1. Tax Credit Portfolio Exit Strategies IPED October 11, 2007 Kevin W. Day

2. 2 Its Year 15! – so what does that mean?

3. 3 Were all in this together….

4. 4 Investor/Syndicator Goals Close Funds soon after year 15 Maximize Residual Value Responsible Transitions to new ownership

5. 5 Let Them Eat Cat Food live area (click control+g to view live area guides) all text, images, or artwork must appear within these guides always view guides when aligning elements

6. 6 Whos driving this thing?

7. 7 Lets look under the hood…

8. 8 Value of real estate Partnership documents, regulatory agreements, financing documents, etc What do we got?

9. 9 What can we do with this thing? – Operate as is – Convert to market or other use (pre 90..or QC) – Convert to affordable condominium – Déjà vu all over again (new tax credits)

10. 10 Qualified Contracts… Difficult to Use QC Formula: Outstanding debt; plus initial capital contribution; plus 4% return on capital, Less distributions Issues: Every state has different requirements Burden of document compilation … 15 years of Tax and Financials, loan & PA info. Expensive Process...Consultants, Broker, Appraiser, Mkt studies, A& E, Phase 1. Title. Did we start yet ? Start dates subjective. QC Formula = Fuzzy Math. Critical terms not defined Does a Qualified Contract = a Qualified Buyer ?

11. 11 QC Issues: Every state has different requirements Burden of document compilation … 15 years of Tax and Financials, loan & PA info. Expensive Process...Consultants, Broker, Appraiser, Mkt studies, A& E, Phase 1. Title. Did we start yet ? Start dates subjective. QC Formula = Fuzzy Math. Critical terms not defined Does a Qualified Contract = a Qualified Buyer ?

12. 12 Operate As Is – Many affordable properties can compete with market w/o significant new capital – Pool of available tenants increases (students, etc), some restrictions may go away – Transition is seamless, no forced dislocation – May provide the highest return for $ spent – Strategy can be reversed

13. 13 Convert to Market: pre 90 and Future w/QC + No development risks… permitting, approvals (NIMBY), major construction, income stream in place + 15 yrs of Operational history… leasing, rents, costs + Many financing programs still available for Multifamily, HUD insured, Fannie, Freddie - HUD permission, tenant notices, 3 yr, ROFR - Rents really higher ?, market deep enough? - Can you change market perception of the property (curb appeal, reputation)

14. 14 Condo Conversion + Can be very profitable + Accomplishes goal of continued affordable housing + Local affordable home buyer programs help 1 st time HB grant up to $15,000 Up to 98% loan from HFA w/subsidized closing costs - Difficult to judge market acceptance - Significant time consuming legal issues - Uncertainty of current market cycle adds risk

15. 15 Affordable Condo Conversion PLR Jan 07… IRS approves conversion of Ext. Use S42 + Great strategy to implement y 13. (esp struggling prop.) + Easy math Condo Fee = Current Op costs, less turnover and interior costs Condo Fee + Mortgage NTE.. max TC rents Mortgage/constant = Price of unit (300/7.2K X12= 58,000) Unit price = Debt/unit + rehab + soft costs+ profit… NTE Market - Converter must hold unsold units…No eviction. - New homeowners need training and support Top loss guarantee may be needed for lenders May need Tax abatements & community soft $

16. 16 Resyndicate with 4% Credits Cutler Vista – Miami FL – 216 Units – PIS 1990 as 9% – New construction – Original Equity 5.1M

17. 17 Resyndicate with 4% Credits Sources Uses New Bonds: 7,120Retire 1st3,440 SAIL: 2,500SAIL 2,500 TC Equity: 4,800LPs1,800 Total: 14,420SAIL Int. 760 Rehab 3,600 Soft/DF/Reserves 2,320 Total 14,420

18. 18 Resyndication Issues –Public benefit – cost of preservation vs. build new –Sentiment against extended use properties –Untangling restrictions and Rights of First Refusal –Qualified households Vs tenants in possession –Anti-churning rule (affiliated buyer) 10% rule –10 year hold rule –Aggressive buyers vs. Preservation resources

19. 19 Helpful hints for Year 15 –Start early…Strategies should be decided in year 13, prepared in Y14, executed in Y15 –Analyze all possible strategies in light of the local market and capital markets –Many new financing programs and combinations available for preservation, but take time to implement –Know your regulatory agreements, partnership and loan agreements.. and approvals needed. –Pick the right local partner to help you execute your strategy –Patience Perseverance and Prozac