1. Update on Proposed Use of TCAP and 1602 funds for California’s Multifamily Affordable Developments IPED June 5, 2009 Presented by: Jeanne Peterson, Principal jeanne.peterson@reznickgroup.com

2. “TCAP” Tax Credit Assistance Program California will have $325,665,000 available in TCAP funds and has submitted its Plan to HUD for approval, including: its statement of intent to accept the funds a description of the competitive selection criteria to be used in making awards its procedures to assure the timely committing of funds transparency/accountability information 2

3. Distribution of Funds by Housing Credit Agencies Funds must be distributed competitively. Funds must be distributed pursuant to QAP. Funds available to owners who either have received or receive simultaneously an award of tax credit under Section 42(h) of IRC (can be either 9% or tax-exempt bond deals.) Funds do not result in reduced eligible basis. 3

4. Timing of Awards and Expenditures 75% of funds must be committed by housing credit agencies within 1 year of enactment. 75% of funds must be expended by owners within 2 years of enactment. –Failure by an owner to expend within this time frame will result in redistribution by the credit agency to “a more deserving project” in the state. 100% of funds must be expended within 3 years of enactment. 4

5. Eligibility to Receive Funds Any funds not expended after 3 years from enactment will be redistributed by the Secretary to states that have fully utilized their funds. States must give priority to projects expected to be completed within 3 years of enactment. Projects awarded tax credits under Section 42(h) of the IRC during fiscal years 2007, 2008, or 2009 are eligible to receive this gap financing. 5

6. Requirements that Apply Some HOME (or “cross-cutting” restrictions apply, including: –Fair Housing –Non-discrimination –Labor Standards –Environmental standards All credit agency restrictions relating to the tax credit award (rent, income, others) apply 6

7. Reporting to HUD HUD Secretary shall be given access to information “related to the award of Federal funds” after reasonable notice to state credit agency. HUD must establish an Internet site identifying projects selected to receive awards. –Including the amount of the awards and with links to the states’ QAPs describing the process used to make the award decisions. 7

8. Exchange or Section 1602 Program Section 1602 authorizes the Treasury Secretary to make a grant to each housing credit agency, at the agency’s election, in the maximum amount of 85% of the following amounts: – 40% of the sum of the states’ annual per capita credit amount (the greater of $2.30 per state resident for 2009 or $2,557,500) and –any amount it received from the national pool times 10; PLUS –100% of 2009 credit ceiling attributable to a state’s unused credit ceiling for 2008 and 100% of a state’s credit ceiling returned in 2009 times 10. 8

9. Credit Exchange 40% of annual per capita credit for 2009 + 40% of state’s share of national pool credit + 100% of unallocated 2008 credit + 100% of credit returned in 2009 X 10 X $.85 Remember, any amount exchanged will reduce the amount of credit available to allocate. 9

10. California’s Exchange 2009 per capita amount = $84,540,332 x 40% = $33,816,133 x 10 = $338,161,330 x $.85 = $287,437,129 This does not include any previous year’s returned and exchanged credit TOTAL ARRA funds available (TCAP and 1602) = $613,102,129 plus any returned ‘07 and ‘08 credit 10

11. Rules Governing Exchanged Credit Sub awards may be made for construction or acquisition/rehab of qualified low-income buildings, with or without an allocation of tax credits. State agencies must establish a process by which those allocated funds demonstrate “good faith efforts” to obtain investment commitments for credit before the agency makes an award 11

12. Awards Subject to LIHTC Requirements Sub awards are subject to the same limitations of rent, income, and use restrictions as allocations made under Section 42, EXCEPT that they are not limited to or otherwise affected by the state’s housing credit ceiling. Funds will not reduce eligible basis. The conference agreement indicates that the grants are not taxable income. 12

13. Compliance and Asset Management State credit agencies must perform “asset management” functions (or contract them out) to ensure compliance with Section 42 requirements for any sub awards made with these funds and may collect reasonable fees to cover these expenses Agencies must impose a requirement for recapture if noncompliance and any recapture is payable to the U.S. Treasury 13

14. Return of Unused Funds If a housing credit agency does not use its exchanged funds before January 1, 2011, unused funds will be returned to the Treasury. Recent guidance from Treasury has indicated that funds must be “disbursed” by December 31, 2010 (although this does not appear to be what the statute itself says and Congressman Rangel has asked Treasury to change this date to December 31, 2011.) 14

15. California’s Plan In an effort to get a jump start, TCAC (California’s Tax Credit agency) published proposed regulatory changes that were adopted on April 30, 2009. Subsequently, guidance from HUD and Treasury have necessitated some changes – additional changes were published on Tuesday of this week (June 2). 15

16. 2007 and 2008 2007 and 2008 deals, both 9% and tax- exempt bonds, without equity investors were allowed to turn in their credit to be exchanged under 1602. A total of 30 projects have done this (5 from ‘07 and 25 from ‘08) in the amount of approximately $275 million, which could be exchanged for a. $233.75 million additional 1602 funds. These deals may (or may not) receive either TCAP or 1602 funds. 16

17. ‘07 and ‘08 deals may receive the difference between the equity amount in the original application, up to $.85 for each federal tax credit $ and up to $.10 for each state credit $ up to $.65 if they are seeking only gap financing and keeping their credit. They must adhere to the original placed in service date. If seeking cash, must return entire Reservation. 17

18. Possible use of funds $100 million for 4% projects needing gap filler loans or cash in lieu of credit ($75 million for 2007-2009 awarded in July and $25 million in the fall for same) $25 million for 2007 and 2008 9% projects needing gap filler loans $100 million for HCD MHP and SHP deals that have commitments but have not yet begun construction Balance for 2009 9% gap-filler loans 18

19. The ED may exchange a 2008 reservation for a 2009 one if the delay was caused by circumstances beyond control of the sponsor. Competition will be based on a 250 point scale as follows: Up to 50 points for project type Up to 100 points for the amount of cash requested Up to 100 points for deeper targeting 19

20. 2009 Projects 2009 Both 4% and 9% deals receiving a credit Reservation by 9/30/09 are eligible for TCAP funds. 9% deals receiving a credit Reservation in calendar 2009 may receive 1602 funds. TCAC will set aside no more than $100 million for MHP and/or SHP deals that have not yet commenced construction. 20

21. 2009 deals may receive up to $.80 for each dollar and up to $.55 cents per state credit dollar. Maximum award for 2009 projects is $20 million or $25 million for Sp. Needs, Homeless Assistance, and SRO projects May receive up to $.12 per reserved fed. dollar and $.09 per state dollar 21

22. Procedures for 2009 Single round with application deadline June 9 Some timing requirements loosened and documents usually required at application may be submitted up to August 17 Applicants may assume12 cents for each fed dollar requested and 9 cents for each state dollar requested. 22

23. After Reservation, one has 90 days to produce an LOI from equity partner If after 60 days (was 45) and good faith effort, no equity found, may apply for cash by returning their credit and competing in secondary competition, EXCEPT for SRO, Special Needs, and Homeless deals which will get the money subject to confirming feasibility. 23

24. Project type – max 50 pts 50 - Sp. Needs, Homeless, SRO 30 - Rural and At-risk 10 - Family and Senior Amount requested – max 100 pts % of cash requested in inverse relation to total project costs Average affordability – max 100 5 pts for each % that average affordability is below 60% AMI 24

25. Loans/Terms Loans for 55 year terms with Notes and Deeds of Trust, deferred for full term. Gap financing disbursed during construction if no equity at 40% at construction loan closing and after; 35% at C of Os; 25% (less a hold back of up to $300,000) at 90% occupancy, and holdback at TCAC approval of PIS documents 25

26. Fees TCAC may charge up to $10,000 loan origination fee (proposed) and CalHFA may also charge fee when performing loan origination dutires. TCAC may charge asset management fee either annually or one time or a contracted entity may charge directly TCAC may charge up to $1,000 to oversee NEPA and $1,000 for Davis Bacon (proposed) 26

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