary and pie-?nal stage). They have further informed us that the Property was built in the Romanesque Revival Style. We have worked facade requirements into our scope of work with no signi?cant impact to our budget. The Phase I Environmental Assessment does not identify any recognized environmental conditions, but notes that there are significant amounts of asbestos containing materials, lead paint, and mold. These will be properly remediated during renovation. It is Habitat intention to add the Property?s 6 units to Habitat Bed~Stuy Homes Condominium II, which will ultimately contain approximately 20 dwelling units, including 8 units within 475 Monroe St, and 6 units within 203 Marion St. both previously approved by the REIC. The Property?s location in relation to these other properties is shown in the map below. 475 Monroe (B) is the furthest from the Property (A), located 6 blocks West and 5 blocks north. 203 Marion (C) is 6 blocks south and 1 block west. 12/2/20 0 849 Halsey Street, Brooklyn, NY 11233 Page 5 5 Traf?c More,? Map {Sarasota} Earth ware? 0 0% we 1gp jW?$mh few expat-er?? anteatermeets?313 3 do,? E. ?2 am: it": 50%; The Purchase Agreement has been drafted and a summary of same, prepared by Habitat NYC counsel, Russ Klvler of Hirschen Singer Epstein, is appended below: Premises: Purchase Price: Downpayment: Number of Units: Condition: Appraisal: Title: CONTRACT SUMMARY 849 Halsey St, Brooklyn, New York 849 Halsey St, New York (between Howard and Saratoga Avenues in the Bedford Stuyvesant neighborhood) Halsey Towers Corp, controlled by lssac Katz $693,000 $34,650 held by Purchaser?s attorney, Hirschen, Singer Epstein LLP 6 The building will be conveyed vacant. Purchaser will undertake a complete, gut rehabilitation of all 6 units. The Property will be purchased AS .18. 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 $700,000. Three open mortgages in the aggregate amount of $652,499. Chain of title exceptions from 2003 and 2006 conveyances need to be addressed. Approximately $50,000 in liens and judgments. 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 6 Water Sewer lien in the amount of $4,287 sold to XSPAND in 1999. Approximately 50 open DOB violations. The violations will be cleared as part of the rehabilitation. Property Tax Exemption: Purchaser to apply for ?51 exemption. Due Diligence 45?day due diligence period Period: Seller Consents: Seller Consents: However, chain of title issues Transfer Taxes: Seller to pay State transfer tax. The transfer is exempt from City transfer tax as a transfer to a not~for~pro?t Broker: imagine Marketing. Paid by Seller. DUE DILI ENCE RESULTS Valuation: - Habitat NYC received an appraisal from Neglia Appraisals, Inc. of Brooklyn, NY. The appraisal, dated as of july 29, 2010, estimated the as~is market value to be $700,000 (equal to Habitat NYC original offer), resulting in a reduced purchase price, at 99% of this appraised amount, of $693,000 or $115,500 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 $150, which when applied to 4,736 SF of net building area renders a value of $700,000. Project Development Costs Plan; Habitat NYC commissioned a Property Condition Report from KOW Building Associates of Smithtown, NY. The ?nal report, dated September 1, 2010, notes that the Property requires a complete interior renovation. Habitat NYC 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. Habitat NYC intends to carry out a full ?gut? renovation, completing the project according to LEED for Home standards; a highly quali?ed Energy Consultant will be hired to guide Habitat NYC through this process as well as a quali?ed lead paint and asbestos removal contractor. The Property contains two apartments on each of its three floors with a central staircase. Each apartment contains a total of 4 rooms and measures approximately 600 SF. We plan to lay out the units with a bedroom in the front, a den in the back that can be used as a bedroom, and common space in between, linked by an open corridor (see Exhibit for as?is layouts of 849 Halsey). This layout will not impact value or our ability to market the units to families needing 2 bedrooms. The building is very similar to 830 Halsey, a 6~unit building renovated by the Property?s Seller. As can be seen in the below chart, Habitat NYC has budgeted $174,428 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 $693,000, the total project cost is expected to be $1,913,525. The permanent equity of $6,012 will be used to initially fund the Property?s operating reserve. DEVELOPMENT BUDGET CONSTRUCTION SOURCES PER UNIT TOTAL 3/3 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 7 NSP 153,082 918,492 48% CASH EQUITY 3 165,839 995,033 52% TOTAL 318,921 1,913,525 100% USES ACQUISITION 115,500 693,000 36% PROJECT COSTS HARD COSTS 113,636 681,818 36% HARD COST CONTINGENCY (10% of hard costs) 11,364 68,182 4% SOFT COSTS 44,935 269,608 14% SOFT COST CONTINGENCY (10% of soft costs) 4,493 26,961 ?g 174,428 1,046,568 55% FEE 28,993 173,957 9% TOTAL 5 318,921 1,913,525 100% PERMANENT SOURCES GROSS SALES PROCEEDS 166,841 33 1,001,045 100.6% PERMANENT EQUITY (1,002) (6,012) NSP 153,082 918,492 92.3% TOTAL 318,921 1,913,525 192.3% A dctailed breakdown of the soft cost budget is attached as Exhibit to this memorandum. 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 8 Habitat Equity: The $821,076 in Habitat NYC required cash equity for Halsey ($995,033 less developer fee of $173,957) will be paid for out of the Habitat NYC Capital Construction Reserve. Total Available from Capital Construction and Acquisition Rehab Reserve a/o 10/26/10 $3,600,000 (1) Fundraised Funds 750,000 (2) $4,350,000 Cash Equity Money Spent Cash Needed Needed to Date to Date Equity Needed for Halsey St 8 821,076 8 7,735 $813,341 Equity Needed for Marion St 8 788,015 8 7,700 $780,315 ?a 3 $3 3 Equity Needed for Bainbridge St 492,904 47,500 $445,404 Equity Needed for Monroe Avenue 1,332,148 63,000 81,269,148 Equity Needed for Ralph Avenue 1,186,223 107,840 31 078,383 Sub-Total 4,620,367 8 233,775 4,386,592 1332.6 59.2 -. .3. 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. We currently have received $85,000 and have prospects identi?ed 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) We have other organizational reserves that the Board could authorize us to utilize that would cover the above $36,952 gap. (4) Equity calculation assumes that Habitat NYC 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 REIC in full detail at a later date. In addition, it should be pointed out that the Marion, Monroe and Halsey projects have no Habitat NYC cash requirement at acquisition. The Habitat NYC cash equity is invested slowly over the remaining 8 month period which is not re?ected in the above Chart. We are also in conversations with two lenders to pursue a revolving line of credit to aid with cash equity needs. We do not project a need for more than the $4,350,000 until November of 2011. Assuming SONYMA ?rst 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 66.6% and home prices ranging from about $599,000 to $205,900 ($166,841 weighted average). Habitat NYC is projected to receive a full return of its equity in addition to receiving its full developer fee of approximately $174,000. Household Max Affordable Family Size AMI Income Purchase Price Unit 1 3 50.0% 35,650 98,711 Unit 2 3 70.0% 49,910 205,879 Unit 3 3 70.0% 49,910 205,879 Unit4 2 70.0% 44,380 164,320 Unit 5 2 70.0% 44,380 164,320 Unit 6 2 69.5% 44,063 161,937 Total 1,001,045 Weighted Avg. 2.50 66.6% 44,716 8 166, 841/unit 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 9 Building Operations: The Homeowner's Operating Budget of $148,480 (detailed below) is based on a condominium association of 3 buildings with a total of 20 units, which is then proportioned equally (for budgeting purposes only) among the 6 dwelling units at 849 Halsey St. 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. HomeoWners Operating Budget EXPENSES Budget ldu/yr /du/mo Electricity $13,000 650 54 Water Charges and Sewer Rents $22,000 1,100 92 Maintenance and Repairs $5,000 250 21 Supplies and Extermination $5,000 250 21 Service Contracts Sprinkler, Fire, Security $7,000 350 29 Insurance $9,750 488 41 Management Fee $9,600 480 40 Legal $7,750 388 32 Accounting and Audit Fees $6,500 325 27 Capitalized Expenditure Reserve $11,000 550 46 Labor $1 1,880 594 50 Common Gas for Laundry and Cooking $9,000 450 38 Gas for Space and Hot Water Heating $31,000 1,550 129 Property Taxes (current Assessed Values) $0 - 0 Other Total $148,480 $7,424 619 1. The Halsey 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 8300/ building/ month 300*3*12 $11,800 10% payroll costs 2 $11,880. 2. Habitat NYC fully expects that 849 Halsey will qualify for partial real estate tax exemption under 11?243 (formerly Sec j~ 51). We will obtain a j~51 tax abatement prior opinion 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, which is equal to an annual tax liability of approximately $4548 (included in the development budget). 3. The soft cost budget includes $514,863 to cover 10 months of carrying costs during development (8248/ 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 $6,000 will be set aside as an initial operating reserve for 849 Halsey. Sweat Equity and Volunteer Opportunity: Since 849 Halsey Street entails a major rehabilitation, it should provide ample opportunities for volunteer work and allow future homeowners to complete their required sweat equity. Environmental Review: Habitat NYC engaged ALC Environmental of New York, NY to perform a Phase I Environmental Assessment of the Property. The report, dated August 4, 2010, did not uncover any areas of signi?cant environmental concern or recognized s49 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 10 environmental conditions that might require mitigation prior to acquisition or transfer of the property. However, the Phase I ESA uncovered a few areas of concern that should be addressed in the near term. There are as follows: 0 Lead-based paint on the interior and exterior (door and window casings) of the property 0 Asbestos containing materials in pipe insulation and roo?ng materials (and may be present in other areas too) 0 Solid waste (mainly household items) throughout the property 0 Extensive mold and water damage were observed throughout the building. At the time of the inspection, ALC observed an active roof leak that impacted all floors including the basement of the property. An environmental review report was sent to HUD on November 12, 2010, and was approved by HUD on November 13, 2010. Risks and Mitigants: Risk: Habitat layouts showing 1 bedroom and den are not approved by the City of New York. Mitigant: A highly, quali?ed architect, Michael Ivanhoe McCaw, has been engaged. He has visited the Property and con?rmed that our plan to renovate the 6 units into 1-bedrooms with den is viable. Mr. McCaw is in the process of preparing building plans that he will submit to the NYC Department of Buildings within the next 2~3 weeks as part of the Same Day Review Process. From this meeting, we will be able to ascertain whether our design concept will be acceptable to the DOB. If it is, we will move forward with the acquisition. The Seller has agreed to give us an additional 30?day diligence period as part of the Contract of Sale that so that we may con?rm with the NYC Department of Buildings that our design concept is viable. A good faith deposit of $34,650 of purchase price) will be escrowed with buyer?s attorney at contract execution but it will not go hard until architectural plans have been reviewed by DOB. Risk: It takes longer for Habitat NYC to ?nd 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 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. Habitat NYC is ready to commit 100% of its family partner staff to the task of ?nding quali?ed family partners and getting them efficiently through the sweat equity, loan application, and closing process. The marketing strategy for 849 Halsey is in process of being formulated but will include an updated link on the organization?s website, advertising to draw traf?c to the updated website and broad grassroots community outreach, including a Habitat NYC marketing office in Bedford Stuyvesant. 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 Habitat NYC 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 $6,000 to be established by Habitat NYC from sales proceeds. Risk: The development costs are under budgeted and Habitat NYC incurs cost over?runs in order to complete the project. N?tigant: Habitat 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. The architect?s contract has been let at half the original projection. 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. 849 Halsey Street, Brooklyn, NY 11233 [2/2/2010 Emit WW Habitat NYC. strongly recommends the purchase iigls Street as it meets alt the criteria of NSPZ and will provide affordable, attractive and safe housing to 6 new homeowners. \ri Purchase Contract is tinatized and signed by att parties December 3, 2010 A good faith deposit of $34,650 of purchase price) is cscrowed with buyer?s attomcy but doesn?t go hard until architectural pians have been reviewed by DOE December 3, 2010 Habitat NYC purchases property insurance to go into effect day ofotosing Habitat NYC enters into security contract (windows to be boarded, etc) to go into effect day of closing. Arrangements are made to have utility contracts transferred into our name Closing documents are drawn up and reviewed, HUD RESPA (settiement statement). Week of Dec. 6 About three weeks prior to ciosing, Habitat NYC submits an acquisition draw request to HFHI. HFHI submits draw request to HUD. HUD approves draw requests and remits funds to who in turn remits to Habitat NYC. On day of closing. Habitat NYC wires funds into its attorney?s escrow account. Closing occurs. Documents are signed and monies are disbursed. Deed is recorded. .0 Annual: Approvai to enter int . purchase co tract, put down the aforementioned good faith eposit and acquire the "Property i5 abitat NYC lent Estate investment Committee as of this day of December, 2010. 2 a 0" E3 12/2/2010 849 Halsey Street, Brooklyn, NY 11233 Page 12 EXHIBIT A: ADDITIONAL PICTURES Common Central Stair teen Apt Mid i Apartm 611 1-21 Bath~ Apartm nt 2L 12/2/2010 Page 13 849 Halsey Street, Brooklyn, NY 11233 Page 14 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Mantel - Apartment 1L 849 Halsey Street, Brooklyn, NY 11233 12/2/2010 Page 15 1? I. a? 12/2/2010 849 Halsey Street, Brooklyn, NY 11233 EXHIBIT 1): Soft Cost Budget Page 16 of SOFT COST DETAIL Total Per Unit Total Phase?l? Environ mentatAssess'ne nt 85 1 ,550 6 258m 07525-70 Appraisal 2,400 400 0.81% Inspections 4,150 $5 692 1.40% Title 15,000 35 2,500 5.06% Legal 30,968 5,161 10.44% Carry 14,863 2,477 5.01% Real Estate Transfer Tax 2,772 462 0.93% Permits Filing Fees 20,000 3,333 6.74% Architect/Expeditor 75,000 12,500 25.29% Controlled inspections 3 25,000 SB 4,167 8.43% Technicat and Design Services 6 12,000 2,000 4.05% Green Consulting 6 5,000 833 1.69% Tax Consultant 35 4,000 667 1.35% Developer HOA Subsidy 3,715 619 1.25% Surveys 2,500 417 0.84% Advertising 6 10,000 1,667 3.37% SOFT COST CONTINGENCY 26,961 6 4,493 9.09% Homeowner Counseling/T raining 2,500 417 0.84% Family Partner Dept. Staff Salaries 38,190 6,365 12.88% 296,568 33 49,428 100.00%