Fabian and Carolyn:

Attachjed is a revised proforma created with consideration given to EDC's work. The changes/questions are summarized below:

Opeating Income:

1. All HCD suggestions have been incorporated within the pro forma.
2. What utility expensee (landlord versus tenant paid) assumptions are included within the HCD rent numbers?
3. In our recent site inspection, we noted the very good quyality and conditions of basemenbt space. It may be possible to generate some net rental revenue out of arts use of the basement space. This may be a good way to boost net income and first mortgage proceeds.

Operating Expenses:

All HCD suggestions have been incorporated within profora.


See question above regarding utilities. This may impact utility expenses.


I addded non-residential space operating expenses. The concept behind non-residential space ios that non-profit users pay sufficient fees to cover operating expenses byt generate zero net operating revenue to the building.

Capital Budget:

1. I have incorporated all HCD suggestions with the following exceptions (and some additions/modifications resulting from conversations since our last meeting).
2. Acquisition - We changed the acquisition number to $1.
3. Construction Contingency - We had projected construction contingency of 15% which we believe to be appropriate for a historic restoration that carries SHPO risk on top of more traditional rehap risk. HCD suggested reducing this to 5%. We have reduced to 10%, although we continue to belive that 15% is more appropriate.
4. Architectural Reimbursables - I added $40,000 for architect reimbursables (plan reproduction, etc.) which was not in our previous set of numbers.
5. Historic Consultant - I increased the historic consultant line item from $20,000 to $75,000 based on our visual inspection of the significant scope of work necessary (including cataloguing all terracotta stored in the basement).
6. I retained the non-residential costss within the proforma. These were zeroed out of the HDC proforma. They are outside of basis and can be paid for through GP capital (Grants).
7. Real Estate Taxes - These are still in the proforma at $25,000. Perhaps we could eliminate?
8. Title and Recording/Title Insurance - We had $45,000 in Title and Recording which I had though would include the cost of Title Insureance. HDC's numbers added $62,000 to the $45,000 for Title Insurance (total cost of recording and insurance or $107,000). Do you think this is necessary? I would think that $62K would be sufficient for all title comp;any costs. I've inhcluded only the $62K (and not the $45K).
9. Developer Fee - I reduced the Developer Fee tpo $2.546 million in the HDC pro forma - which is approximately 11% of TDC. Is there a reason that we can't include a 15% fee as a means to generate additional tax credit equity? If HCD has a cap on Cash Fee we can discuss that, but I'd like to generate as much tax equity as possible.

Capital Budget Sources of Funds

1. I incorporated HDC 1st and 2nd Mortgage assumptions. Note that with the commercial expense change nboted above, we now have a 1.14 Debt Coverage (below the 1.15 minimum). I'm also a bit concerned about our ability to hold at 5.5% fixed rate mortgage with a Spring 2007 start date. Perhaps we should build in some mortgage rate increase at this time to protect ourselves.
   

2. Tax Credit Proceeds - I incorporated the $1 crfedit price, but am not generating as much equity as stated in the HDC spreadsheet. We should probably discuss. With a very similar project budget, I end up with significantly lower credit proceeds.

Conclusion

My revisions create a budget that has a shortfall of approximately $800K. Some of this could be recouped if we increaased the fee (and generate additional procdeeds). Another idea is to shift the proportion of fixed and second mortgage funds to increase the leverage on the project. If we had $3 Million in First Mortgage and $4.75 million in Second Mortgage, we could solve the deficit problem. Are there ratio/mix issues related to the fungibility of these funds?

Please let me know your thoughts.