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Asset Management of Debt and Equity Investments

Asset Management of Debt and Equity Investments. Presented by: Armando P é rez Principal, Director of Asset Management. Headlines. More similarities than differences between debt and equity investments and how they are managed

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Asset Management of Debt and Equity Investments

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  1. Asset Management ofDebt and Equity Investments Presented by: Armando Pérez Principal, Director of Asset Management

  2. Headlines • More similarities than differences between debt and equity investments and how they are managed • The objectives and incentives of debt providers are determined by the structure of their investments • Understanding debt drivers is key to effective asset management and issue resolution – whether you are the asset manager or the developer.

  3. MMA Provides Equity and Debt … • LIHTC Corporate Tax Credit Funds • Multi-investor, Private, Guaranteed • Debt Products • Construction loans • Permanent financing • Tax exempt bonds • One-Stop Shop for Affordable Debt & Equity • Combined debt and equity teams • Unified application, underwriting & closing process

  4. … So We Manage Debt & Equity Products • MMA Equity Portfolio – 1,950 properties • Tax Credits • Low Income Housing • Historic Rehabilitation • MMA Debt Portfolio – 625 properties • Construction Loans • Bonds • Permanent Loans • Fannie Mae, Freddie Mac, HUD

  5. Debt and Equity Have Similarities … • Capital investments • In affordable multifamily property • Specified yield requirement • Long term • Impacted by asset performance • Dependent on developer strength

  6. LIHTC Investment Ownership Interest Pass-through entity LP or LLC Limited control & limited liability Tax-advantaged return Tax credits and losses Debt Capital Mortgage loan Secured First lien position Cash return Debt service … but Different Structures

  7. Equity Yield Credits and losses Loss of ownership (recapture) Long term viability Property performance Debt Payment of debt service Property performance Liens T & I escrows Default losses Value of collateral … So Focus and Aims Are Not The Same

  8. MMA Asset Management … • Oversees debt and equity investments under a single organizational structure • Teams are organized around property lifecycle and geography, not debt or equity products • Debt expertise is provided through specialization and processes

  9. Asset Management Structure Capital Transactions Team Asset Management Team Development Management Team Stabilized Portfolio Team Northeast Southeast • Risk Management • Investment Performance • Workouts • Dispositions • Refinancings Central West Admin. and Technical Support Analyst Pool Compliance Team Tax Team Operations Team

  10. MMA Asset Management … • Assigns one AM per property, regardless debt or equity product • Property monitoring activities are similar for debt and equity • Physical, management, financial reviews • Focus is on asset performance, which impacts both debt and equity

  11. MMA Asset Management … Manages the portfolio from an investment perspective • AM’s understand debt and equity and can translate how a given issue affects each of these different investments • Debt portfolio managers support this investment perspective

  12. MMA’s Investment Perspective … Property Life-Cycle Phases First 18 to 24 mos. Next 6 to 12 mos. Remaining holding period • Development • Due diligence • Construction & • lease-up • Yield delivery • Loan conversion • Initial tax credit • compliance • Initial Operations • Capital and operating • escrow releases • Final tax credits (8609’s) • Permanent loan sizing & closing • Stabilization (DSC) • On-going monitoring • Stabilized Phase • Financial & budget review • Tax return review • Physical inspection • Management evaluation • Compliance monitoring • Partnership & loan agreement administration Risk Management Tax Credit and Debt Portfolio Managers

  13. … to Maximize Performance & Mitigate Risk PORTFOLIO MANAGER RISK MANAGEMENT ASSET MANAGER • Monitoring • Analysis • Performance • Tracking • GP/Borrower • Relationship • Problem Deals • Deal Strategies • Issue Resolution • Products • Capital • Relationships • Business Focus • Risk • Profitability Leverage expertise Investment perspective Effective strategies Investment performance Profitability

  14. Final Words – A Debt Perspective • Lenders make capital investments, but they are different than LP equity interests in a property • As capital providers, lenders have clear objectives and motivations • When there is a problem, understanding debt drivers is key to effective issue resolution – whether you are the asset manager or the developer

  15. Asset Management ofDebt and Equity Investments Presented by: Armando Pérez Principal, Director of Asset Management

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