Housing Credit Property Preservation June 15, 2016

National LIHTC Stock: 2.8+ million units Urban, suburban and rural markets across the country Housing for families, seniors, people with special needs Deep affordability: 64% of residents are at or below 40% of AMI, according to HUD Flexibility to meet diverse needs Enterprise-financed LIHTC properties: a “microcosm” of national stock: 2,200 projects, 135,000 units 49 states, DC and Puerto Rico Similar project characteristics, with higher share of non-profit GPs

Who Lives in Housing Credit Properties? Source: Furman Center, New York University

Enterprise Year 15 Pipeline

Enterprise Extended Use Pipeline (30 years assumed, varies by state)

Preservation Challenges

Preservation Challenges: Two Main “Buckets” From Year 15 to beyond the Extended Use period Ongoing physical and financial viability Ongoing preservation of use as affordable housing

http://bit.ly/preservinghousingcredit

Findings Nearly all properties remained affordable and are owned by the same general partner or sponsor Overall, properties in good physical condition

Findings, continued Majority are in good financial condition, but a significant share was showing some distress Most likely need some recapitalization to address capital improvements and remain financially viable.

Successful Strategies for Physical and Financial Viability: Refinance with a lower interest loan Public debt restructure/forgiveness Access to weatherization and other programs (with extended affordability) Other state and local programs for preservation (with extended affordability) Aggregate smaller properties for recapitalization (and/or resyndication) Resyndication (4% or 9%)

Preservation Challenge: Ongoing use as affordable housing Y15/Extended Use Period Qualified contract: marketing Owners bypassing compliance requirements Self-reporting; limited HFA oversight Requests to HFA to modify/lift LURA “Planned Foreclosure” Expiration of Extended Use Period Properties at Risk for Market Conversion Geography Ownership Deep Affordability

Recommendations to HFAs Develop principles for preservation Determine urgency for HFA Potential priorities: deep affordability, supportive housing, seniors, Sec 8 Physical and financial viability Ensure HFA staff trained on principles, practices, requirements Develop a communication plan for the Extended Use period Especially with new owners/GPs Reiterate compliance requirements

Recommendations to HFAs (cont’d) Identify at-risk properties Geography Ownership Deep affordability Carefully evaluate requests to modify/lift LURA Beware of “planned foreclosures” Develop a toolbox of policies and incentives (market-based solutions) To extend affordability To keep projects viable

The Housing Credit Portfolio: The Next Preservation “Battle”? 1970s: defaults in 221(d)(3) 236 stock 1980s, 1990s: “prepayments” crisis 1987: ELIHPA 1990: LIHPRHA 1997: Mark-to-Market 2000: Section 236 decoupling HFA prioritization in QAPs for older assisted stock: Section 8, 202, 236, 221(d)(3), RD 515 In coming years, preservation of Housing Credit stock will become an additional preservation focus

Scott Hoekman shoekman@enterprisecommunity.com www.enterprisecommunity.com