NAC319.987. Determination of financial feasibility; analysis of pro forma by Division; additional criteria, assumptions and limitations.

     1. To meet the requirements of financial feasibility of a project for which an application for tax credits is submitted, the applicant must demonstrate to the satisfaction of the Division that the project will be financially feasible based on the amount of rent charged for units in the project as stated by the applicant in the application.

     2. In evaluating the financial feasibility of each project, the Division will, in addition to any criteria set forth in the annual plan, consider:

     (a) The reasonableness of construction costs, using the maximum amount of costs established in the annual plan;

     (b) The cost of the project;

     (c) The cost per unit of the project;

     (d) The projected income, expenses and cash flow for the period specified in the annual plan;

     (e) The reasonableness of the projections of income and expenses and the assumptions upon which those projections are based;

     (f) The fees for developers or contractors;

     (g) The sources and uses of money for the project;

     (h) The projected proceeds from the sale of tax credits;

     (i) The plan for financing the project;

     (j) The percentage of the housing credits used for the cost of the project;

     (k) The demonstrated stability of the project sponsor, including an analysis of the financial statements of the project sponsor; and

     (l) Any other criteria set forth in the annual plan or required by the Code.

     3. Unless otherwise provided in the annual plan or in the instructions included in an application, the Division will use the following assumptions and limitations to analyze a pro forma included with each application:

     (a) A minimum debt service coverage ratio of 1.15 on all combined debt based upon the mortgage rates at the time the Division considers the application. In determining the ratio, the Division will not consider any notes that do not require payment until the sale of the property. Developer or deferred notes will be included by the Division in the determination at the beginning of the repayment period. If a project receives money or any other assistance from the Rural Development Program of the United States Department of Agriculture, the ratio of debt service coverage established by that department for that program shall be deemed acceptable to the Division. If the applicant demonstrates to the satisfaction of the Division that a permanent lender has agreed to provide all of the permanent financing for the project at a ratio of debt service coverage other than 1.15, the Division will consider the ratio of that lender. To be considered by the Division, the commitment must be:

          (1) In writing;

          (2) Specifically limited to that project; and

          (3) Unconditional unless the commitment is conditioned upon the successful completion of the construction of the project and the award of tax credits for that project.

     (b) Tax credits will not be reserved to finance or capitalize any type of reserve account including, but not limited to, operating reserves or replacement reserves.

     (c) Annual increases in income and expenses that are less than 3 percent.

     (d) A vacancy factor of not more than 7 percent after each unit in the project is rented.

     (e) An operating ratio of at least 35 percent but not more than 45 percent.

     (f) Replacement reserves must be funded at a level of not less than $150 per unit per year for projects for older persons that received preference points pursuant to NAC 319.989 and at a level of not less than $200 per unit per year for any other project.

     4. The Division will consider an amount that is more than 14 percent of the construction costs for the total of builder’s profit, builder’s overhead and general requirements to be excessive. General requirements include the cost to:

     (a) Install temporary fencing at the site of the project;

     (b) Provide services of a public utility to the site during the construction of the project; and

     (c) Provide an office or supervisor at the site of the project.

     5. Additional criteria, assumptions and limitations may be required in the annual plan and instructions for an application.

     (Added to NAC by Housing Div. by R057-97, eff. 1-15-98; A by R124-04, 10-4-2004; R103-05, 10-31-2005)