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