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New Developments in Multifamily Housing Finance

National Association of Local Housing Finance Agencies 2012 Annual Educational Conference. New Developments in Multifamily Housing Finance. April 26, 2012. Matthew Bissonette Director matthew.bissonette@citi.com. Bond Financed Projects Make a Comeback. 2. Bonds Are Back. 3.

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New Developments in Multifamily Housing Finance

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  1. National Association of Local Housing Finance Agencies2012 Annual Educational Conference New Developments in Multifamily Housing Finance April 26, 2012 Matthew Bissonette Director matthew.bissonette@citi.com

  2. Bond Financed Projects Make a Comeback 2

  3. Bonds Are Back 3

  4. The Good News – Banks Interested in Lending and Investing in LIHTC Again Capital Market Market Revival • Bank Capital Ratios Have Improved / Leverage Reduced • Capital Markets Have Stabilized • Interest Rates are at Historically Low Levels • CRA Mandate is as Significant as Ever • Multifamily Sector Fundamentals Solid • 9% LIHTC Yields are Very Low 4

  5. Floating Rates Very Low After Extreme Shock 5

  6. Tax Exempt Variable Rates – 52 Week Average is 6

  7. MMD Near Historic Lows 7

  8. The Not-As-Good News Recent Developments • Costs of Multifamily Development and Acquisitions are High • Financial Institutions Have Less Risk Appetite Than Pre-Crisis • High Unemployment 8

  9. What About Bond and LIHTC Deals? - Significant Differences Across The Country Recent Developments • Coastal Regions & Major Metro Areas Are Very Active • Rent Differential • Availability of Soft Money • CRA Demand • Other Parts of Country, Improving Outlook, but Many Challenges Keep Transaction Volume Low 9

  10. Still Facing Challenges 10

  11. Increase in Deal Flow – But Still Limited Biggest Challenges Facing Bond/LIHTC Deals • Lack of LIHTC Investor Interest in 4% LIHTC Remains Biggest Challenge • Acquisition Prices Relatively High – Low Cap Rates • LIHTC Investor Bias Against Acq/Rehab Deals • Limited Soft Money Sources for 4% LIHTC/Bond Deals • Substantial Negative Arbitrage – Unless Private Placement • Bottom Line: Still Difficult to Balance Sources and Uses 11

  12. Limited Appetite For 4% Tax Credits Biggest Challenges Facing Bond/LIHTC Deals • Development of properties that are considered higher risk are less desirable by investors and will struggle to find an investor • High rent – market rate component and commercial space • Acquisition/rehab light • Weak markets – not >10% differential in market/LIHTC rents • Markets with limited CRA investment focus • Investor community lost appetite for high leverage and high losses (namely 4% properties) – losses used to be good • Syndicators won’t close without investor lined up and committed. Can create timing and certainty of funding issues 12

  13. Where Are We Now? 13

  14. Active Programs 18-Yr Fixed Rate Freddie/(Fannie) Bank Private Placement Long Term Fixed Rate FHA/GNMA Limited Availability Variable Rate Freddie Capped (probably unavailable on tax credit deals) Six Principal Tax Exempt Multifamily Housing Bond Structures† †Note: The interest rates and other data set forth in this analysis are estimates only.All markets today – for bonds, tax credits, caps, GICs and other products – are often thin and volatile. These interest rates, fees and other variables can vary dramatically depending on state, timing, market conditions and other factors, and the other variables may vary significantly depending on project, developer and other factors. Developers should check with their investment banker or financial advisor before conducting a detailed assessment of any of these structures or programs. 14

  15. Freddie Mac 18-year Fixed Rate Structure Tax Exempt Multifamily Housing Bond Structures – Active Programs * Estimated 18-Year Fixed Rate AAA, TE Non-AMT Bond as of 4/23/12; 30 or 35-year loan amortization; 1.15 DSCR; 85% LTV 15

  16. 2. Bank Private Placement – Floating to Fixed Tax Exempt Multifamily Housing Bond Structures – Active Programs * Estimated 18-Year Fixed Rate AAA, TE Non-AMT Bond as of 4/23/12; 30 or 35-year loan amortization; 1.15 DSCR; 85% LTV High CRA Areas, seeing Bond Interest Rate as low as 4.65%, but normal more around 5.00% 16

  17. FHA/GNMA 42-year Fixed Rate Bond Financing Structure Tax Exempt Multifamily Housing Bond Structures – Active Programs * Estimated 40-Year TE;Non-AMT Fixed Rate as of 4/23/12; 40-year loan amort.; 1.11 DSCR; 95%+ Loan-to-Cost ** Does not include all FHA related fees and certain loan-side warehousing and extension fees. 17

  18. Evolution on Bond/LIHTC Financing Terms Typical Fixed Rate Terms Mid 2007 Fall 2009 Fall 2008 Fall 2010 Today 18 Yr. Fixed Bond Rate (incl. enhancement) Issuer Fee Trustee All-In Borrowing Rate Amortization DSCR LIHTC Pricing 5.65% 0.125 0.025 0.15 5.80% 35 years 1.15X $0.98 6.75% 0.125 0.025 0.15 6.90% 35 years 1.20X $0.82 6.35% 0.125 0.025 0.15 6.50% 35 years 1.15-1.20X $0.62 5.65% 0.125 0.025 0.15 5.80% 35 years 1.15X $0.75 5.16% 0.125 0.025 0.15 5.31% 35 years 1.15X $1.00 18

  19. Signs of Life 19

  20. Affordable Housing Prospects • As Yields on 9% LIHTC Have Plummeted, More Investor Interest in 4% LIHTC • Lots of PAB Cap • Historically Low Rates • New Sources of Subsidy/Programs • $25B National Mortgage Settlement • HUD 223(f) LIHTC Pilot Program 20

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