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Section 3

   Management Fees


Q NEW When will the new Management Agreement process take effect, and what are some of the new requirements?  (11/18/04)


A:   For those projects that are currently in the compliance period, effective 12/1/04, MHDC will no longer be a stated party in Management Agreements. 


For approved projects through the 2005 NOFA, these agreements will no longer be a part of the loan closing process, but you will be faced with a new firm commitment requirement. 


Management Agreements will now be between an approved MHDC Management Company and the owner.  Management Companies will be required to submit to MHDC a Project Owner’s/Management Agent’s Certification that certifies the following:


1.       Submit a Management Entity Profile to MHDC

2.       Collect fees after a valid agreement was in place

3.       Select residents and rents in accordance with MHDC guidelines

4.       Comply with all MHDC Regulatory and Management Handbook Requirements

5.       Ensure all project fees and expenses were reasonable and necessary

6.       Maintain adequate insurance coverage with MHDC listed as additional loss payee

7.       Respond to MHDC management reviews and inquires within 30 days

8.       Maintain accounting records according to MHDC requirements

9.       All project records belong to the project, regardless of location

10.   Agreements do not contain hold harmless clauses

11.   Disclosed all identities-of-interest


Note: A new Management Certification must be submitted every time there is a change in management company or proposed fee.


Q NEW What is a Management Entity Profile?  (11/18/04)


A:   A Management Entity Profile provides pertinent information (Name, Address, etc.) regarding the management company.  The Management Profile will need to include the following information:


1.       List of Principal Members

2.       History and degree of involvement in MHDC projects

3.       List of staff  (updated accordingly as staff changes)

4.       Description of training and experience (update every 2 yrs)

5.       Estimated number of supervisory site visits


Q NEW What amount do Management Fees start at, and how can management fees be increased? (11/18/04)


A:   Management fees start at $30.  This level would apply to initial underwriting, young management companies, or those companies that have been identified as potentially troubled.  Once the original Management Agreement expires, an increase of $3 per occupied unit may be requested.  All subsequent requests are capped at $2 per occupied unit increments with a maximum Management fee of $40 per occupied unit.  Accounting fees are expected to be paid from management fees, and can no longer be paid separately from operations.


Note:  MHDC must approve all management fee increases.  Fees charged outside of the scope of the Management Certification will be required to be reimbursed to the project.


Q NEW How does MHDC define lease up -vs- stabilization, and how are management fees during the lease up and stabilization periods determined? (11/18/04)


A:   The “Lease Up” period is defined as the period during construction or rehab that management services begin through the time that the project reaches 90% sustaining occupancy.  The “Stabilization” period begins once the project reaches 90% sustaining occupancy.  Management fees during “lease up” (but no longer than 1 yr past the cost certification date) may be on a per unit basis; whereas, management fees during “stabilization” will be on a per occupied unit basis.


Q NEW How does a project pay its expenses during the Lease Up period? (11/18/04)


A:   Projects can pay expenses from the Operating Deficit Reserve, the Operating Reserve, or from the new Lease Up line item, derived from the FIN 117, that is now included on the 2013 Development Budget.




Q NEW Do losses due to flooding, fire, storm damage, or other disaster need to be reported to MHDC?  (11/18/04)


A:  Yes – MHDC must be listed as an additional loss payee, and must be notified in writing, regardless of amount, that the project experienced a loss and filed a claim.  A copy of the claims form must be sent to the MHDC (STL) office, and MHDC must be notified when repairs are complete so an inspection can be scheduled based on the extent of the repairs.


Q NEW What should the project do when they receive an insurance claim check, and how should the insurance claim be reported for accounting purposes? (11/18/04)


A:  All insurance reimbursement checks must include MHDC as an additional loss payee, and be sent to the STL office with the owner’s endorsement.  MHDC will forward a check to the owner/contractor upon completion of work and MHDC’s inspection.


The project is responsible for the appropriate accounting of insurance reimbursement transactions. For assets previously capitalized, GAAP requires writing off the net book value of the damaged asset, and recognizing a gain or loss on disposal depending on whether the insurance proceeds are greater or less than the net book value.  The fixed assets that are purchased with the insurance proceeds are capitalized as fixed assets and depreciated accordingly.  The gain or loss should be recorded below net operating income (loss).  In the event insurance proceeds are received on an asset that was originally expensed, the proceeds would hit (credit) other income, and expense (debit) when the replacement item is incurred.  For presentation purposes, these items should not be “netted” on the same P&L line, and appropriate footnote disclosure or supplemental schedule is required to discuss the nature of the loss.