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Judson Brown, City of Santa Ana March 1, 2017 <br />Santa Ana Arts Collective: Financial Gap Analysis Page 12 <br />KMA estimates the Project's gross residential income at $639,100, which includes laundry and <br />miscellaneous income averaging $10 per unit per month. After applying a S% vacancy and <br />collection allowance, KMA estimates the resulting effective gross income at $607,100. <br />The residential operating expenses are estimated as follows: <br />1. Based on the Developer's estimates, the general operating expenses are estimated at <br />$5,990 per unit per year. <br />2. KMA assumes the Developer will apply for the property tax abatement that is accorded <br />to non-profit housing organizations that own and operate low income apartments. The <br />Developer estimates the property tax assessment overrides at $2,500 per year. <br />3. The Developer estimates the social services costs at $40,000 per year. <br />4. The AHSC Program requires mandatory annual debt service payments equal to .42% of <br />the Affordable Housing Capital Loan amount. The annual debt service payment is <br />estimated at $20,800 based on a $4.94 million loan amount. <br />5. The annual capital replacement reserve deposit is estimated at $600 per unit per year, <br />which is assumed to be a requirement of the AHSC Program. <br />As shown in Table 2, the residential operating expenses are estimated to total $445,500, or <br />approximately $7,680 per unit. When the Project's effective gross income is reduced by the <br />residential operating expenses, KMA estimates the stabilized net operating income at $161,600. <br />Available Funding Sources <br />The available funding sources committed to the Project can be described as follows: <br />Conventional Permanent Loan <br />To estimate the maximum permanent loan that can be supported by the Project's stabilized net <br />operating income, KMA assumed that the loan would be underwritten at a 117% debt service <br />coverage ratio, a 5.65% interest rate, and a 35 -year amortization period. Based on these <br />assumptions, KMA estimates that the $161,100 in stabilized net operating income can support a <br />$2.10 million permanent loan. <br />Tax Credit Proceeds <br />In November 2016, the Project was awarded gross Tax Credits with a value of $17.90 million <br />paid out over a 10 -year period. These Tax Credits are sold on the secondary market, and the net <br />1703001:SNA:TRB <br />19090.014.007 <br />65A-28 <br />