B-145378, JUN. 23, 1961

B-145378: Jun 23, 1961

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TO QUEEN EMMA ASSOCIATES: FURTHER REFERENCE IS MADE TO YOUR LETTER OF MARCH 17. WAS NOT FINANCIALLY FEASIBLE. THERE FOLLOWS AFTER EACH OF YOUR NUMBERED CONTENTIONS AN ANSWERING PARAGRAPH FURNISHED BY THE HOUSING AND HOME FINANCE AGENCY: "/1) THE PROPOSED FHA INSURED MORTGAGE WAS IN EXCESS OF THE MAXIMUM PERMITTED BY FHA FOR HONOLULU. 500 PER ROOM FOR WALKUP UNITS IF THE AVERAGE IS 4 OR MORE. DOES HAVE PROVISIONS TO BE EXERCISED UNDER A HIGH-COST DESIGNATION WHICH COULD INCREASE THE PER-ROOM MORTGAGE LIMITATION. "ALTHOUGH PROVISION FOR THE ARCHITECT'S FEES WAS NOT INDICATED. THE COST FOR SUCH FEES IS ASSUMED TO BE COVERED IN THE PROFIT AND RISK ALLOWANCE. ARCHITECT FEES ARE COMPUTED ON THE COST TOTALS OF NEW UTILITIES.

B-145378, JUN. 23, 1961

TO QUEEN EMMA ASSOCIATES:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF MARCH 17, 1961, PROTESTING ON SIX DIFFERENCE COUNTS THAT THE PROPOSAL OF QUEEN EMMA GARDENS, LTD., FOR THE CONSTRUCTION OF THE QUEEN EMMA URBAN RENEWAL PROJECT, PARCEL B-1, APPROVED BY THE HOUSING AND HOME FINANCE AGENCY, WAS NOT FINANCIALLY FEASIBLE.

THERE FOLLOWS AFTER EACH OF YOUR NUMBERED CONTENTIONS AN ANSWERING PARAGRAPH FURNISHED BY THE HOUSING AND HOME FINANCE AGENCY:

"/1) THE PROPOSED FHA INSURED MORTGAGE WAS IN EXCESS OF THE MAXIMUM PERMITTED BY FHA FOR HONOLULU.

"THE PRESENT MORTGAGE AMOUNT BASED UPON ROOM LIMITATION FOR HONOLULU HIGH -RISE STRUCTURES AMOUNTS TO $3,075 PER ROOM IF THE PROJECT AVERAGE ROOMS PER UNIT AMOUNT TO 4 OR MORE, AND $2,500 PER ROOM FOR WALKUP UNITS IF THE AVERAGE IS 4 OR MORE. FHA, HOWEVER, DOES HAVE PROVISIONS TO BE EXERCISED UNDER A HIGH-COST DESIGNATION WHICH COULD INCREASE THE PER-ROOM MORTGAGE LIMITATION. THIS, BY ITSELF, PRECLUDES THE POSSIBILITY OF ESTABLISHING AN EXACT MORTGAGE AMOUNT AT THIS TIME.

"/2) FAILED TO PROVIDE FOR ARCHITECT'S FEES.

"/3) REQUESTED A 3 PERCENT PROFIT IN EXCESS OF THE MAXIMUM 10 PERCENT ALLOWED BY LAW.

"ALTHOUGH PROVISION FOR THE ARCHITECT'S FEES WAS NOT INDICATED, THE COST FOR SUCH FEES IS ASSUMED TO BE COVERED IN THE PROFIT AND RISK ALLOWANCE. ARCHITECT FEES ARE COMPUTED ON THE COST TOTALS OF NEW UTILITIES, STRUCTURES, AND BUILDER'S FEES. THE PROFIT AND RISK ALLOWANCES ARE COMPUTED ON THE ABOVE PLUS ARCHITECT'S FEES, CARRYING CHARGES, AND FINANCING, LEGAL, AND ORGANIZATION EXPENSES. IT IS THE OPINION OF URA THAT THE TOTAL PROJECT COST WOULD NOT BE SUFFICIENTLY INCREASED SO AS TO SERIOUSLY AFFECT THE FEASIBILITY OF THE PROPOSAL. IN ADDITION, THE ECONOMIC CONSULTANT POINTS OUT THAT HIS ESTIMATE OF EQUITY NECESSARY IS LESS THAN THE AMOUNT SET FORTH IN THE DEVELOPER'S PROPOSAL.

"/4) PROVIDED FOR A 5 PERCENT VACANCY FACTOR INSTEAD OF A 7 PERCENT VACANCY FACTOR AS REQUIRED BY FHA.

"IN MR. MEYER'S (OF HHFA REGIONAL OFFICE) DISCUSSION WITH THE FHA HONOLULU OFFICE, HE WAS INFORMED THAT A 7 PERCENT VACANCY FACTOR WAS THE MINIMUM VACANCY RATE FHA COULD USE IN PROCESSING WITHOUT SPECIAL INSTRUCTIONS FROM ITS CENTRAL OFFICE. IT WAS THE OPINION OF THE FHA FIELD OFFICE THAT A 7 PERCENT RATE SHOULD BE USED. SUBSEQUENTLY, HHFA REVIEW OF THE PROPOSAL CONTEMPLATED AN INCREASE IN THE VACANCY RATE FROM 5 PERCENT TO 7 PERCENT. ON THE BASIS OF THE PROPOSED RENTALS, THE PROPOSAL STILL APPEARS FEASIBLE. THE WESTERN REAL ESTATE RESEARCH CORPORATION REPORT ALSO PROVIDES FOR AN INCREASE IN THE VACANCY RATE OF 7 PERCENT AND STATES THAT A REDUCTION IN RENTALS IS POSSIBLE.

"/5) PROVIDED FOR A 1 PERCENT INITIAL CURTAILMENT OF AMORTIZATION INSTEAD OF A 1.2 PERCENT CURTAIL AS REQUIRED BY FHA.

"FHA PROCESSING PROVIDES FOR A SLIDING SCALE IN THE PERCENTAGE AMOUNTS REQUIRED FOR INITIAL CURTAILMENT UNDER SECTION 220 OF THE NATIONAL HOUSING ACT. THIS CURTAILMENT IS DETERMINED BY THE AMOUNT OF NET INCOME DERIVED FROM THE MARKET AND CAN BE AS LOW AS 1 PERCENT. CONSIDERATION WAS GIVEN BY THE REGIONAL OFFICE TO THE INCREASE IN THE PERCENTAGE OF CURTAILMENT. ON THE BASIS OF RENTAL AMOUNTS SUBMITTED, IT WAS DETERMINED THAT THE CURTAILMENT COULD BE INCREASED WELL OVER THE 1.2 PERCENT AMOUNT AND THE PROJECT STILL BE CONSIDERED FEASIBLE. FOR THIS REASON, THE REGION REACHED THE SAME CONCLUSION AS THE CONSULTANT WITH RESPECT TO REDUCING RENTAL AMOUNTS.

"/6) THAT THE REPORT PREPARED BY WESTERN REAL ESTATE RESEARCH CORPORATION WAS NOT TAKEN INTO CONSIDERATION BY THE SAN FRANCISCO OFFICE OF THE HOUSING AND HOME FINANCE AGENCY IN ITS EVALUATION OF THE FEASIBILITY OF THIS PROJECT.

"THE CONTRACT BETWEEN THE WESTERN REAL ESTATE RESEARCH CORPORATION AND HRA PROVIDED FOR A PRELIMINARY REPORT TO BE GIVEN IN ORAL PRESENTATION BY THE CONSULTANT AND SUBMITTED IN PRELIMINARY FORM TO HRA BY FEBRUARY 23, 1961. THE FINAL REPORT WAS NOT REQUIRED TO BE SUBMITTED TO HRA UNTIL MARCH 15, 1961. THE HHFA REPRESENTATIVE HAD SEVERAL DISCUSSIONS WITH THE CONSULTANT'S REPRESENTATIVE IN HONOLULU PRIOR TO THE SELECTION OF THE REDEVELOPER BY HRA. HE ALSO ATTENDED THE ORAL PRESENTATION BY THE CONSULTANT'S REPRESENTATIVE ON FEBRUARY 23.'

FOLLOWING THE REVIEW OF YOUR CONTENTIONS, THE HOUSING AND HOME FINANCE AGENCY STATED:

"IT IS DIFFICULT TO CONCLUDE THAT CONCURRENCE IN THIS PROPOSAL WILL RESULT IN AN FHA-INSURED MORTGAGE IN EXCESS OF THE PRESENT CEILING SET FOR HONOLULU, AS STATED IN THE LETTER OF QUEEN EMMA ASSOCIATES. HRA HAS ADVISED THAT THE SELECTED REDEVELOPER HAS PROPOSED A REDUCTION IN MONTHLY RENTAL AMOUNTS, THE AVERAGE OF WHICH WILL BE SLIGHTLY OVER THAT RECOMMENDED BY THE ECONOMIC CONSULTANT AND BELOW THE AVERAGE OF THAT PROPOSED BY QUEEN EMMA ASSOCIATES. THE URBAN RENEWAL ADMINISTRATION IS SATISFIED THAT THE SELECTED REDEVELOPER HAS SUBMITTED A FEASIBLE PROPOSAL, AND IS IN ACCORD WITH THE PUBLICLY EXPRESSED VIEWS OF THE HRA CONSULTANTS.'

IN THE CIRCUMSTANCES, WE SEE NO REASON TO OBJECT TO THE ACTION TAKEN BY THE HOUSING AND HOME FINANCE AGENCY.