Cobble Knoll Portfolio
Section 515
Properties in Washington State
 

• Acquisition/Rehabilitation Due Diligence
• 30 Section 515 Properties
• Capital Needs Assessments used in re-negotiation of purchase terms and underwriting

Mercy Housing is a national not-for-profit affordable housing development and property management organization, headquartered in Denver. In 2002, Mercy Housing began an ambitious effort to acquire and preserve a portfolio of thirty Washington-state properties originally built under the Section 515 program of the USDA’s Rural Development (RD) office.

ON-SITE INSIGHT was retained by Mercy Housing to help with physical needs assessments of all properties, for due diligence purposes. We conducted in-depth field work, and prepared preliminary reports that covered physical needs (site, architecture, mechanical systems, handicap accessibility concerns, and unit finishes/components) over a ten-year horizon. The effort required considerable coordination with Mercy Housing staff and its development consultant, Recapitalization Advisors, RD state architectural staff, and the properties’ existing owner/manager.

OSI’s immediate rehab projections and replacement reserve funding determinations, higher than initially anticipated, were an effective tool in the re-negotiation of acquisition terms and the underwriting process. Several rounds of assessment fine-tuning were required in response to evolving transaction circumstances (we worked closely with state RHS staff to find practical and acceptable solutions to accessibility issues).

Ultimately, the complex transaction involved bond financing from the state of Washington, modification of original RD debt, new Section 515 Equity and Rehabilitation loans, tax abatements, the addition of some Rental Assistance, and modest rent increases (kept low to preserve affordability).

OSI’s work on this effort followed its work directly for RD several years earlier, doing physical needs assessments for workout due diligence on a portfolio of 30+ distressed properties, many of them in the Pacific Northwest. The firm has worked with numerous Section 515 sponsors as well, preparing physical needs assessments for asset management purposes.