1. Page 1 PROPERTY FINANCE Annual Affordable Housing Update: Opportunities in a Changing Economy Annual Affordable Housing Update: Opportunities in a Changing Economy Presented By: Vincent Rague, Chief Investment Officer International Finance Corporation, Washington, DC IPED CONFERENCE - CHICAGO JULY 10 - 11, 2008 Presented By: Vincent Rague, Chief Investment Officer International Finance Corporation, Washington, DC IPED CONFERENCE - CHICAGO JULY 10 - 11, 2008

2. Page 2 SUMMARY 1.GLOBAL TRENDS 2.IMPACT of RE ON ECONOMY 3.CONSTRAINTS AND CHALLENGES 4.IFC ROLE 5.IFC PROJECT INVESTMENT CRITERIA 6.EXAMPLES OF DEALS 7.CONCLUSION

3. Page 3 Global Trends Demographics: 1.Rapid Global Population Growth, most of it in Emerging Markets Africas Population: 669 million (2000); and Over 770m (2006) – most under 30 years of age E.g. Turkeys Population: 36 million (1970); and Over 70m (2005) – most under 30 years of age 2.Rapid Urbanization - Rural Urban migration Africas Urban Population/Total Pop: Less that 20% (1970) vs. 41% (2002) Turkeys Urban Population/Total Pop: 29% (1970) vs 61% (2002)

4. Page 4 Global Trends (Cont) Economics, Politics and Policy Compelling GDP Growth Rates for Emerging Markets vs. OECD (% p.a.) 20022003200420052006 Asia (ex-Japan 6.27.08.07.57.1 Emerging Europe4.15.36.45.75.8 Latin America-0.22.15.84.34.4 USA1.62.74.23.53.4 Europe1.0 2.11.62.3 Japan-0.31.82.32.62.9 AFRICA (Source: IMF) 3.54.36.26.15.5 TURKEY2.8 (93-2002) 5.99.97.66.0

5. Page 5 Global Trends (cont) Economics, Politics and Policy S&P Credit Ratings Sept 28, 2001April 30, 2007 in Notches ChinaNRANa IndonesiaB-BB4 KoreaAA+1 MalaysiaAA+1 MexicoBBB+A2 RomaniaB+BBB5 RussiaBA-8 South AfricaA-A+2 TurkeyB-BB4 Source: S&P, Sept 2001 & April 2007

6. Page 6 Rating of Select African Countries

7. Page 7 Global Trends (cont) Economics, Politics and Policy Political Stability Structural Reforms of Economy Liberalization – globalization econ integration Increased Access to Mortgage/Housing Finance Economic Integration – Regional Blocs, NEPAD, etc.

8. Page 8 Global Trends (Cont) Impact on Real Estate Sector Growing pent-up demand for urban infrastructure ­ roads, water, electricity, sewage, etc. Growing Incomes and Growing Middle Class ­ Increased demand for quality accommodation housing, commercial, industrial, hospitality and social space Growing aspirations Adoption of Global Norms and Standards Proliferation of Unplanned Settlements

9. Page 9 Role of Real Estate, Housing in Economy Huge Economic Impact – Employment, Commerce and Industry –In the US » Housing Accounts for approx 8% of GNP » Housing and Housing Services Account for approx. 18% of GNP

10. Page 10 Attractive Yields Yields in Select Countries BotswanaEgyptKenyaNigeriaSouth Africa Zambia Office12%11%12%9%8%12% Retail11.5%9%14%8% 11% Industrial14%12%15%14%9%15% Residential15%8%9%6%5%14%

11. Page 11 CONSTRAINTS TO REAL ESTATE SUPPLY Huge Pent-Up Demand for Housing and Real Estate IN EMERGING MARKETS ­ High Transaction Costs (Stamp Duty/Transfer Taxes) ­ Lack of Transparency & Reputation Issues ­ Highly Fragmentated ­ Limited Access to Large Pools of Risk Capital ­ Limited Capacity by Municipalities and Governments to deliver Bulk Infrastructure Roads, Sewage, Water, Electricity, etc.

12. Page 12 Lack of Housing Inventory (supply/demand imbalance) Why IFC & Property Finance Many emerging markets, there is a logjam of development in Mortgage/housing finance….. Developers not producing sufficient inventory - lack of risk capital & mortgage takeout Mortgage markets are under- developed due to scarcity of housing stock

13. Page 13 IFC Role and Additionality IFCs Goal is to help create viable communities By Supporting: Development of Local Property Markets Increased Access to Risk Capital for Property Finance Catalyst To Attract Foreign Investment Deepening of Local Capital Markets Supporting Public Private Partnership Initiatives – to Deliver Sustainable Urban Infrastructure Sustainability, environmental standards and best practices

14. Page 14 Investment Vehicles: Investment Types & Options Every market is unique. Integrated Property Company that delivers all aspects of RE Value Chain Real Estate Investment Trust Real Estate Development Facility – on a project-by-project basis Unbundled parts of R.E. Development – upfront soft costs and infrastructure Investment solutions are typically Integrated - tailored based on Sponsors and investment/market opportunities. Trusts – especially for Not-for-profit urban renewable and affordable housing

15. Page 15 Property Finance Value Chain Detailed Design Infrastructure Devt Origination Urban Planning & Permits Land Acquisition Mortgage Finance Sales & Marketing Construction Finance Transfer & Titling Construction Unique Solution Driven Service Offering… Feasibility Study

16. Page 16 IFC Investment Products CAPITAL MARKETS MORTGAGE FINANCE CONSTRUCTION FINANCE Senior Debt – S- TPCG REIT Corp Bond; ABS etc. Equity Mez Debt PCG Senior Debt Development Stage Finance Construction Finance Mortgage Finance Capital Markets In. Risks … investments at different levels in the value chain given the risks

17. Page 17 A Typical Deal: Prerequisites Requirements of the Deal: Transparency at all operational levels On-site full time and professional Project Management Clear Land and Property Titling Regime Strong Reputable Sponsors Adoption of Global Norms and Standards in corporate governance, financial reporting and accounting Adoption of Sustainable Environmental and Social Standards

18. Page 18 Typical Deal Structure of a Large-Scale Housing Production Project Equity Partners: Core Sponsor Others to be decided (could inc. IFC) Upfront Costs: Land Soft costs Portion of infrastructure works Government permits Initial construction phase 10 % to 50 % of total funding needs 50% to 70% of total funding needs Banks: Major and mid-size banks to share risk and gain experience in Construction Finance Capital Markets: SPV issues MTN w/tranches and rollover provisions, in local currency, variable rate, IFC partial guarantee Equity Side Debt Side

19. Page 19 Case Study 1 – ARECO - South Africa Sponsor IFC Other Investors DEVCO PROPCO Propco is a portfolo company of Sponsor, plus other potential investors It holds for long-term investment a portfolio of developed properties, many developed by Devco, some developed by other developers. Devco originated properties are sold to Propco on an arms length, full valuation basis IFC will not be a shareholder in Propco Devco is a pure property development company, likely set up as a JV between Sponsors other developer(s). IFC may take a stake in Devco It acts as developer of both commercial and residential properties Execution of development only, obtaining fees for development services rendered Property management fees are earned for management of completed properties, whether sold or held. Portfolio of residential and commercial properties Developed by Devco Some properties sold off to Propco (example: SPV4), or to other investment vehicles Other Properties retained because they are judged to not yet have matured or attained maximum valuation SPV1 SPV2 SPV3 SPV4 SPV5 OTHER INVESTORS PropCoPropCo Investment Committee Equity Investment

20. Page 20 Case Study – GRDC, Georgia Project Description Local sponsors – International sponsors – individuals and institutional Strong management team – Solid execution capacity and local market experience IFC Investment Sponsor & Management Risks & Issues Valuation Investing in a land bank Constructions Loans, a new area for IFC? Implementation risk Capitalization of vertically-integrated real estate company in Georgia to finance the development of its portfolio of 18 properties IFC invited to join Round # 3 of equity financing and provide debt facility on a project basis. Equity Investment: up to 20% Debt Investment: Total equity and Debt of Up to 35% of Project cost

21. Page 21 Case Study – GRDC, Georgia Equity Investment at Holding Level Debt Investment at Project/SPV Level Valuation - Methodology - Negotiation Exit - Sunset/Liquidation -IPO or Sale Financial Return Cash Flow Analysis Security & Covenants (incl. DSCR, DSRA, etc.) Monitoring and Supervision

22. Page 22 Property/Construction Finance: TUHF Multi-Family International Finance Market IFC TUHF Owners Credit Line Mortgages Renters Rent Contracts

23. Page 23 Before and After TUHF Financing

24. Page 24 CONCLUDING REMARKS Attractive Investment Opportunity – for both local and foreign investors Opportunity Requires Institutional Approach – to attract capital and large scale projects RE Has Huge Development Impact Helps Develop Local Capital Markets Creates Sustainable Urban Environments Challenge Remains to Find Solutions to Address Affordable and Social Housing Needs