Tax Credit Pilot Case Studies

1. Tax Credit Pilot Case Studies Midwest Lender’s Conference – June 2013

2. Auburn Manor • Acquisition and rehab of 100% Section 8 Project • Tax exempt bonds with 4% tax credits; 223 (f) loan, GNMA swap program • Project had been rehabbed prior to tax exempt bond financing; prior rehab counts for tax credits but not for meeting the bond requirements • 3 tests for tax exempt bond financing (transaction must meet all three): • 50% test: total tax exempt bonds issued must equal 50% or more of total transaction costs • 95% test: 95% of bonds must be used for good costs: acquisition and rehab • 15% test: rehab must equal at least 15% of acquisition cost less land that is financed with tax exempt bonds . Rehab must be incurred within 2 years after closing and no earlier than 60 days prior to the tax exempt bond inducement • Example: • Total project cost = $9 million; minimum $4.5 million of tax exempt bonds must be issued • 95% test: $4,275,000 must be spent on good costs • Acquisition cost = $6 million, value of land is $275,000 • 15% test: acquisition cost financed with bonds = $4,275,000 less land = $4 million; minimum rehab is 15% of $4 million or $600,000

3. Valley at Cobb Park • Refinance of newly rehabbed 168 unit tax credit project under the waiver of the 3 year rule • Existing project that was gut rehabbed and was 50% occupied at completion; 100% of the units restricted to 60% AMI • Occupancy requirements for waiver: Sustaining Occupancy for 3 months prior to endorsement; 85% physical occupancy 3 months prior to endorsement. Sustaining occupancy for project calculated to be 83%. Project has a waiting list of over 400; • Completion estimated to be June 30; 100% occupancy estimated by August 15. Sustaining occupancy and 85% test estimated early August. 3 month tests require closing not before November 1. • Submission July 15, Firm Commitment September 15, closing November 1

4. Underwriting Issues • Both projects incorporated green initiatives such as insulation, windows, HVAC systems, water saving appliances and fixtures. Historical utility costs were therefore not relevant; there are firms specializing in estimating utility costs going forward based on the specific type of renovation involved • HUD requires the valuation NOI be based on market rents and expenses, therefore two NOIs have to be concluded by the appraiser and lender. Typical differences include: • Higher market rents and tenant charges for market rate properties • Higher advertising expense for market rate properties • Higher payroll, administrative and management expenses for LIHTC properties