US Bancorp Community Development Corporation

1. US Bancorp Community Development Corporation Historic and New Markets Tax Credits for the Armory: Investor Reflections (or lack thereof) Robert Wasserman Western, Southern and GO Zone Region Manager New Markets Tax Credit and Historic Tax Credit Investments (213) 615-6647 robert.wasserman@usbank.com

2. USB CDC • Created in mid 1990s • Subsidiary of US Bancorp • Primarily equity investors whose return is a stream of tax credits. Yields are computed in after-tax returns. • Headquartered in St. Louis with offices in Los Angeles, KC and Denver • Two divisions • LIHTC (Low-Income Housing Tax Credits) • New Markets Tax Credits (NMTC) and Historic Tax Credits (HTC) • Mission-oriented – All credit memos include a community impact section • VOLUME: • Received $135mm in NMTC allocation in June 2006. All earmarked for or deployed in projects • Over 140 NMTC transactions; Average investment is $6-20 million • National investor outside of footprint • Ability to do leveraged and non-leveraged transactions • Over $2 billion in total development costs; Deal size: $5-60mm • HTC: Active, national investor with over 30 investments in the past 2 years. • LIHTC: Footprint investor. Both a fund investor and direct investor Approximately $400 million in equity invested per annum.

3. Office Retail Mixed-use with Housing 20%/80% Requirement Entertainment/Theater Hotel Community Facilities Historic-NMTC Real Estate Transaction Investments

4. Why would US Bank invest in the Armory? • Mission Oriented • Community Involvement and Commitment to Arts and Culture • Invested in three historic theaters • Portland Armory • Atlas Theater, Washington DC • Fox Theater, Spokane, Washington • Currently evaluating two more historic theaters • Broaden our involvement in the markets we serve • Ability to serve our core banking business • Profit • All investors have return requirements and this was no different than any other deal • However, our goal is to invest in projects that sink the subsidy into the project • View our return in the form of tax credits, tax losses, cash return (priority return) and put • Here we isolated each one of the benefits and analyzed the risk and the determined an amount of equity

5. NMTC requirements imposed on the Armory and the CDE • Recapture • Redemption Test • CDE cannot distribute investment capital to the Investment Fund or the Investor • We pre-funded QEIs and if there was a construction bust, our money would have to be deployed into another project • Receive reports from the CDE and annual testing by the accountants • Substantially-all Test • Up to 85% of the investment must deployed at all times after the first 12 months of the investment (and not including any re-investment situations) • We pre-funded QEIs so we were needed to ensure that the money would be deployed within 12 months • Risk: Construction bust or delay • Solution: Find another project or sink the money into the project prematurely so long as the leveraged debt is in place • Receive reports from the CDE and annual testing by the accountants • CDE Status • CDE is ultimately responsible for its status

6. Primary concerns for the Armory • Structure and Risk • Armory required flexibility • Armory 1 – HTC investment passed through the structure • HTC bridged by USBCDC • Armory 2 – HTC Investment was outside of the structure • Uncertain costs • Mitigated by experienced developer, GC, guarantees • Uncertain operations • Mitigated by the team, reserves, guarantees • Uncertain exit • Don’t account for the exit in our underwriting

7. Financial Analysis of the Armory • NMTC Investment • Minimal underwriting as the leveraged fund was guaranteed • Hold out for 7 years in order to protect NMTC investment • HTC Investment • Significant economic risk • Underwriting • NOI analysis • Evaluate theater market on high level • Is there a captive sub-tenant? Theater, symphony, ballet, etc • Protected leap of faith • Staged pay-in • Sizing of the debt • Pledges, capital contributions, fundraising to buy down the debt over its term • Guarantees • Inability to underwrite brought about need for a strong guarantor • Reserves established • Tax opinion concerns

8. $3mm Equity = 30% of QEI 39% of $10mm * $.77/credit $7mm Loan= 70% of QEI @ Market interest rate $10mm QEI 8% CDE Fee: $800,000 (varies) Transaction Costs: $200,000 (varies) Legal and Accounting QLICI Loan B / QLICI Equity: $2mm low interest rate loan or invested as equity (some loans are forgivable) QLICI Loan A: $7mm @ Market interest DEVELOPER: Manager How the NMTC Works: Funding the Project LEVERAGE LENDER (USB CL): Provides loan NMTC INVESTOR (USBCDC): Provides equity for TCs INVESTMENT FUND: To fund $10mm QEI CDFI FUND (Dept of Treasury) SUB-CDE: $10mm Allocation (need to fund QEI) CDE ALLOCATEE: Receives NMTC Allocation Sub-allocates QALICB: Project Entity * Not all structures are the same

9. $3.9mm Tax Credits: Received over 7yrs plus 5% exit fee of equity Leverage Loan/ Loan A Interest Leverage Loan/ Loan A “Interest” Loan B Interest: Pays annual management fees and CDE/IF costs Leverage Loan/ Loan A Principal Sinking Fund (USB Account) P+I - QLICI Loan A: Matches leverage loan debt service I/O - QLICI LOAN B / Equity: *Low interest rate loan or *Equity treated similarly with possible small annual return How the NMTC Works: Servicing the Loan(s) LEVERAGE LENDER NMTC INVESTOR: Receives tax credits INVESTMENT FUND SUB-CDE CDE ALLOCATEE QALICB: Project Entity * Not all structures are the same

10. TC Investor Put = ~5% of TC equity paid 100% of leverage loan principal balance Sinking fund plus LOAN A principal Remaining LOAN B principal or reserves LOAN B principal - CDE exit fee Balance of sinking fund Principal - QLICI Loan B / Equity: * Either equity remains in the project or Loan B is 1) forgiven or 2) repaid Principal - QLICI Loan A: (Less sinking fund balance) How the NMTC Works: Exit at end of 7 year compliance period LEVERAGE LENDER NMTC INVESTOR INVESTMENT FUND SUB-CDE CDE ALLOCATEE Sinking Fund (USB Account) QALICB: Project Entity * Not all structures are the same