Underwriting affordable housing before post-rehab rents become effective

The initial case carries six months of pre-rehab contract rent and six months of post-rehab rent. Scheduled HAP contract rent is $2.840 million. After $60,000 of abatement and collection loss, $220,000 of resident and other revenue and $1.450 million of operating expense, Year 1 NOI is $1.550 million.

The approved-effective case carries ten months of pre-rehab rent and two months of post-rehab rent. It then uses the current voucher, tenant ledger and abatement report rather than applying a general collection factor to the scheduled contract amount.

Scheduled contract rent falls by $170,400. Abatement, collection loss and resident charges reduce revenue by another $144,000, while operating expense increases by $40,000. Year 1 NOI falls by $354,000.

Exhibit 1A contains the current pre-rehab schedule by bedroom type. Seventy-two one-bedroom units produce $75,600 per month, 84 two-bedroom units produce $105,000 and 24 three-bedroom units produce $34,800.

Exhibit 1B increases the monthly amounts to $90,000, $126,000 and $42,000. The total increase is $42,600 per month. Both schedules remain attached to the same 180 contract units; the approval record determines which schedule is effective for a given voucher month.

The rent schedule is not rebuilt from tenant payments alone. The HAP contract establishes total contract rent, while the tenant certification and utility allowance determine the split between resident payment and subsidy. That split is reconciled separately to the monthly voucher and tenant ledger.

The initial model uses a May 31 construction completion date and assumes approval before the June voucher cutoff. The current unit and draw records show physical completion on August 28. The owner submits the completion certification on September 6.

The review identifies corrections and missing supporting documents, completed October 8. Approval follows on October 15. Under the current HAP treatment, the post-rehab schedule becomes effective November 1, not on physical completion, submission or the date of the last unit draw.

This sequence preserves the distinction between construction completion and rent approval. A change in the draw schedule moves the forecast only when it also moves the certification, correction and approval dates that control the effective voucher month.

Ten months of pre-rehab rent produce $2.154 million. Two months of post-rehab rent produce $516,000. Scheduled HAP contract rent is therefore $2.670 million in the approved-effective case.

The monthly voucher is then reconciled by unit. Twelve units carry current abatements; tenant payments, subsidy, retroactive adjustments and collection status are assigned to their actual months. Abatement and collection loss reaches $135,000 rather than the $60,000 in the initial case.

Total property revenue is $2.686 million. Operating expense is $1.490 million after extending the compliance, security and construction-closeout costs in the current records. Year 1 NOI is $1.196 million.

At the $22 million purchase price, the initial NOI produces a 7.05% going-in yield. The $14.3 million permanent loan is constrained by 65% LTV and opens at a 10.84% debt yield.

The approved-effective NOI produces a 5.44% yield. At 65% LTV, debt yield falls to 8.37%, below the 9.5% minimum. The debt-yield constraint sizes proceeds at $12.594 million, $1.706 million below the initial case. Purchase-price equity increases to $9.406 million.

Alternate cases move a specific part of the approval chain. Earlier completion review makes the post-rehab schedule effective September 1. An abatement-cure case restores the twelve affected units without moving the contract-rent date. A year-end approval leaves all post-rehab rent outside Year 1.

Cap Orbit can work across the HAP contract, Exhibits 1A and 1B, RAD conversion commitment, completion requirements, draw schedule, unit completion log, inspection record, completion certification, approval correspondence, TRACS voucher, tenant ledger, abatement report, permanent-loan quote and existing acquisition model in the same deal.

From there, you can have Cap Orbit rebuild the approval chain, apply the correct HAP exhibit by voucher month, reconcile tenant and subsidy payments by unit and update revenue, operating costs, NOI, debt yield, permanent proceeds and equity in the existing model.

The same deal record supports the cases that matter here: a different completion-approval date, correction of specified abated units, delayed documents or post-rehab rents beginning next year. Each case returns the same connected outputs—effective HAP schedule, voucher revenue, collection loss, NOI, permanent debt and equity.

The standard for AI on this asset class is an approval-effective case in which contract exhibits, physical completion, subsidy status and permanent financing resolve into the same monthly revenue schedule.