2. What Can Go Wrong: Some Trouble Signs and How to Address Them by Brad Elphick, CPA, Novogradac & Company LLP

3. Overview  Danger Signals  Consequences of Danger Signals  Responding to Danger Signals  The Players and Value over Time

4. Danger Signals Delays in Reporting Lower Rental Income –Slow Lease-up –Lower Rental Rates –High Turnover Rates –High Vacancy Rates

5. Danger Signals Higher Operating Expenses –Larger Operating Expenses –Missing Operating Expenses –Lower Operating Expenses? Balance Sheet Items –Unexpected GP Loans or Capital Contributions –Unidentified Accounts Suspense/Other/Unlocated Differences –Large Payables and Accrued Expenses

6. Danger Signals Receiving Forms 8823 Poor Communication Unavailable for Site Visits Other Projects Have Problems –The Rumor Mill

7. Consequences of Danger Signals Slow Lease-Up –Tax Credit Adjusters 1 st Year Year 10 to 15 State Tax Credit Delay –Higher Interest Costs Delay in lower permanent loan rate Delay in LP take-out equity Tax-Exempt Bonds – Negative Arbitrage –GP Loans / Capital Contributions Interest? Credit for Amounts Advanced?

8. Consequences of Danger Signals Negative Cash Flow –Overall Financial Viability Cash Shortfall Funding State Mandated Lower Rents? –LIHC – Minimum Gain / 704(b) Issues –Reviewing the Numbers

9. Consequences of Danger Signals Negative Cash Flow (cont.) –Reviewing the Numbers –The Original Projections Basic Assumptions Net Operating Income Taxable Income/(Loss) and Credits Minimum Gain Calculations

10. Consequences of Danger Signals Negative Cash Flow (cont.) –The Revised Projections –The Income Tax Effect of the Negative Cash Flow Quicker to Negative Capital Accounts Larger GP Loans Minimum Gain Problems

11. Consequences of Danger Signals Forms 8823 –Responding to State Housing Agencies –Responding to the Internal Revenue Service Mail Notices Field Audits

12. Responding to Danger Signals What is Causing the Problem –Real Estate Market? Location New Competition Changes in AMGI Expense Cost Spikes –Property Manager? Corporate Site Manager

13. Responding to Danger Signals What is Causing the Problem –Construction Design Flaw Construction Flaw

14. Responding to Danger Signals The Players and Value over Time –Who will lead the response? Developer/Asset Manager Equity Investor Lender

16. Conclusion www.taxcredithousing.com  Danger Signals  Consequences of Danger Signals  Responding to Danger Signals  Additional Questions?