RD’s Revitalization Strategy

1. RD’s Revitalization Strategy • Components of all deals • Project is needed in market • Post transaction Owner is eligible • Basic Feasibility Thresholds • CNA to determine capital needs, timing and funding • Underwriting to determine feasibility and tools • SUSTAINABLE RENTS = SUSTAINABLE PROPERTIES! • CNA needs/3 year data/O&M cushion/vacancy/accounts current • Seller payments and increased RTO is market based • Market value for equity loan • CRCU limit for equity payment and increased RTO • CRCU test before any MPR tools • Consider and mitigate impact on tenants • Long Term Commitment – RD’s RA funding/Owner’s RUP Rural Housing Preservation Associates, LLC - contact Larry Anderson at landerson@rhpallc.com

2. Access to Preservation Resources • MPR (MFH Preservation and Revitalization Demo) • Apply thru NOFA – only access RD rehab funds – key tool: deferrals (pre-92 only) • Simple (stay in owners)/Complex (transfers)Portfolio (transfers and stay in owners) • Transfer • Access 3rd party funding – only source of seller payment outside prepayment process • Apply thru RD Office, Low rents = tight deals and “Pie split” issues common • Prepayment process • Access RA, RTO increase and equity loan incentives (stay in owners or transfers) • Apply thru RD Office – Incentives and S2NP process strictly regulated by Statute • Substitution of GP’s or "no funds”transfers • Access to project control - no RD resources available • Apply thru RD Office, beware of internal and RD related “pottery barn” affect • Internal Rehab • Access to existing RA and rent proceeds • Work with RD Office – get a CNA and prepare a plan Rural Housing Preservation Associates, LLC - contact Larry Anderson at landerson@rhpallc.com

3. Preservation Strategies – Lost Resources • MPR (MFH Preservation and Revitalization Demo) • Last MPR NOFA FY 2013– Annual funding for about a 100 projects • Transfer • FY 12 started to retire RA and FY 13 stopped States from re-using RA • Tighter appraisals - new debt rarely works, esp. if RUPs in place • New underwriting UNL discourages rent increases and 3rd party funders • Prepayment process • No USDA NP advance request since FY 2010 budget • No USDA Incentive RA request since FY 2010 budget • Current arbitrary freeze on new incentive offers or funding of sale to nonprofits since July 30, 2012. Cloud on all prepayments. • Sales of Inventory Projects– No credit sale funding requested since FY 12 and selling fixed up program properties as “non-program.” • Ended all New Construction in FY 2012 – Avg. of 2,000 units lost each year Rural Housing Preservation Associates, LLC - contact Larry Anderson at landerson@rhpallc.com

4. Some advice on a preservation strategy: • Look for deals that work – the four “R” analysis • RENTS - What’s the gap between current basic rents and market rents? • RA - How many RA units and what is the percentage? • RUPS – Find out about RUPs and prepayment restrictions (pre or post 89) • REHAB – How much (CNA & SOW)? Rehab or Transfer/Rehab? • Line up third party money • Lots of competition for 9% LIHTC • 4% LIHTC with tax exempt bonds are less utilized, but need more units • Combine with MPR – usually only deferral is needed (only pre-92 loans) • 538 may be an option • Consider partnership with NP to score well for AHP or LIHTC • Line up green money • Long term operational savings • Look at energy generation • Work with all to keep process simple and open– Meet early and often! Rural Housing Preservation Associates, LLC - contact Larry Anderson at landerson@rhpallc.com

5. Successful strategies to coordinate and cooperate • Agree to a Scope of Work • First CNA – full review of needs. Walk the property together! • Add third party requirements – to get tax credits what must you do • Agree to a Scope of Work • Revised CNA to reflect post rehab per Scope of Work • Expect and schedule a series of meetings with all parties • Issues will rise throughout the process • Establish a positive effective working relationship • Establish realistic underwriting expectations • Equity and RTO increase must fit within CRCU • The gap between current rents and CRCU is a pivotal feasibility measure • Some projects may not have the market position to satisfy all expectations • Is the MPR Team Leader available for fast tracked help advice and solutions? • Big Deals need big time team work • Coordinate developer, financial and RD resources (loan/servicing and technical) • Focus on critical times – application, underwriting, obligation, closing, and construction Rural Housing Preservation Associates, LLC - contact Larry Anderson at landerson@rhpallc.com