Financing Mixed-Use and Commercial Real Estate

1. Financing Mixed-Use and Commercial Real Estate June 22, 2005 New Markets Tax Credit Financing

2. What I Hope to Cover • Overview of New Markets Tax Credits (NMTC) • Potential “Commercial” Projects • What NMTC Can Do for Your Project • What NMTC Cannot Do • Challenges in Utilizing NMTC • Putting a Deal Together • MHIC’s Approach • Some Examples • Strategies When Considering

3. New Markets Tax CreditsOverview • 39% credit over 7 years for “qualified equity investments” • Eligible investments for real estate are largely determined by geography (“low income” areas) • Tax credits allocated to Community Development Entities (CDE’s) through annual national competitions • Credit is attached to the flow of capital, rather than to the real estate (as with LIHTC and historic credits) • Complex tax and compliance issues

4. Potential“Commercial” Projects • Owner-occupied retail (or other commercial) building • “Spec” commercial building • Mixed-use (residential/commercial), more than 20% commercial • Non-profit buildings (health centers, community centers, non-profit offices) • Cultural facilities

5. What Can NMTC Do for Your Project? • Provide gap financing (20% to 40% of total development costs) • Leverage historic rehabilitation • Reduce hard debt • Reduce operating costs, rents • Strengthen otherwise “shaky” project

6. What New Markets Tax Credits Cannot Do • Fill “unbridgeable” gaps – project must be able to support 60-80% of costs from other sources • Improve finances of underlying business (including non-profits) • Remove risks: construction, lease-up, re-leasing

7. Challenges in Utilizing NMTC • Limitations of 7-year subsidy • Complexity of utilization • Working with a “CDE” • Limited availability of allocation • Planning and Predictability

8. Putting a Deal Together • Pulling in other resources (public, private, philanthropic, historic credits) • Underwriting issues: • Debt amount and coverage • Master leases • Underwriting the tenants: • Value of “credit tenants” • “Credit tenant” vs. “community-based” • Tenant improvements

9. MHIC’s New Markets Program • MHIC’s initial mission: affordable housing. Yet, for number of years, MHIC has been financing mixed-use and commercial properties. • MHIC has received three NMTC allocations (in all 3 round) – $25 million in June 2003, $90 million in May 2004, and $54 million in May 2005. • MHIC’s goal is to finance projects that would otherwise be infeasible, projects with major financing gaps. • Eight projects have been underwritten, reviewed and approved. Six of these projects have closed. We have a pipeline of well over $250 million (far exceeding our allocation) • We closed our first New Markets Fund last year, and are well on our way to raising the capital for our second Fund. • MHIC makes extensive use of leverage to increase the impact of New Markets Credits – able to provide 22% to 44% of total project costs as gap-filling equity.

10. TierStructure MHIC New Markets Fund I

11. MHIC NMTC Financing Impact

12. Investor Benefits IRR: 10.8%

13. New MarketsFund II

14. Examples of MHIC New Markets Tax Credit Projects

15. Community: East Boston Sponsor: NOAH NMTC Investment: $0.6 million Closed Financing: March 2004 Construction Complete: March 2004 The Facts Border Street OfficesEast Boston

16. New Markets help bridge financing gap for non-profit offices. The Story Border Street OfficesEast Boston

17. Community: Roxbury Sponsor: Madison Park CDC NMTC Investment: $2.6 million Closed Financing: March 2004 Construction Complete: March 2005 The Facts Hibernian HallRoxbury

18. Irish dance hall to multi-functional cultural center, taking advantage of historic credits and significant fund-raising. The Story Hibernian HallRoxbury

19. Community: New Bedford Units: 18 Sponsor: Hall Keen LLC NMTC Investment: $1.9 million Closed Financing: April 2004 Construction Complete: November 2005 The Facts Coffin Lofts New Bedford

20. Local leadership, working private developer and local bank, create mixed-use, mixed-income housing in downtown New Bedford. The Story Coffin Lofts New Bedford

21. Community: Roxbury Sponsor: Jubilee Christian Church International NMTC Investment: $2.3 million Closed Financing: December 2004 Construction Complete: December 2005 The Facts Warren PalmerRoxbury

22. Church undertakes development of “spec” commercial building in Dudley Square, first new construction in 40 years. The Story Warren PalmerRoxbury

23. Community: Holyoke Sponsor: Holyoke Health Center NMTC Investment: $7.96 million Closed Financing: March 2005 Construction Complete: December 2005 The Facts Holyoke Health CenterHolyoke

24. Combination of historic credits, federally-guaranteed debt, and New Markets credits allows consolidation of successful urban health center. The Story Holyoke Health CenterHolyoke

25. Holyoke Health CenterHolyoke

26. Community: Pittsfield Sponsor: Colonial Theatre Association NMTC Investment: $7.1 million Construction Complete: May 2006 The Facts Colonial TheatrePittsfield

27. Major fundraising, coupled with historic credits, leverages significant New Markets credits, and allows project to be built with no hard debt. The Story Colonial TheatrePittsfield

28. Strategies When Considering NMTC(Next Steps) • Make sure it’s the right fit • Understand limitations; confront risks • Start talking with potential CDE’s early in your planning • Cultivate partnerships • Balance your objectives

29. Financing Mixed-Use and Commercial Real Estate June 22, 2005 New Markets Tax Credit Financing