North Star Group, Inc.

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Serenity Village - Funding Flow & Equity

Structure Analysis

Executive Summary

Serenity Village is a HUD 221-d-4 ﬁnanced aﬀordable housing development with a multi-party

equity structure. The project utilizes a Treasury Fund's bridge ﬁnancing to cover pre-development

costs and initial developer fees, with the majority of the developer fee deferred as equity. The

project has a planned 5-year hold period before reﬁnance or sale.

Key Capital Structure Elements

● HUD 221-d-4 Loan: Covers hard costs, interest, and most soft costs (developer fees

ineligible)

● Treasury Fund Bridge Financing:

○ $100k revolving marketing line for site pursuit (10 sites)

○ ~$1.3-1.4MM Bridge Note covering pre-development costs and initial developer

fee ($300k)

○ Bridge Note secured by ﬁrst lien on PHA land (8% simple interest)

○ Fully repaid at HUD initial closing

● Developer Fee Structure:

○ Total nominal fee: $1.7MM (8% of TDC)

○ Initial draw: $300k (part of Bridge Note)

○ Deferred portion: $1.4MM (remains as equity)

○ Fee allocation: NSG (64%), PHA (30%), Consulting Partners (6%)

Serenity Village Housing Model

______________________________________________

1

Equity Structure

Partner

Equity %

Cash/Value Contribution

Core Responsibilities

PHA

30%

Land ($2.7MM) + 30% of

developer fee

Vouchers, stewardship, property

management

Treasury Fund

25%

Marketing line + Pre-Dev

Bridge (repaid)

Treasury, draw control, HUD

liquidity proof

Tom (Panels)

15%

$350,000 initial equipment

investment

Cost discipline, build-team

introductions

NSG (Developer)

19%

64% of developer fee

($1.7MM nominal)

HUD process, design, ﬁnance,

overall delivery

Consulting

Partners

6% (3 ×

2%)

6% of developer fee

Finance, legal, construction

admin

Project Timeline

1. Seed & Pursuit (0-6 months)

○ $100k revolving Treasury marketing line for preliminary studies

2. Pre-Development (6-12 months)

○ Bridge Note (~$1.3-1.4MM) funds studies, appraisals, legal costs, and initial

developer fee

○ Secured by ﬁrst lien on PHA land (land value ≈ $2.7MM; lien ≤ 40% LTV)

3. HUD Initial Closing (~12-14 months)

○ HUD 221-d-4 mortgage closes

○ Bridge Note + interest repaid via land-lien payoﬀ

○ Treasury maintains 25% equity with $500K cash outstanding as req by 221d4

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Serenity Village Housing Model

______________________________________________

2

4. Construction (14-38 months)

○ 24-month build plus ~2 months for cost certiﬁcation

5. Cost Certiﬁcation (Post-construction)

○ HUD releases 100% retainage on hard costs

○ Developer fees remain as equity

6. Operations (Years 1-4)

○ Cash ﬂow: PHA management fee (7% EGI) → operating reserves → distributions per

equity split

7. Exit (Year 5)

○ HUD loan retired

○ Net proceeds split according to equity percentages

○ Partners realize deferred developer fee through their equity shares

Year 5 Exit Summary

Partner

Equity

%

Rents

Collected

Rent + Exit

Land

Exit Dev

Fee

Ent Dev

Fee

Total Exit

Prefunder

25%

$294,665

$1,404,540

$0

$1,404,540

Tom

15%

$235,732

$790,670

$0

$790,670

PHA

30%

$353,598

$1,463,473

$2,700,000

$420,000

$100,000

$4,683,473

NSG

19%

$223,946

$926,866

$0

$686,000

$833,000

$1,612,866

NSG TEAM

(3 × 2%)

6%

$70,719

$292,695

$0

$294,000

$63,000

$649,695

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Serenity Village Housing Model

______________________________________________

3

Annual Cash Flows

Year

NOI

Cash Flow

after DSCR

Prefunder

(25%)

Tom

(15%)

PHA

(30%)

NSG

(19%)

NSG TEAM (3

× 2%)

1

$1,296,332

$177,425

$44,356

$35,485

$53,228

$33,711

$10,647 (3 ×

$3,549)

2

$1,324,851

$205,944

$51,486

$41,189

$61,783

$39,129

$12,357 (3 ×

$4,119)

3

$1,353,998

$235,091

$58,773

$47,018

$70,527

$44,667

$14,106 (3 ×

$4,702)

4

$1,383,786

$264,879

$66,220

$52,976

$79,464

$50,327

$15,894 (3 ×

$5,298)

5

$1,414,229

$296,322

$74,081

$59,264

$88,897

$56,301

$17,718 (3 ×

$5,906)

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Serenity Village Housing Model

______________________________________________

4

IRR Analysis

Partner

Equity %

Initial Investment

Total 5-Year Return

IRR

Prefunder

25%

$1,300,000-$1,400,000 (repaid)

$1,404,540

40.9%

Tom

15%

$350,000

$790,670

17.7%

PHA

30%

$2,700,000 + 30% dev fee

$4,683,473

13.7%

NSG

19%

64% of $1.7MM dev fee

$1,612,866

10.2%

NSG TEAM (2%

each)

2%

2% of dev fee

$216,565

21.5%

Note: The IRR for Treasury Fund accounts for both the bridge ﬁnancing being repaid at HUD

closing and the subsequent equity returns. NSG's IRR is improved because they're contributing a

smaller portion of the development fee (64% rather than the full amount).

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com