North Star Group, Inc.

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Serenity Village – Voucher Strategy, Rent

Sensitivity, and Capital Structuring

North Star Group | Mobile Housing Authority Partnership

April 30, 2025

1. Executive Summary

Serenity Village at 3 Mile Creek represents a critical opportunity to address aﬀordable

housing needs in Mobile through a 120-unit development (all 2BR units) at 1800 St. Stephens

Rd. This white paper presents two ﬁnancial scenarios based on available voucher strategies.

Scenario 1: Using Faircloth-to-RAD Authority

If Mobile Housing Authority can employ its Faircloth-to-RAD authority, the ﬁnancial outcome

would be highly favorable:

● All 48 RAD units would convert at higher rent levels ($1,180-$1,298 vs. $900)

● Annual project income would match or exceed AGM term sheet projections of

$1,813,046

● The existing 1.159 debt service coverage ratio would be maintained or improved

● The equity structure remains intact, with $2.35M land value contribution plus deferred

developer fee of $1.38M

● Only approximately $500,000 in lender fees would be required as cash outlay

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● The existing loan amount of $16,328,300 would remain viable

This approach optimizes both ﬁnancial performance and mission fulﬁllment without sacriﬁcing

unit aﬀordability.

Scenario 2: Without Faircloth-to-RAD Authority

If standard RAD conversion must be used, ﬁnancial implications would include:

● 48 RAD units would remain at the lower $900 rent level

● Annual project income would be approximately $1,682,760 ($130,286 below term

sheet)

● Debt service coverage would drop to approximately 1.077 (below HUD's 1.15 minimum)

● While the land value equity and deferred developer fee structure remain adequate, the

loan amount would likely need adjustment

● The loan amount would need to be reduced by approximately $1.74M

● Additional cash requirements for lender fees may increase beyond the anticipated

$500,000

Recommended Voucher Mix (All 2BR Units):

● Project-Based Vouchers (PBV): 60 units

● HUD-VASH (Veterans): 7 units

● FYI (Foster Youth): 5 units

● Units using Faircloth-to-RAD (Scenario 1) or standard RAD PBV (Scenario 2): 48 units

Given these projections, we strongly recommend pursuing the Faircloth-to-RAD approach

with Mobile Housing Authority to maintain ﬁnancial viability while serving the intended

populations.

2. Context and Stakeholder Roles

Project Partners

● Developer: North Star Group

● Lending Partner: AGM Financial (MAP lender)

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

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● PHA Partner: Mobile Housing Authority (MHA)

● Site: 1800 St. Stephens Rd, Mobile, AL 36617

● Target Populations: HUD-VASH (veterans), FYI (foster youth), general low-income

families

Mobile Housing Authority Proﬁle

Mobile Housing Authority is a High Performer (SEMAP) agency serving approximately 5,900

families across 1,292 public housing units and 4,659 housing choice vouchers. MHA has

substantial experience with specialized voucher programs, including 120 HUD-VASH vouchers

and high-performing mainstream voucher utilization (98% lease-up rate). The agency has

successfully implemented project-based vouchers at developments like Maryvale Place,

demonstrating capacity for complex aﬀordable housing partnerships.

3. Rent Structure and Underwriting Sensitivity

Current Underwritten Rent Benchmarks (2BR Units Only)

● AGM Financial underwritten rent: $1,298 per unit (standard PBV)

● RAD PBV estimated rent: $900 (Mobile Housing Authority's published RAD PBV

contract rent for 2BR units)

● HUD-VASH estimated rent: $1,150 (Based on HCV payment standard for 2BR)

● FYI estimated rent: $1,050 (Based on HCV payment standard for 2BR)

● Faircloth-to-RAD estimated rent: $1,180-$1,298 (Based on FMR to 110% of FMR)

Scenario Comparison Analysis

Scenario 1: Using Faircloth-to-RAD Authority

● 48 RAD units at $1,180-$1,298 instead of $900 (up to $398 per unit increase)

● Potential additional income: $13,440-$19,104 per month ($161,280-$229,824 annually)

● Results in $1,844,040-$1,912,584 annual income (meets or exceeds AGM term sheet

projection)

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Fairhope AL 36532

701-770-9118

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● Debt service coverage ratio: 1.18-1.22 (improved from term sheet's 1.159)

● Equity structure remains intact: $2.35M land value contribution plus $1.38M deferred

developer fee

● Requires approximately $500,000 in lender fees as cash contribution

Scenario 2: Without Faircloth-to-RAD Authority

● 48 RAD units at standard $900 rent level

● Results in $1,682,760 annual income ($130,286 below AGM term sheet)

● Debt service coverage ratio: Approximately 1.077 (below HUD's 1.15 minimum)

● Required loan reduction: Approximately $1.74M

● While land value equity and deferred developer fee remain adequate, loan terms

would require adjustment

● Lender fees could potentially increase beyond the anticipated $500,000 cash

contribution

Voucher Impact on Net Operating Income (NOI) - 2BR Units

Voucher Type

Monthly Rent (2BR)

Net to Owner

Impact on Underwriting

Market PBV

$1,298

High

Strongest DSC support

HUD-VASH

$1,150

Medium-High

Good DSC support

FYI

$1,050

Medium

Moderate DSC support

RAD PBV

$900

Medium-Low

Weakens DSC

4. Unit Mix & Occupancy Risk (2BR Units Only)

Proposed Mix

Voucher Type

Units

Percentage

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Standard PBV

50%

HUD-VASH

5.8%

FYI

4.2%

RAD PBV

40%

Total

120

100%

Occupancy Risk Assessment

HUD-VASH Demand

The Mobile/Baldwin CoC identiﬁed 77 veterans experiencing homelessness in its 2023 PIT

count (49 sheltered, 28 unsheltered). With MHA currently administering 120 HUD-VASH

vouchers, there is strong evidence of both need and administrative capacity. Our allocation of

7 HUD-VASH units represents less than 10% of the documented homeless veteran population,

presenting minimal occupancy risk.

FYI (Foster Youth) Demand

In 2019, 351 young adults aged out of foster care in Alabama. The Mobile/Baldwin CoC

counted 31 unaccompanied homeless youth in its 2023 PIT count. Our conservative allocation

of 5 FYI vouchers represents approximately 16% of the documented local homeless youth

population, aligning with realistic referral capacity while serving a critical need.

Risk Mitigation Strategy

● HUD-VASH: Coordinate with VA Gulf Coast system's Homeless Veterans Coordinator

to establish referral pipeline

● FYI: Partner with Alabama DHR to identify eligible youth approaching transition from

foster care

● Standard PBV: Function as reliable occupancy base with strong rental revenue

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● RAD PBV: Provide stable occupancy with lower rent levels

5. Analysis of MHA Options

Based on our assessment of Mobile Housing Authority's capacity and policies, we recommend

a collaborative approach that balances ﬁnancial sustainability with mission fulﬁllment:

Faircloth-to-RAD Opportunity: Using Faircloth authority coupled with RAD conversion allows

for signiﬁcantly higher contract rents ($1,180-$1,298) compared to standard RAD conversion

($900), which can dramatically improve project ﬁnancial viability while still serving deeply

aﬀordable populations.

The proposed voucher mix provides:

● Strong debt service coverage through standard PBVs (50% of units)

● Targeted support for vulnerable populations (veterans and youth)

● Opportunity to use Faircloth-to-RAD for increased rent levels on units currently

designated as RAD

● Flexibility to adapt if referral patterns change

6. Recommendations

1. Prioritize Faircloth-to-RAD Conversion: We strongly recommend that MHA utilize its

Faircloth authority with immediate RAD conversion for the 48 units currently

designated for standard RAD PBV assistance. This approach would:

○ Increase rents from $900 to $1,180-$1,298 per unit

○ Generate $161,280-$229,824 in additional annual income

○ Maintain or improve debt service coverage above the required 1.15 threshold

○ Preserve the established equity structure ($2.35M land value plus deferred

developer fee)

○ Limit cash outlays to approximately $500,000 in lender fees

2. Maintain Optimal Voucher Mix: Whether using Faircloth-to-RAD or standard RAD

conversion, the following voucher distribution is recommended:

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

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○ 60 standard PBVs (50%)

○ 7 HUD-VASH (5.8%)

○ 5 FYI (4.2%)

○ 48 units using either Faircloth-to-RAD or standard RAD PBV (40%)

3. Secure Long-Term Contracts: As noted in the AGM term sheet, we must secure

minimum 15-year contracts for all voucher types to satisfy lender requirements for

stable income projections.

4. Contingency Plan If Faircloth-to-RAD Is Not Available:

○ Work with lender to adjust loan terms to accommodate the lower income

projections

○ Explore possibilities for enhanced voucher rents through special approval from

MHA

○ Consider phased development approach to manage initial capital requirements

5. Coordinate MHA and VA Partnerships: Develop formal Memoranda of Understanding

with Mobile Housing Authority and VA Gulf Coast system to ensure smooth referral

processes for special population vouchers.

Appendix A: RAD vs. Faircloth-to-RAD Analysis

RAD (Rental Assistance Demonstration) and Faircloth-to-RAD represent two diﬀerent

approaches to securing long-term aﬀordable housing subsidies, each with distinct income

implications:

Standard RAD Conversion

● Income Source: Existing public housing units converted to long-term Section 8

contracts

● Rent Setting: Based on public housing operating subsidy + Capital Fund allocation

● Typical Rent Levels: $900 per unit (Mobile market)

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Fairhope AL 36532

701-770-9118

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● Financial Impact: Generally produces lower rent levels than standard PBVs

Faircloth-to-RAD

● Income Source: Utilizes unused public housing authority under Faircloth Amendment

with immediate conversion to Section 8

● Rent Setting: Based on local Fair Market Rent (FMR) calculations, up to 110% of FMR

● Typical Rent Levels: $1,180-$1,298 (similar to standard PBV levels)

● Financial Impact: Signiﬁcantly more favorable for new construction underwriting

For Serenity Village, using Faircloth-to-RAD instead of standard RAD conversion would

increase rental revenue by approximately $280-$398 per unit per month for applicable units.

This diﬀerence would dramatically impact debt service coverage ratios and could reduce

equity requirements by over $1M, depending on the number of units converted through this

method.

Appendix B: Assumptions Justiﬁcation

Rent Assumptions (2BR Units Only)

Voucher

Type

Assumed Rent

(2BR)

Source/Justiﬁcation

Formula

Standard

PBV

$1,298

AGM Financial

underwriting model

110% of HUD FMR for Mobile

MSA 2BR ($1,180)

HUD-VASH

$1,150

MHA HCV payment

standard

97% of PBV standard

(veteran-speciﬁc adjustment)

FYI

$1,050

MHA HCV payment

standard

89% of PBV standard

(youth-speciﬁc adjustment)

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

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Faircloth-to-

RAD

$1,180-$1,298

HUD Faircloth-to-RAD

guidance

Based on FMR with potential

for up to 110% of FMR

Standard

RAD PBV

$900

MHA HCV Administrative

Plan (2022)

Based on Public Housing

Operating Fund + Capital

Fund allocation

Validation Sources:

● HUD FY2025 Fair Market Rent for Mobile, AL zip code 36617 is $1,180 for a 2BR unit

(HUD User FMR Documentation System)

● Payment standards can be set up to 110% of FMR for voucher programs (110% of $1,180

= $1,298)

● RAD PBV rents are based on Public Housing funding formula (Operating Fund +

Capital Fund)

● Mobile Housing Authority HCV Administrative Plan (Revised March 2022)

● ZIP code 36617 is the project location (1800 St. Stephens Rd, Mobile, AL)

Unit Allocation Assumptions (2BR Units Only)

Population

Units

Allocated

Demand Estimate

Source

HUD-VASH

77 homeless veterans

Mobile/Baldwin CoC 2023 PIT

Count

FYI

31 homeless youth

Mobile/Baldwin CoC 2023 PIT

Count

Standard

PBV

General low-income

demand

MHA waiting list (>4,000

households)

RAD PBV

PHA discretion

MHA Capital Planning

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

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Occupancy Risk Assessment Formula: Units allocated / Documented demand = Occupancy

risk index

● HUD-VASH: 7/77 = 9.1% (Very Low Risk)

● FYI: 5/31 = 16.1% (Low Risk)

Financial Sensitivity Formulas (2BR Units Only)

Comparison to AGM Term Sheet Projections:

● AGM Term Sheet Income: $1,813,046 annual eﬀective residential income

● Proposed Voucher Mix Income: $1,682,760 annual potential gross income (93% of

AGM projection)

● Reduction: $130,286 annual income impact (7% lower than AGM projection)

Debt Service Coverage Impact:

● Current AGM Term Sheet DSC Ratio: 1.159 (based on $1,296,332 NOI and $1,118,907

debt service)

● With reduced income: Approximately 1.077 DSC ratio if expenses remain constant

● Minimum acceptable DSC ratio for HUD ﬁnancing: 1.15

Equity Impact:

● With reduced income, the project cannot support the $16,328,300 loan amount in the

AGM term sheet

● Required loan reduction: Approximately $1.74M to maintain 1.15 DSC ratio

● Additional equity needed: Approximately $796,000 (based on current capital

structure)

● Alternative: Pursue Faircloth-to-RAD conversion to increase rents from $900 to

$1,180-$1,298 per unit for 48 RAD units, potentially generating $161,280-$229,824 in

additional annual income

Operating Expense Assumptions