Portfolio Strengthening Indiana State Housing Conference 09/19/12

1. Portfolio Strengthening Indiana State Housing Conference 09/19/12

2. Introductions • Larry Gautsche – President (July 2001) • Alan Greaser – Director Asset & Property Management (April 2008), VP Real Estate (February 2012) • Jim Davis – VP Finance (March 2007)

3. Who Is LaCasa, Inc.? • Located in Elkhart County, Indiana • 41-year history, 31 staff • Primary lines of business: • Homeownership Center – IDA’s, pre/post purchase, foreclosure, HECM, lending, financial fitness training • Community Building & Organizing – neighborhood development, quality of life planning, leadership development • Resident Services – Immigration, VAWA, Deferred Action • Real Estate Development – Acq/Rehab, OOR, Permanent Supportive Housing, NSP, Tax Credit projects • Property & Asset Management – 267 units under management • Development – fundraising, volunteer management, brand management

4. Pre-Portfolio Strengthening - The Properties as of 1/1/07

5. Scattered Site Family Homes • 33 units of single family/duplex homes, owned 15+ years

6. Arbor Ridge Apartments • 72 units of new construction on one site incl. one commercial space, 1999-2000

7. Pre-Portfolio Strengthening - The Properties 2007-2008

8. The Game Changers • Lincoln Ave. – critical rehabs to maintain two historic buildings and improve near-downtown neighborhood • Roosevelt Center, Water Tower Place, State & Main – rescue existing or in-flight projects from a failed CDC in the County’s major city • Build critical mass in second community

9. Lincoln Ave. Redevelopment • 28 unit historic rehab of hotel and commercial building including one commercial space, May/December 2007

10. Roosevelt Center • Roosevelt Center – 35 units historic rehab of elementary school including commercial condo, December 2008

11. Water Tower Place Apartments • 52 units of new construction senior housing in one building, May 2008

12. Elkhart Properties • Acquisition of 20 units in two buildings including one commercial space, December 2008

13. Before And After • January 2007 – 105 units with one Tax Credit property and 33 scattered site units primarily in one community • January 2009 – 240 units with four Tax Credit properties, two multi-family properties and 33 scattered site units in two communities

14. Pre-Portfolio Strengthening - The Environment

15. 2009 Market Analysis - Occupancy

16. LaCasa, Inc. Occupancy Graph

17. 2009 Economic Analysis • Elkhart County has been one of the most recession-impacted counties in the U.S. The year-over-year increase in the County unemployment rate was among the three highest in the country. The absolute unemployment rate peaked at nearly 20% and remains at nearly 17%. In addition, the area has experienced a very high rate of foreclosure. This has created a combination of job losses as well as an increase in the availability of single-family homes for rent. A majority of the job losses were due to business closure, so recovery will be slow as is depends on the creation of new businesses, not just rehiring. Accordingly, the local recovery is expected to take several years as opposed to a more traditional 12-18 month recovery.

18. Organizational Focus • Primarily focused on day-to-day operations • Struggling with recent portfolio growth • Did not have a strategic approach to Asset Management • Did not have good performance tracking tools • Could identify several problems but had no formal approach to prioritize and address them • Many staff involved in various elements but no real “team” approach

19. Portfolio Strengthening Clinic

20. Portfolio Strengthening Clinic • Team approach – CEO, Director Asset/Property Management, CFO, Board member (ex-NEF employee) • Required a rigorous examination of each property and the portfolio as a whole (pre-work is critical) • Developed quadrant analysis of mission vs. profit by property – brutally honest assessments • Identified and prioritized improvement opportunities • Agreed on roles and responsibilities • Set timeline for action steps • Developed framework for NWA grant application

21. Portfolio Quadrant Analysis

22. Targeted Improvement Goals • Arbor Ridge/ Roosevelt Center • Establish consistent property valuation methodology and permanently reduce tax burden • Reposition hard debt to sustainable levels at favorable long-term rates • Provide cost structure that can be supported by rent structure below LIHTC levels if needed to be competitive • Assure cash availability to fund mgt fees and other inter-company payables • Develop portfolio-wide approach to managing core operational costs: cleaning, maintenance, etc. • Organizational Impact • Complete banking strategy to partner with locally/regionally managed financial institutions • Improve consistency and total $ value of payments from properties • Assure asset and property mgt is a sustainable/profitable line of business • Develop a defined approach to portfolio management and screening of new opportunities

23. Portfolio Strengthening - The Outcomes

24. Arbor Ridge Action Steps • Declining occupancy – completed rent analysis, set “special rents” until achieve 95% occupancy, developed tenant incentives, created “Rent Assist” fund • High insurance costs – moved risk management program to legitimate commercial insurer • High property tax burden – appealed assessment methodology • High operating costs – identified “targeted” per unit operating cost and improvement opportunities • High debt burden – negotiated principal concession in exchange for complete refinancing, identified lower cost debt options, obtained grants for additional principal reduction

25. Arbor Ridge Results

26. Roosevelt Center Action Steps • Declining occupancy – completed rent analysis, “special rents” until achieve 95% occupancy • High property tax burden – appealed assessment methodology • High utility costs – replaced all common lighting with LED’s/occupancy sensors, installed limited solar array • High operating costs – identified “targeted” per unit operating cost and improvement opportunities • High debt burden – reduce principal and refinance at lower interest rate

27. Roosevelt Center Results

28. Improved Performance Tracking • Weekly • Cash flow • Occupancy rates • Monthly • Vacancy/concessions analysis • Operating cost per unit tracking • Net operating income • Debt coverage ratio • Quarterly • Collections/bad debt analysis • NeighborWorks Multi-Family Initiative reporting

29. Cash Status By Project

30. Occupancy Tracking

31. Operating Costs Per Unit

32. MFI Performance Tracking - Vacancy

33. Improved Organizational Visibility • Board Asset Management Committee • Project oversight – from ideation to completion • Portfolio operating performance review • Board Finance Committee • More purposeful cash flow focus • Targeted financial performance metrics • Organizational debt management • Extensive graphing of performance metrics for staff, Management and the Board

34. Summary • The NWA Portfolio Strengthening Clinic was a very valuable process – a “watershed event” for LaCasa, Inc. • The subsequent funding NWA and others provided helped to take our targeted improvements from ideas to reality • The MFI process is a valuable discipline and continuous improvement tool

35. Questions??

36. 202 N. Cottage Ave. Goshen, IN 46528 www.lacasainc.net