M C C ORMACK B ARON S ALAZAR Preservation Through LIHTC and HTC: Washington Apartments

1. MCCORMACK BARON SALAZAR Preservation Through LIHTC and HTC: Washington Apartments in St. Louis Jonathan Goldstein jonathan.goldstein@mccormackbaron.com 314.621.3400

2. Washington Apartments • St. Louis, Missouri

3. Outline • Project Background • Structure • Financials • Key Lessons

4. Background: History • George Washington Inn: built in 1902 • At 7 Stories, among highest in St. Louis • Artesian well located in basement • Located in City’s Central West End • Slipped into decline/disrepair • McCormack Baron first redeveloped in 1979

5. Background: Tenants • Project originally developed as Section 8 Housing • 99 one bedroom units • Building was occupied • Physical structure showed age • Design issues • Energy conservation issues

6. Background: Preservation • Central West End hotbed for condo activities • Losing many affordable units • Condo conversion considered • Combination State and Federal LIHTCs and HTCs, State Donation Credit permitted preservation

7. Background: Physical Plan • Reoriented entrance to Kingshighway • New roof, tuckpointing/sealing • All new historic, energy-rated windows • New systems (fire, heat pump, etc.) • New unit and common area finishes and appliances • New fitness center, community room, laundry • Abatement of all lead, asbestos

8. Structure: Permanent Sources • Tax Exempt Bonds • State HOME Funds • State Donation Credit • 4% Low Income Housing Tax Credit • State Low Income Housing Tax Credit • Federal Historic Tax Credit • State Historic Tax Credit (25%)

9. Structure: Finance Participants • U.S. Bank CDC – LIHTC/HTC equity • National City – HTC equity • Missouri Housing Development Corp – LIHTCs • Enterprise Bank – bond purchaser • A.G. Edwards – underwriter • St. Louis Industrial Devp Board – bond issuer • Urban Strategies – donation credit lender

10. Structure: Bonds, 4% LIHTCs • Bonds unlock 4% credits, act as inexpensive bridge for equity • In addition, project needed permanent first mortgage • Borrowed combination of short/long term bonds to clear 50% Test • Received 4% credits on 100% of units • Will redeem short-term series after completion with equity, retain long-term series as permanent first

11. Structure: Donation Credits • Missouri has Affordable Housing Assistance Program (AHAP) donation credit • Credit permits a $.55 tax credit for every $1.00 donated to a nonprofit to support housing • Provides huge tax incentive for motivated donor • Even where motivated donor not available, equity investor can make donation, offset pricing by net expense of donation

12. Structure: Historic Credits • Both Federal and State HTCs used • If LIHTC owner uses federal HTCs, must reduce basis for LIHTC • This would significantly reduce benefits of getting historic credits • To avoid, we structured Master Tenant for HTCs • Master Tenant can receive federal HTC equity, push benefit to project without loss of LIHTC basis • State credits not subject to same limitations

13. Structure: Diagram

14. Financials: Bond Details • Series A (permanent) - $2,875,000; Series B (short term) - $4,625,000 • Total $7.5M is greater than 50% of aggregate cost basis • Presold to Enterprise Bank, which brought AG Edwards in as underwriter • During construction, bonds secured by LOC from US Bank (equity) • 5% interest-only during construction, 6.5% amortizing thereafter

15. Financials: HTC Details • $10.9M in Qualified Rehabilitation Expenditures • 20% Federal HTC ($2.2M in credits); 25% State HTC ($2.7M in credits) • If Federal HTC investor in ownership entity, $700K lost in LIHTC equity for $2M gained in HTC • Instead, owner passes Federal HTCs to Master Tenant, Investors* purchase from MT, which loans funds back to Owner (Master Landlord) • MT leases building from ML for lease payments that offset ML debt to MT; MT then contracts with residents • Structure is collapsed after five year compliance period

16. Key Lessons • Helps to operate in progressive state • ML/MT HTC structure is complex, include time and structuring costs in determining value • Beware evolving tax interpretations • . . . Should’ve kept the bath houses

17. Questions: Jonathan Goldstein jonathan.goldstein@mccormackbaron.com 314.621.3400