Tax credit transactions Greystone Affordable Development

Topics 9% Tax Credits 4% Tax Credits / Tax Exempt Bonds Selecting a Project and Determining Structure Getting Started

9% Low income housing tax credits Tax Credit Transactions 9% Low income housing tax credits

9% Low Income Housing Tax Credits More beneficial to properties More tax credits generated by rehab 75-90% Less debt required, results in: More net cash flow generated by properties Lower rent levels needed to operate properties Less risky for investors, meaning higher prices per credits Less complicated*

9% Low Income Housing Tax Credits Cont. Limited amount of funding available Must win credits Max annual credits: state-by-state cap on the total award one property can receive. Can restrict the amount of equity that can be raised by some larger or scattered site properties.

4% Low income housing tax credits & Tax Exempt bonds Tax Credit Transactions 4% Low income housing tax credits & Tax Exempt bonds

4% LIHTC & Tax-Exempt Bonds Bonds are generally non-competitive Minimum score thresholds are sometimes required When properties receive bond allocations, tax credits come “as of right,” as long as Section 42 requirements are met: 50% of aggregate basis financed by bonds 95% of bonds pay for “good” costs No more than 2% of bonds can pay for costs of issuance No more than 25% of land can be paid by bonds Rehab Expenditures must exceed 15% of acquisition

4% LIHTC & Tax-Exempt Bonds Cont. Bonds can be long or short term Long term – issued by state housing finance agencies Can potentially have low rates, long amortization terms (30-40 years) Short term – issued by state housing finance agencies, local jurisdictions, or in some cases private conduits Require long-term financing Bonds are often “cash backed” Results in high bond rating Low interest rates

4% LIHTC & Tax-Exempt Bonds Cont. Difficulties of bond transactions: High Costs of Issuance Equity generally only covers 20-35% of total development costs High debt required Requires a large spread between income and expenses Some properties can’t support debt to cover 65-80% of their budget, and require more equity than the market will provide based on their budget

SELECTING A PROJECT AND DETERMINING STRUCTURE Tax Credit Transactions SELECTING A PROJECT AND DETERMINING STRUCTURE

Selecting a Project Evaluate all potential properties Are there any with unique characteristics? What properties need the most rehab? Income / Income potential Existing Ownership Structures

Selecting a Project Useful Resources / Important Information: Income limits Market data (Rents, cap rates) Census Tract information (QCTs / DDAs) Historical data Operating budgets – Fin1700 Physical Vacancy – PRJS4200 RUP Expiration Date – PRJ1100 QAP and other State Agency Documents

Determining Structure Potential 9% Deals: Scoring is Critical Potential 4% Deals: Opportunities for income growth Qualify for basis boost Moderate rehab needs* Other Opportunities Refinance / Recapitalization & Light rehab

Determining Structure Increasing feasibility of bond transactions – “Bridging the Gap” Soft debt Grants Energy Rebates Excess Reserves Seller Notes Deferred Developer Fees

Determining Structure Increasing feasibility of bond transactions – The Pooled Transaction Multiple properties under one bond issuance Fixed costs spread between properties Equity is raised for all properties as one investment Allows properties to balance out each other’s equity prices, allowing some properties that wouldn’t otherwise work as a bond deal to become feasible Bulk discount on debt – more debt in the deal can result in lower interest rates

Getting Started Transfer Analysis – Preliminary Assessment Tool Build your budget Negotiate sales price (critical cost #1) Estimate hard costs (critical cost #2) Legal and professional fees Financing costs QAP / Agency fees & required costs Build financing assumptions: Debt Equity

Contact Information Greystone Affordable Development 4025 Lake Boone Trail, Suite 209 Raleigh, NC 27607 (919) 573-7502 www.greycoaffordabledev.com