Hello!

I've done a search but didn't see my question. My bank has about a $4 million loan to finance approximately 96 apartment units. The loan is in a college town and the borrower indicates that the majority of tennants are college students and young professionals who commute to work. My question pertains to fair market rents and documenting a community development loan. The fair market rent in the area for a two bedroom apartment is $626. Our apartments are renting anywhere from $600 to $900. If we can show that the majority (over 50%) of units have two (or more) students sharing the rent (from $300 to $450 per person)can we get community development credit for this loan? Does it make any difference if these are four-plexes and not multifamily buildings? Also, what would we need to prove these students are low- to moderate-income? Would a statement from the landlord work? Any suggestions would be appreciated. Thanks.

Under current definitions of Community Development, you need to show that LMI individuals are receiving a direct benefit. Providing affordable housing is one benefit but now you need to have some evidence that the occupants are actually LMI individuals. IMO Just being a college student doesn't do that. Neither does a letter from the landlord unless it can be shown the L/L has some evidence that will show the income status of the occupants as LMI.

IMO Splinting rent between two parties in itself does not a Community Development loan make.

However, you have a case of affordable housing worth arguing to examiners and it may well come down to how good your pitch is.

Perhaps a comparison of rents in your area to this development will help

There are going to be some changes to the Community Development criteria very soon so watch for those.

Just so you'll know - we're a $2.6 billion bank.

Actually I have taken credit for a similar deal in the $4MM range a few years ago. No, the landlords statement will not be acceptable on income levels. What you need to do instead is get the college to provide you with their student income break up. Work with their community relations staff and they should be able to pull this together in a heart beat. (They do so for many goverment programs so it's information at their fingertip). If they can show that the majority of the students are LMI (which is not uncommon unless it's Harvard) you should be fine. Follow then the fair market guidelines, and document that the rooms are built for apartment sharing. (That landlord statement is perfect). EXCEPT I'd want to document the percentage who are students and the percentage who are "young professionals" which could mean wealthier folks. With a $600 average, you're still ok either way because they're below market, BUT you then must discuss proximity to the college and the landlords attempts to meet this market need.

I'd also cover the rent disparity. Why are some $600 and some $900? I'd probably take a partial credit for the loan given this and assume the higher rents were going to the professionals and the lower to the students.

Fair market rents is not the only factor by the way. You can also use average income for the tract and a percentage of that income that could reasonable go to housing. It's a more generous figure than fair market rents quite often.