Case Study
Creating Affordable Housing through Homeownership by Private Developers in Partnership with the City
ShermanLaw represents private developers working alone or in conjunction with not-for-profit corporations in developing affordable housing and special needs housing. Many of the housing developments are accomplished with participation of the City of New York, through sale of land and below market loans, as well as private lenders and investors.
ShermanLaw represents many developers in the New York City Department of Housing Preservation and Development’s (“HPD”) Neighborhood Entrepreneurs Program (NEP). This program enables neighborhood-based property managers to own and manage clusters of occupied and vacant City-owned buildings. By focusing on small, locally-based entrepreneurs, the City strengthened local real estate capacity while insuring quality management and maintenance for the buildings.
Under this program, City-owned buildings are sold to the New York City Housing Partnership, a not for profit corporation, which contracts with entrepreneurs to oversee the rehabilitation and purchase of the buildings upon completion and tax credit financing. ShermanLaw represents neighborhood entrepreneurs by:
- Explaining the risks, obligations and benefits of the program
- Reviewing the underwriting criteria for the development and operating income assumptions
- Creating organizational structures, limited liability companies and limited partnerships
- Negotiating loan documents
- Drafting and negotiating construction and architect contracts
- Negotiating and closing construction financing
- Negotiating low income housing tax credit financing documents
- Closing on all financing
ShermanLaw also represents developers obtaining developing properties for homeownership. For example, under HPD Home Ownership programs, small, vacant City-owned buildings are completely rehabilitated by experienced builders to create one-to four-family homes for sale to individual homebuyers at market or subsidized prices. Some of the programs have income limits for the buyers; others have no income limits. To make the program feasible, the City conveys the buildings to the developers at nominal prices and provides a subsidy in the form of a zero per cent, nonamortizing loan that evaporates over a period of six years, conditioned upon certain resale restrictions.
ShermanLaw advises participating developers on how to navigate the program’s complicated requirements for the transfer of the properties to eligible purchasers. For example, in some programs, homebuyers are selected through lotteries that are carried out by the builders under HPD supervision, and homebuyers are required to occupy at least one unit in their homes as their primary residence for a period of years. ShermanLaw counsels developers about risks and obligations and negotiates documents to reflect the developer’s interests. Some of the transactions handled by ShermanLaw include:
- Acquisition closings
- Construction finance closings
- Tax Credit closings
- Negotiations of construction and architect contracts
- Preparation of homebuyers contracts
- Preparation of homebuyers subsidy documents