Comment Submitted by Gwen Volk, LBK Management

The problem with the proposal is that while it notes that “existing” MTSP’s are protected by HERA, it disregards the negative impact this proposal will have on the future development of MTSP’s. The ability to develop and rehab new housing through the MTSP’s will be negatively impacted. This is because, when you develop an MTSP, the underwriting is based on the maximum rent potential which is derived from the HUD 50% income limits. Currently, developers can be assured that their rent potential will not arbitrarily decrease. Rents in an MTSP property are always effected by market realities, so that even if the rent cap is $1000, the market may cap them at $800. However, they know that should the market support the rent of $1000, they will be able to achieve that rent. In addition, MTSP property rents are affected by increased utility costs, despite the IRS’s effort to provide owners with more options in that regard. Removing the hold harmless policy impacts future development and adds more risk to an already difficult development scenario where effective rents already often do decrease as utility costs increase. What is not clear in the notice is whether the term “existing MTSP’s” refers to current developments only, or if once a new MTSP is developed/rehabbed, they then are considered “existing” and will have their initial income limits held harmless and hence not have to be further concerned with future rent cap reductions. But even if HERA protections resolve that issue, deals take a great deal of time to do and underwriters will know that there are no guarantees that their rent will not drop before the deal closes. In a program whose margins are already slim, this will surely have a chilling effect. Deals could fall out while in process due to this, or even more likely developers won’t waste their time in such a development scenario. As for targeting the DDA’s, these are the areas where the income limits are most likely to go down and further depress