1. community transformation diversity vision M C C ORMACK B ARON S ALAZAR Preservation Through LIHTC and HTC: Washington Apartments in St. Louis Jonathan Goldstein jonathan.goldstein@mccormackbaron.com 314.621.3400

2. Washington Apartments St. Louis, Missouri

3. Project Background Structure Financials Key Lessons Outline

4. Background: History George Washington Inn: built in 1902 At 7 Stories, among highest in St. Louis Artesian well located in basement Located in Citys Central West End Slipped into decline/disrepair McCormack Baron first redeveloped in 1979

5. Background: Tenants Project originally developed as Section 8 Housing 99 one bedroom units Building was occupied Physical structure showed age Design issues Energy conservation issues

6. Background: Preservation Central West End hotbed for condo activities Losing many affordable units Condo conversion considered Combination State and Federal LIHTCs and HTCs, State Donation Credit permitted preservation

7. Background: Physical Plan Reoriented entrance to Kingshighway New roof, tuckpointing/sealing All new historic, energy-rated windows New systems (fire, heat pump, etc.) New unit and common area finishes and appliances New fitness center, community room, laundry Abatement of all lead, asbestos

8. Structure: Permanent Sources Tax Exempt Bonds State HOME Funds State Donation Credit 4% Low Income Housing Tax Credit State Low Income Housing Tax Credit Federal Historic Tax Credit State Historic Tax Credit (25%)

9. Structure: Finance Participants U.S. Bank CDC – LIHTC/HTC equity National City – HTC equity Missouri Housing Development Corp – LIHTCs Enterprise Bank – bond purchaser A.G. Edwards – underwriter St. Louis Industrial Devp Board – bond issuer Urban Strategies – donation credit lender

10. Structure: Bonds, 4% LIHTCs Bonds unlock 4% credits, act as inexpensive bridge for equity In addition, project needed permanent first mortgage Borrowed combination of short/long term bonds to clear 50% Test Received 4% credits on 100% of units Will redeem short-term series after completion with equity, retain long-term series as permanent first

11. Structure: Donation Credits Missouri has Affordable Housing Assistance Program (AHAP) donation credit Credit permits a $.55 tax credit for every $1.00 donated to a nonprofit to support housing Provides huge tax incentive for motivated donor Even where motivated donor not available, equity investor can make donation, offset pricing by net expense of donation

12. Structure: Historic Credits Both Federal and State HTCs used If LIHTC owner uses federal HTCs, must reduce basis for LIHTC This would significantly reduce benefits of getting historic credits To avoid, we structured Master Tenant for HTCs Master Tenant can receive federal HTC equity, push benefit to project without loss of LIHTC basis State credits not subject to same limitations

13. Structure: Diagram

14. Financials: Bond Details Series A (permanent) - $2,875,000; Series B (short term) - $4,625,000 Total $7.5M is greater than 50% of aggregate cost basis Presold to Enterprise Bank, which brought AG Edwards in as underwriter During construction, bonds secured by LOC from US Bank (equity) 5% interest-only during construction, 6.5% amortizing thereafter

15. Financials: HTC Details $10.9M in Qualified Rehabilitation Expenditures 20% Federal HTC ($2.2M in credits); 25% State HTC ($2.7M in credits) If Federal HTC investor in ownership entity, $700K lost in LIHTC equity for $2M gained in HTC Instead, owner passes Federal HTCs to Master Tenant, Investors* purchase from MT, which loans funds back to Owner (Master Landlord) MT leases building from ML for lease payments that offset ML debt to MT; MT then contracts with residents Structure is collapsed after five year compliance period

16. Key Lessons Helps to operate in progressive state ML/MT HTC structure is complex, include time and structuring costs in determining value Beware evolving tax interpretations... Shouldve kept the bath houses

17. Questions: Jonathan Goldstein jonathan.goldstein@mccormackbaron.com 314.621.3400