Project Characteristics

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The items in this portion of the Development Pro-Forma tab capture details related to the eventual sale of the project and the projects value. The input fields include:

• Years to Sale, which is the number of years the developer plans to own the project before selling it and using the sale proceeds to pay off the first mortgage. In most cases, the developer will wait until the end of the HOME affordability period before selling.
  
  Years to Sale is used by the Template to reflect the sale of the property on the Operating Pro-Forma tab. Note that the Template assumes that the property sale takes place at the end of a full year and that Years to Sale must be a whole number. Note also that outstanding loans at the end of the year of sale are automatically paid off when the property is sold, with the exception of custom loans. (For custom loans, you must modify scheduled payments on the Custom Loans tab, as necessary.)
  
  Note that if the developer sells the property prior to the end of the HOME affordability period or if the developer defaults, the participating jurisdiction (PJ) must ensure that the units remain affordable. If the units do not remain affordable, the PJ may be required to repay HOME funds invested in the project to HUD.
  
  
• Lender's Appraised Value for the Project, which is an estimate of what the project will be worth in Year 1 of operations. This information will be used to compute loan to value ratio, a ratio used by lenders to assess the proportion of funds the lender can expect to recover in the event of foreclosure.
  
  
• Capitalization Rate, which is a measurement of return on invested capital that can be used to calculate the value of a project. The capitalization rate is equal to the net operating income of a project divided by the sales price of the project. For example, a capitalization rate of 0.12 indicates a 12 percent return on the sale price in a single year.
  
  Consult with realtors familiar with your regional housing market or with project market studies to determine a reasonable capitalization rate for your project.
  
  The Template uses the Capitalization Rate to calculate the value of the project for each year of the Operating Pro-Forma tab. In addition, when the project is sold, the capitalization rate can be used to estimate the sale price of the project. However, if you would rather enter a specific value for the project at sale, use the Value of Project at Sale field.
  
  
• Value of Project at Sale, which is an optional field used by the Template to determine the amount that will be paid for the project when it is sold. If this field is left blank, the Template will use the Capitalization Rate to determine the project's value when sold.