Portfolio Strengthening

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• Portfolio Strengthening
• Indiana State Housing Conference
• 09/19/12

2
Introductions

• Larry Gautsche President (July 2001)
• Alan Greaser Director Asset Property
  Management (April 2008), VP Real Estate (February
  2012)
• Jim Davis VP Finance (March 2007)

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Who Is LaCasa, Inc.?

• Located in Elkhart County, Indiana
• 41-year history, 31 staff
• Primary lines of business
• Homeownership Center IDAs, pre/post purchase,
  foreclosure, HECM, lending, financial fitness
  training
• Community Building Organizing neighborhood
  development, quality of life planning, leadership
  development
• Resident Services Immigration, VAWA, Deferred
  Action
• Real Estate Development Acq/Rehab, OOR,
  Permanent Supportive Housing, NSP, Tax Credit
  projects
• Property Asset Management 267 units under
  management
• Development fundraising, volunteer management,
  brand management

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Pre-Portfolio Strengthening - The Properties as
of 1/1/07
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Scattered Site Family Homes

• 33 units of single family/duplex homes, owned 15
  years

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Arbor Ridge Apartments

• 72 units of new construction on one site incl.
  one commercial space, 1999-2000

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Pre-Portfolio Strengthening - The Properties
2007-2008
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The Game Changers

• Lincoln Ave. critical rehabs to maintain two
  historic buildings and improve near-downtown
  neighborhood
• Roosevelt Center, Water Tower Place, State
  Main rescue existing or in-flight projects from
  a failed CDC in the Countys major city
• Build critical mass in second community

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Lincoln Ave. Redevelopment

• 28 unit historic rehab of hotel and commercial
  building including one commercial space,
  May/December 2007

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Roosevelt Center

• Roosevelt Center 35 units historic rehab of
  elementary school including commercial condo,
  December 2008

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Water Tower Place Apartments

• 52 units of new construction senior housing in
  one building, May 2008

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Elkhart Properties

• Acquisition of 20 units in two buildings
  including one commercial space, December 2008

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Before And After

• January 2007 105 units with one Tax Credit
  property and 33 scattered site units primarily in
  one community

• January 2009 240 units with four Tax Credit
  properties, two multi-family properties and 33
  scattered site units in two communities

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Pre-Portfolio Strengthening - The Environment
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2009 Market Analysis - Occupancy
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LaCasa, Inc. Occupancy Graph
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2009 Economic Analysis

• Elkhart County has been one of the most
  recession-impacted counties in the U.S. The
  year-over-year increase in the County
  unemployment rate was among the three highest in
  the country. The absolute unemployment rate
  peaked at nearly 20 and remains at nearly 17.
  In addition, the area has experienced a very high
  rate of foreclosure. This has created a
  combination of job losses as well as an increase
  in the availability of single-family homes for
  rent. A majority of the job losses were due to
  business closure, so recovery will be slow as is
  depends on the creation of new businesses, not
  just rehiring. Accordingly, the local recovery
  is expected to take several years as opposed to a
  more traditional 12-18 month recovery.

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Organizational Focus

• Primarily focused on day-to-day operations
• Struggling with recent portfolio growth
• Did not have a strategic approach to Asset
  Management
• Did not have good performance tracking tools
• Could identify several problems but had no formal
  approach to prioritize and address them
• Many staff involved in various elements but no
  real team approach

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Portfolio Strengthening Clinic
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Portfolio Strengthening Clinic

• Team approach CEO, Director Asset/Property
  Management, CFO, Board member (ex-NEF employee)
• Required a rigorous examination of each property
  and the portfolio as a whole (pre-work is
  critical)
• Developed quadrant analysis of mission vs. profit
  by property brutally honest assessments
• Identified and prioritized improvement
  opportunities
• Agreed on roles and responsibilities
• Set timeline for action steps
• Developed framework for NWA grant application

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Portfolio Quadrant Analysis
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Targeted Improvement Goals

• Arbor Ridge/ Roosevelt Center
• Establish consistent property valuation
  methodology and permanently reduce tax burden
• Reposition hard debt to sustainable levels at
  favorable long-term rates
• Provide cost structure that can be supported by
  rent structure below LIHTC levels if needed to be
  competitive
• Assure cash availability to fund mgt fees and
  other inter-company payables
• Develop portfolio-wide approach to managing core
  operational costs cleaning, maintenance, etc.
• Organizational Impact
• Complete banking strategy to partner with
  locally/regionally managed financial institutions
• Improve consistency and total value of payments
  from properties
• Assure asset and property mgt is a
  sustainable/profitable line of business
• Develop a defined approach to portfolio
  management and screening of new opportunities

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Portfolio Strengthening - The Outcomes
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Arbor Ridge Action Steps

• Declining occupancy completed rent analysis,
  set special rents until achieve 95 occupancy,
  developed tenant incentives, created Rent
  Assist fund
• High insurance costs moved risk management
  program to legitimate commercial insurer
• High property tax burden appealed assessment
  methodology
• High operating costs identified targeted per
  unit operating cost and improvement opportunities
• High debt burden negotiated principal
  concession in exchange for complete refinancing,
  identified lower cost debt options, obtained
  grants for additional principal reduction

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Arbor Ridge Results
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Roosevelt Center Action Steps

• Declining occupancy completed rent analysis,
  special rents until achieve 95 occupancy
• High property tax burden appealed assessment
  methodology
• High utility costs replaced all common lighting
  with LEDs/occupancy sensors, installed limited
  solar array
• High operating costs identified targeted per
  unit operating cost and improvement opportunities
• High debt burden reduce principal and refinance
  at lower interest rate

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Roosevelt Center Results
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Improved Performance Tracking

• Weekly
• Cash flow
• Occupancy rates
• Monthly
• Vacancy/concessions analysis
• Operating cost per unit tracking
• Net operating income
• Debt coverage ratio
• Quarterly
• Collections/bad debt analysis
• NeighborWorks Multi-Family Initiative reporting

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Cash Status By Project
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Occupancy Tracking
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Operating Costs Per Unit
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MFI Performance Tracking - Vacancy
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Improved Organizational Visibility

• Board Asset Management Committee
• Project oversight from ideation to completion
• Portfolio operating performance review
• Board Finance Committee
• More purposeful cash flow focus
• Targeted financial performance metrics
• Organizational debt management
• Extensive graphing of performance metrics for
  staff, Management and the Board

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Summary

• The NWA Portfolio Strengthening Clinic was a very
  valuable process a watershed event for
  LaCasa, Inc.
• The subsequent funding NWA and others provided
  helped to take our targeted improvements from
  ideas to reality
• The MFI process is a valuable discipline and
  continuous improvement tool

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Questions??
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• 202 N. Cottage Ave.
• Goshen, IN 46528
• www.lacasainc.net