Supporting Healthy, Vibrant and Sustainable Communities

Molecular Diagnostics (AHIC, Watch Lists and Investor Scrutiny) 2

Introductions and Welcome 3

Speakers 4 Paul Henley VP Portfolio Management, Fifth Third CDC Yianni Vitellas VP – Portfolio / Risk Specialist Senior, Huntington CDC Mark Lenhardt Executive Director, Tax Oriented Investments, JPMorgan Chase

5 Investors are more focused on identifying risk by assessing the strength of projects within our portfolio, studying the capacity of our General Partners and evaluating the long-term sustainability of projects within our portfolio. Explore how AHIC standards and investors' needs are evolving.

AHIC Standards 6

7 AHIC (Affordable Housing Investors Council) produces best practices for the housing credit field, guidelines that are widely adopted by its members and partners in the affordable housing industry. AHIC created the first reporting database in 1996, with the help of syndicators such as Michigan Capital Fund for Housing also saw the adoption of underwriting standards, property inspection reports and exit strategies for all investors.

AHIC Standards 8 AHIC continually updates their standards to keep abreast of the changing and challenging LIHTC world. In 2004, the Underwriting Standards were updated, then again in 2010 and In 2006, the Asset Management Committee of AHIC published new standards for grading projects, and rewrote the Risk Rating guidelines for projects. For the first time, projects are categorized as Development Stage or Operational Stage projects.

AHIC Standards 9 In 2012, AHIC finalized and published its newest version of the Risk Rating Guidelines (hand-out available), Watch List Problem Categories and Asset Management Best Practices. AHIC will celebrate its 20 th anniversary in It will continue to evolve its standards to help in strengthening the projects and long- term sustainability of projects within investors’ portfolios. Current topics of discussion include: i) the best way to balance the needs of urban and rural areas for allocation; ii) the optimal mix of incomes for affordable projects; and iii) what training the SHAs require for staff performing file reviews and physical inspections?

AHIC Standards 10 There are five (5) Risk Ratings: A – Excellent B – Average C – Weak D – Moderate Risk F – Significant Risk

AHIC Standards 11 Risk Rating Guidelines DCR (Debt Coverage Ratio) Gross Operating Income minus Expenses and Replacement Reserves divided by Debt Service (Principal and Interest) DCR is at or above 1.20x = “A” DCR is between.5x and.85x OR significant cash deficits = “D” Loan is in default on must pay debt = “F”

AHIC Standards 12 Risk Rating Guidelines Economic Occupancy Net Rental Revenue divided by Gross Potential Rent Economic occupancy is 95% or above = “A” Economic occupancy is below 90% but greater than 80% = “C” Economic occupancy is less than 80% = “D”

AHIC Standards 13 Risk Rating Guidelines GP / Sponsor / Property Management GP / Sponsor is financially secure and able to meet all obligations = “A” GP / Sponsor has modest financial capacity and liquidity has been identified as an issue / Weak Property Management = “C” GP / Sponsor lacks ability or willingness to cover guarantee obligations / Management Company is ineffective and replacement is required = “D”

AHIC Standards 14 Risk Rating Guidelines Program Compliance No material Compliance issues = “A” Correctable Compliance issues with financial impact / Failing REAC or MOR score with no corrective plan / 8823s issued and not corrected within 90 days = “C” Uncorrectable Compliance issues / 8823s issued and left uncorrected at year-end = “D”

Identifying Risk (Assessing the Capacity of GP’s and Strength of Projects) 15

Identifying Risk 16 Importance of the expertise and capacity of the Developer / General Partner / Guarantor Underwriting guidelines used in evaluating the Developer / General Partner / Guarantor Financial capacity and ability to cover guarantee obligations REO schedules Contingent liability schedules Liquidity and net worth requirements

Identifying Risk 17 Syndicator Watch List Reports Major Issues (the underlying cause(s) of the problem(s)) Operating Deficit Guarantee (capacity of GP / Guarantor to perform on guarantee) Funding of Deficits (how deficits are being funded) Action Plan (what’s being done to fix the problem(s))

Identifying Risk 18 Periodic Investor Conference Calls Investors “drill down” to further understand and identify risk

Long-Term Sustainability of Projects 19

Long-Term Sustainability 20 Investors are increasingly focused on the long-term sustainability of properties Investors analyze current cash flow / deficits Investors prepare a projection of cash flow / deficits through the remainder of the compliance period Investors assess the availability of cash and reserves Investors assess GP operating deficit guarantee

Long-Term Sustainability 21 Revenues Issues adversely impacting revenues Low Area Median Incomes (AMIs) Occupancy Property Management Competition

Long-Term Sustainability 22 Expenses Issues adversely impacting expenses Increasing beyond normal expectations Utilities (Water and Sewer) Property Taxes Inefficient HVAC Building is aging leading to maintenance costs increasing

Long-Term Sustainability 23 Is current deficit considered short-term? Is current deficit reflective of ongoing factors? Is refinancing a possibility? Are reserves sufficient to fund long-term deficits? What is the GP’s capacity to perform on guarantee? Notwithstanding guarantee, what is GP’s willingness to stand behind the project?

Questions and Answers 24