Financing Housing with New Markets Tax Credits February 21, 2008

2 Since 1982 Enterprise has invested more than $8 billion in communities, which has produced more than 215,000 affordable homes Enterprise works with a national base of partners -- developers, investors, community groups, government, and CDCs to reach our common goal: provide decent housing and rebuild communities Enterprise invests at a rate of $1 billion a year in housing and community enrichment facilities Financing Housing with New Markets Tax Credits

3 How can NMTCs be used for housing? Mixed use developments (with residential rental) For-sale housing Business loans Financing Housing with New Markets Tax Credits

4 Types of Properties Which Can Use NMTC Commercial, non-residential, or mixed-use (office/retail/hotel and residential) property – Mixed-use developments must have at least 20% of gross income generated by commercial component For sale product Cannot use NMTC for: Residential rental property (buildings which derive 80% or more of income from residential rental dwellings do not qualify) Under IRS Regulations, NMTC-enhanced financing cannot be combined with Section 42 (LIHTC) financing.

5 Financing Housing with New Markets Tax Credits Business Lending Can be used to provide working capital to real-estate related entities Provides pre-development and acquisition financing for real estate developers who develop housing Investment product must be flexible –Line of credit or other mechanism to allow for reinvestment (typical pre-development loan would have a shorter term) Developer entity must be a qualified business (QALICB) –Limitations on total non-qualified financial property and locations of owned property Mitigating factors NMTC allows flexibility for reinvestment NMTC allows flexibility for QALICB as long as they meet the tests

6 Financing Housing with New Markets Tax Credits Impact of Business Lending financed by NMTC Allows developers to use less expensive capital to fund operations of their Qualified Business Lower capital costs can lead to lower prices to ultimate consumers Provides jobs, goods & services to residents of low income areas

7 Financing Housing with New Markets Tax Credits Example of NMTC used for Business Lending to allow a not-for-profit housing organization to expand its program NMTC Allocation - $9.5 Million Net Interest Rate - approximately 2% Term – 7 year business loan Total development costs approximate $90 million, resulting in the recycling of the $9.5 million more than 9X

8 Financing Housing with New Markets Tax Credits Developer: Columbus Housing Partnership (CHP) Project Type: For Sale Housing Project Description: Phased construction or rehab of up to 700 single family homes over a 7-year period; homes are targeted to buyers 65% - 80% of AMI Total Development Costs: Approximately $90 million Expands CHPs homeownership program and allows CHP to reach size, scale & sustainability Catalytic project and central to Columbuss Home Again Program

9 Financing Housing with New Markets Tax Credits Total QEI of $9,500,000 Business loan of $9,500,000 CHP borrower qualified as a QALICB; involved the borrower relocating its location to a qualified census tract Home sites at various locations throughout Columbus; the majority verified as qualified low-income communities Requires significant commitment and support from local government: Effort is consistent with Citys Home Again program Critical that CHP acquires properties at or below FMV Subsidies of approximately $20 million include infrastructure reimbursement and gap financing

10 Financing Housing with New Markets Tax Credits Sources of NMTC QEI:

11 Financing Housing with New Markets Tax Credits Qualifying QALICB – required borrower to re-locate to a highly distressed qualified census tract and a review of assets (current & potential) to ensure continued QALICB status Significant local government commitment – in support and $$ Tailored Lender requirements - –Limitations on Inventory - draw of funds limited at certain inventory levels to prevent financing proceeds from being stalled in finished inventory –Prohibition of unentitled land beyond a certain level and an imposed time limit –Affordable housing requirements pushed down to borrower level Detailed analysis of project and developer results of operations was required Significant Issues

12 Financing Housing with New Markets Tax Credits Subsidy to ultimate homebuyers Need for other subsidies Addressing REO/Scattered Sites (Foreclosures!!) Local/Regional Investors involved Addressing Workforce Housing Committed sponsor City involvement Innovative use of NMTC Program Important Points

13 Financing Housing with New Markets Tax Credits So where do I begin? Figure out if your project is in a qualifying tract/community or qualify your business as a QALICB Develop a pro-forma that assumes NMTC financing Begin conversations with investors Begin conversations with CDEs –CDEs are required to use their allocation in a manner that is consistent with their NMTC Application.

14 What ought to be can be with the will to make it so. James W. Rouse, Co-Founder, Enterprise Financing Housing with New Markets Tax Credits