Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing for Housing Association of Nonprofit Developers (HAND) Peter Lawrence Director of Public Policy and Government Relations Novogradac Consulting LLP peter.lawrence@nc-llp.com @NovocoPolicy March 28, 2018 www.novoco.com

Agenda Tax Reform? Key Changes to Impact the Low-Income Housing Tax Credit Impact on New Markets and Historic Tax Credits Opportunity Zones LIHTC Legislation FY 2018 Omnibus – LIHTC Expansion and Income Averaging March 28, 2018 www.novoco.com

Low-Income Housing Tax Credit Private activity bonds retained (over half of affordable housing production) MORE THAN HALF Low-Income Housing Tax Credit March 28, 2018 www.novoco.com

Low-Income Housing Tax Credit Inflation factor changed to: “CHAINED CPI” Low-Income Housing Tax Credit Will reduce future 9% LIHTC and private activity bond volume cap per-capita/small state minimum amounts. March 28, 2018 www.novoco.com

Low-Income Housing Tax Credit Lower Corporate Rate Interest Expense Limitation Most LIHTC partnerships expected to elect out and shift to Alternative Depreciation System (ADS) for rental housing 100% Expensing through 2022 for: Site improvements, and Furniture, Fixtures & Equipment Likely negative impact of the Base Erosion and Anti-abuse Tax (BEAT) Low-Income Housing Tax Credit March 28, 2018 www.novoco.com

4 Percent Tax Exempt Bond Property 9 Percent Property 35% 21% $0.95 $0.82 $1.00 $0.87 $1.05 $0.90 $1.10 Price per Credit 4 Percent Tax Exempt Bond Property 35% 21% $0.95 $0.81 $1.00 $0.86 $1.05 $0.89 $1.10 $0.93 Price per Credit MATCH the data from the blog post Assumes 4.5% – 5.0% investor level yield in all scenarios Results may differ based on a change in underlying assumptions. Property not eligible for 30% basis bonus March 28, 2018 www.novoco.com

Effect of Tax Reform on LIHTC Equity Pricing Affordable housing community had already lost investment and production in 2017 March 28, 2018 www.novoco.com

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www.novoco.com/blog March 28, 2018 www.novoco.com

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New Markets Tax Credit No statutory changes to section 45D 2017, 2018 and 2019 rounds from the PATH Act in 2015 remain at $3.5 billion each House bill had originally eliminated 2018 and 2019 rounds Efforts to extend or make the NMTC an indefinite part of the internal revenue code likely included in a future extenders package Corporate AMT repealed Unlike LIHTC, lower corporate rate is a slight positive for NMTC because investors pay taxes on gains at exit New Markets Tax Credit March 28, 2018 www.novoco.com

Historic Rehabilitation Tax Credit House would have dropped the HTC entirely; Senate bill prevailed The 10 percent non-certified rehabilitation credit (for pre-1936 buildings) is repealed 20 percent historic rehab credit is claimed ratably over 5 years Pricing may drop 7% to 15% due to changes Historic Rehabilitation Tax Credit March 28, 2018 www.novoco.com

Investing in Opportunity Act Allows investors with capital gains from sale of assets to defer those gains Similar in concept to Section 1031 “Like-Kind” exchanges Creates new incentive to invest capital gains in low-income communities Authorizes the designation of “opportunity zones” Governors (and DC Mayor) responsible for designating these zones Deadline to nominate or request a 30-day extension was March 21 Encourages investors to pool resources and risks in “Opportunity Funds” (O Funds). Investors can temporarily defer capital gains recognition if they reinvest in these zones Incentivizes long-term investment by stepping up basis 10 percent step-up after 5-year hold, 15 percent step-up after 7-year hold Provides shallower subsidies per investment than the NMTC, but can be used on a greater scale March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase Income-averaging Minimum 4 percent rate CANTWELL HATCH Rick Goldstein RETIRED NEAL TIBERI Curbelo, R-FL-26 March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase Income-averaging Minimum 4 percent rate CANTWELL HATCH Rick Goldstein RETIRED NEAL TIBERI Curbelo, R-FL-26 March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act 50 percent increase Income-averaging Minimum 4 percent rate CANTWELL HATCH Rick Goldstein RETIRED NEAL TIBERI Curbelo, R-FL-26 March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act Note these assumptions: Assumed that states will increase their tax-exempt bond issuance for multifamily by 25% Assumed the absolute amount of soft subsidies going to tax exempt bond properties would remain unchanged To the extent that there is less deferred developer fee, that is offset with more taxable bond financing 50 percent increase Income-averaging Minimum 4 percent rate Approximately 131,000 more units over 10 years CANTWELL HATCH Rick Goldstein RETIRED NEAL TIBERI Curbelo, R-FL-26 March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act Additional Resources Give states discretion to provide 30% basis boost for bond-financed projects Increase DDA designation from 20 to 30% Repeal QCT population cap Relocation costs included in eligible basis No basis reduction for certain energy tax incentives Indian areas generally treated as DDAs Rick Goldstein March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act Financial Feasibility 50% basis boost for ELI units Modify student occupancy rules Codify increased tenant income guidance Modify 10-year rule (limits apply to acquisition basis) Adopt uniform income eligibility for rural projects Rick Goldstein March 28, 2018 www.novoco.com

More LIHTCs via Affordable Housing Credit Improvement Act Other Modify voucher rent-setting rule in LIHTC Clarify the community revitalization plan Prohibit local approval or contribution requirements Add selection criteria for Native American areas Restriction of planned foreclosures Clarify casualty loss rule Convert ROFR to purchase option Change the official name of the LIHTC to Affordable Housing Tax Credit Rick Goldstein March 28, 2018 www.novoco.com

Federal, State and Local Taxes Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus Rental Homes Business Income Federal, State and Local Taxes Jobs Current Law 1,493,400 1,687,500 $142,005,642,600 $54,617,554,900 Tax Reform Bill Lower Corporate Rate of 21% Chained CPI Amount Lost Percentage Lost Post-Tax Reform Law - 212,400 19,900 232,300 -16% 1,261,100 - 240,000 22,500 262,500 -16% 1,425,000 - $20,196,865,200 $1,892,267,500 $22,089,132,700 -16% $119,916,509,900 - $7,768,025,100 $727,795,200 $8,495,820,300 -16% $46,121,734,600 FY18 Omnibus 12.5% allocation increase Percentage gained New Law + 28,400 2% 1,289,500 $2,700,522,500 2% $122,617,032,400 + $ 1,038,662,500 2% $ $47,160,397,100 + + 32,100 2% 1,457,100 March 28, 2018 www.novoco.com

Federal, State and Local Taxes Rental Homes, Jobs, Business Income and Tax Revenue Lost Nationally Under Final Tax Reform Bill and FY18 Omnibus Rental Homes Business Income Federal, State and Local Taxes Jobs Prior Law 1,493,400 1,687,500 $142,005,642,600 $54,617,554,900 Tax Reform Bill Lower Corporate Rate of 21% Chained CPI Amount Lost Percentage Lost Post-Tax Reform Law - 212,400 19,900 232,300 -16% 1,261,100 - 240,000 22,500 262,500 -16% 1,425,000 - $20,196,865,200 $1,892,267,500 $22,089,132,700 -16% $119,916,509,900 - $7,768,025,100 $727,795,200 $8,495,820,300 -16% $46,121,734,600 +19% FY18 Omnibus 12.5% allocation increase Percentage gained New Law + 28,400 2% 1,289,500 32,100 2% 1,457,100 $2,700,522,500 2% $122,617,032,400 + $ 1,038,662,500 2% $ $47,160,397,100 + + March 28, 2018 www.novoco.com

Approximate Impact on Virginia, Maryland and DC Rental Homes Rental Homes Gained Maryland Virginia Washington, D.C. 524 rental homes 733 rental homes 100 rental homes March 28, 2018 www.novoco.com

9% LIHTC Allocations with FY18 Omnibus Increase 2028 $2.80 2018 $2.70 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 HERA 2022 $2.50 2009 $2.30 2008 $2.20 2017 $2.35 2007 $1.95 2002 $1.75 2010 $2.10 Per capita credit set at $1.25 ACTUAL PROJECTED March 28, 2018 www.novoco.com

LIHTC Income Averaging Development types benefiting from this new option $ High housing cost areas Rural areas with very low incomes Low-income community revitalization projects promoting income diversity Preservation projects (e.g., RAD) with some “over-income” residents March 28, 2018 www.novoco.com

Upcoming Income Averaging Blog Post www.novoco.com/blog March 28, 2018 www.novoco.com

President’s FY19 Request HUD Budget FY16 Enacted FY17 Enacted FY18 Enacted President’s FY19 Request % Change FY18 – FY17 % Change FY19 Req. – FY18 Housing Choice Vouchers $19,628 $20,292 $22,015 $20,550 8.5% -6.7% Project-Based Section 8 $10,620 $10,816 $11,515 $11,047 6.5% -3.2% Public Housing Operating Fund $4,500 $4,400 $4,550 $3,279 3.4% -27.9% Public Housing Capital Fund $1,900 $1,942 $2,750 $0 41.6% -100% Section 202 $433 $502 $678 $601 35.0% -11.4% Section 811 $150 $146 $230 $140 57.0% -39.0% HOPWA $335 $356 $375 $330 5.3% -12.0% CDBG $3,000 $3,235 7.8% HOME $950 $1,362 43.4% Homeless Assistance $2,250 $2,383 $2,513 5.5% -5.2% Choice Neighborhood Initiative $125 $138 -$137 9.1% -191.3% Overall (gross) $46,978 $48,055 $52,748 $41,240 9.8% -21.8% Note: amounts in millions March 28, 2018 www.novoco.com

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Housing Trust Fund Update: Top 20 Estimated State Allocations (plus MD and DC) California New York Texas Florida Illinois Pennsylvania Ohio New Jersey Michigan Massachusetts Georgia Washington North Carolina Virginia Wisconsin Indiana Missouri Arizona Minnesota Colorado $34,319,000 $21,942,000 $11,683,000 $10,902,000 $9,823,000 $7,919,000 $7,463,000 $7,094,000 $6,364,000 $6,027,000 $5,367,000 $5,094,000 $5,018,000 $4,531,000 $4,122,000 $3,957,000 $3,899,000 $3,791,000 $3,720,000 $3,648,000 Maryland $3,426,000 District of Columbia $3,000,000 March 28, 2018 www.novoco.com

Refinance, Recapitalize and Redevelop: Innovative Bond Structures in Affordable Housing for Housing Association of Nonprofit Developers (HAND) Peter Lawrence Director of Public Policy and Government Relations Novogradac Consulting LLP peter.lawrence@nc-llp.com @NovocoPolicy March 28, 2018 www.novoco.com