1. Housing Bonds, Liberty Bonds and Background on HDC
Richard Froehlich, COO and General Counsel

2. The Affordable Housing Crisis
Key Facets of
The Affordable Housing Crisis
Gap Between Rents and Incomes
Over the past decade, average rents rose by more than 10% while wages stagnated
High Rent Burden
55% of renter households are “rent-burdened” and 30% are “extremely rent burdened”
Insufficient Housing Production
The marketplace is not meeting the needs of existing residents, let alone new ones
Limited Supply of Affordable Units
Despite significant public investment, only a fraction of eligible New Yorkers served
Population Growth
230,000 new residents arrived since 2010 and 600,000 more are expected by 2040

3. Changing Federal Roles
Private ownership of housing
Using the tax code to support affordable housing
Low income housing tax credits
Tax exempt bonds
Decentralization, decision making by the states and localities over the federal government
Smaller role for HUD 3

4. Changing Federal Roles
HUD’s budget of $45 billion is an important source of funding for the lowest income people in the country.
There are several million families that either receive direct support through vouchers or live in federally supported housing. What happens to those people if the assistance is terminated?
What happens to projects financed on the assumption of federal support for the low income tenants?
Most new construction and preservation of affordable housing are dependent on the tax incentivized programs and/or use of federal aid for residents 4

5. What are Municipal Bonds?
An IOU or obligation of the Issuer to repay the purchaser (with interest) over the life of the bond
Issued in order to finance a public purpose like roads, bridges, schools and affordable housing
Interest is usually tax exempt and attractive to high income people and corporations 5

6. Who is the Issuer? A Government or Governmental Entity
Governmental Entities or Instrumentalities are created by the state or locality to perform tasks (including financing the task) for the government
Called a Conduit when the issuer has no obligation to repay the debt because a specific revenue source is pledged to the bondholders
HDC is a public benefit corporation which makes it a governmental entity of NYS. 6

7. Public Authorities
Somewhat autonomous organizations of a state or a locality that is created to perform functions that the government wants that can be generally financed by the issuance of municipal bonds
Created under state or local law with rules and regulations established by the legislature. Legislature may limit powers. Why?
Quasi public because they are formed to do things for governmental purposes but often not a direct part of the government
Usually controlled by a board selected by Governor or Mayor and other elected officials
Authority has a trust relationship with the public that purchases the bonds. That autonomy matters to bondholders. Why? 7

8. Public/Private Partnerships for Providing Affordable Housing
HDC can use the issuance of private activity tax exempt bonds coupled with low interest loans and low income housing tax credits to spur the development and preservation of affordable housing
Bond proceeds are used to finance new construction or acquisition/rehabilitation of housing for persons with low and moderate incomes
HDC profits coupled with City capital fund low interest loans
Private Developers (either charitable or profit-motivated entities) own such developments.
Rules require different levels of affordability and compliance is monitored by HDC. 8

9. Private Activity Bonds
Relate to bonds issued for private benefit
Usually projects that will be owned or controlled by private entities
Most regulated as you can only finance certain kinds of projects and there must be a public good related to the project.
Kinds of private activity bonds:
Multifamily rental housing
Bonds for public works (but privately controlled)
Single Family MRB
1st time homebuyers
limits on mortgages
Airport facilities
Transportation facilities
Stadiums
Qualified industrial development
Qualified student loans 9

10. Private Activity Bonds
What are the limits?
volume limitation on a per capita basis
Volume Cap of $100 per person (increases at inflation)
Minimum of $301 million per state
requires a public hearing (TEFRA)
The public hearing requirement may bring “(NIMBY) issues from opponents
maximum bond maturity (50 years)
relating to life of project
qualifying expense requirements (95/5)
Good Costs include land & depreciable costs for income tax purposes that are paid or incurred after the date of inducement by issuer.
Bad Costs include costs incurred prior to Inducement by issuer, intangible assets, bond issuance costs and underwriting, as well as loan origination fees amortized over the permanent loan period 10

11. Private Activity Bonds for Housing
Qualified residential rental projects:
Bond proceeds are used to finance new construction or acquisition and rehabilitation of housing for persons with low and moderate incomes
To be for low and moderate income persons:
20% of the units must be for people earning 50% of median income or 40% of the units must be for people earning 60% of median income
in NYC, it is 25% at 60% of median income because this is such a high-cost region 11

12. Tax Exempt Bonds vs. Taxable Bonds
In normal capital markets tax exempt bonds are priced significantly lower than taxable but the markets have been not fully functional since the economic downturn.
Housing bonds have underperformed municipals generally and have been damaged as a correlation to housing concerns in the market
Some issuers do make taxable loans for projects that don’t qualify for tax exempt status but are still important to the housing agencies mission—this can include housing for middle income people that don’t meet the low income requirements.
Taxable bonds can be used for pooling or securitization of non-qualifying loans such as subsidy loans, etc.

13. Low Income Housing Tax Credits
Primary mechanism encouraging private development of affordable housing (for profit and not-for-profit)
Governed by Section 42 of the Internal Revenue Code
Implemented by state housing agencies
Tax Credits > Tax Exemption
$2.30 contribution per person/per state for 9% (Allocated or competitive credits
Credits are purchased for less than face value – each dollar of credit is valued by market demand (usually between $.95 and $1.00 per dollar of credits)
Pricing is even higher in places with strong CRA demand like NYC, LA and SF
Discretionary program 13

14. 4% Tax Credits Come with Bonds, 9% Allocated Credits Are Different
9% tax credits are allocated to the state housing agencies each year. The total annual 9% credits are limited as a per capita amount for each state and they are generally called “competitive” credits.
Developers apply for these credits through the state allocating agency. This can be a very competitive process.
There is no ceiling of 4% tax credits for partnerships using tax-exempt bonds to finance their projects. However, the 4% tax credits are not “unlimited.” The total amount of 4% tax credits available is limited by the amount volume cap tax-exempt bonds allocated to LIHTC projects.
The amount of 4% credits is effectively limited through what is called the 50% test.

15. Tax Exempt Bonds Come with LIHTC: 50% Test
In most instances pursuant to IRC Sec. 42(h) each building must receive an allocation of LIHTC from the state tax credit agency in order to qualify for tax credits
A project may qualify for tax credits “as of right” if 50% or more of the aggregate basis of such building (and the land on which the building is located) is financed by tax-exempt volume cap bonds (private activity bonds).
The as of right credits are only allocated at the 4% level and is a less generous subsidy.
Reserves that may be required by an investor are not considered for purposes of determining the total development costs for the test.
The state agency determines if the bond financed project has met the requirements of the qualified allocation plan and needs the credits for the project’s viability.
The test is performed in initial sizing for bond issuance and when the project is completed.

16. Steps to Issuing Tax Exempt Bonds
Create development plan for affordable housing project
Consult with bond issuer and its counsel regarding eligibility
Find a bank or financial institution to act as credit enhancer on bonds
Have issuer adopt a reimbursement resolution not later than 60 days from expending significant money on the project
Apply for tax exempt financing and as-of-right tax credits
Engage working group including: underwriter, issuer, borrower, credit enhancer, tax credit syndicator, trustee and all of the counsels that represent the team 16

17. Steps to Issuing Tax Exempt Bonds
Drafts of documents relating to the bonds, underwriting, tax credits and credit enhancement are distributed
TEFRA Hearing for public opinion
All credit approvals received
Issuer’s approval of transaction
Distribution of preliminary official statement
Sale of Bonds
Final Official Statement issued
Closing 17

18. Investments from Banks are a Crucial Part of Affordable Housing Finance
Banks invest in affordable housing by buying bonds, buying housing tax credits, buying other credits and providing construction loans
Banks are incentivized to do this because of requirements in the Community Reinvestment Act (CRA)
Lenders receive ratings—from outstanding to unsatisfactory—that is determined by U.S. regulatory staff
Banks that may be seeking regulatory approval for mergers or changes in service seek the highest rating level
CRA was a response to a historic lack of investment by banks in low income communities. 18

19. The Basic Bond Structure or How Money Moves (courtesy of Novagradac & Co.)

20. Deal Participants in a Deal
Every deal requires a multitude of players to be completed
Issuer
Bond Counsel
Tax Credit Syndicator ● Syndicate’s Counsel
Tax Credit Agency
Issues Bonds / Services Loans / Monitors Work
Sells LIHTC and Invests Proceeds in Project
Rating Agency ● Trustee ● Trustee Counsel
Bond Underwriter / Re-Marketing Agent
Underwriter / Re-Marketing Agent Counsel
Rates Bonds and Handles Transactions
Deal
Helps Size and Sell Bonds
Credit Enhancement
LOC Bank Short-Term
LOC Bank Long-Term
LOC Bank Counsel
Mortgage Insurance
Mortgage Insurance
SONYMA
REMIC
Fannie Mae
Freddie MAC
Borrower ● Borrower’s Counsel
Borrower’s Financial Advisor
Borrower’s Accountant ● General Contractor
Credit Enhancement / Mortgage Insurance
Receives Proceeds and Pays Mortgage
Other Gov’t Approvals / Involvement 20

21. Overview of NYC Housing Development Corporation
Established in 1971 under laws of the State of New York as a public benefit corporation for the purpose of financing affordable multi-family housing in the City of New York
Governed by 7-member Board of Directors appointed by Mayor and Governor; chaired by Commissioner of NYC Department of Housing Preservation and Development
A staff of 174 manages over $14.34 billion of assets, including a multi-family portfolio of over 200,000 units with $9.8 billion in mortgage loans and loan interests as of October 31, 2015*
Top-ranked issuer in the nation of affordable multi-family housing bonds in 2012 (#1), 2013 (#1), 2014 (#1) and 2015 (#2) by principal amount**
CY 2014 was a record year with a total issuance of $1.9 billion
$27.8 billion of mortgage revenue bonds issued since inception
$10.1 billion of bonds outstanding as of April 30, 2016
General obligation of HDC rated Aa2/AA by Moody’s and Standard & Poor’s, respectively
Separately capitalized, mortgage insurer (REMIC) rated AA by S&P.
* Based on FY 2015 audited financials (as of 10/31/2015)
**Source: Thomson Reuters Securities Data Corporation as of 12/31/15. 21

22. Housing New York
Housing New York: A Five Borough Ten Year Plan describes an interagency strategy to address the City’s affordable housing crisis. The plan outlines over 50 initiatives to support our goal of building or preserving 200,000 units of high-quality affordable housing, broken down into four categories:
Foster thriving and inclusive neighborhoods
Improve and preserve the affordability and quality of our existing housing stock
Build unprecedented numbers of new affordable homes
Better serve the homeless and those most in need of support 22

23. Housing Plan: By The Numbers
200,000 units over 10 years
90% Rental / 10% Homeownership
AMI %
81-120%
51-80%
31-50%
<30% 23

24. HDC Programs Extremely Low & Low-Income Affordability (ELLA) Program
formerly Low-Income Affordable Marketplace Program (LAMP)
Preservation Program
formerly LAMP Preservation Program
Mixed Income Program
(50/30/20)
80% of the units are affordable to households earning less than or equal to 60 % of the Area Median Income (AMI) with additional required tiers of deeper affordability at 30% of AMI, 40% of AMI and 50% of AMI
As of right 4% Federal Low Income Housing Tax Credits
HDC Subordinate loans of up to $65,000 per unit
Finances the acquisition or moderate rehabilitation of multi-family rental housing affordable to low-income households
100% of the units are affordable to households earning less than or equal to 60% of AMI
In most cases, HDC does not provide a Subordinate Loan for these projects
50% of units at market rents; 30% of the units are affordable to households earning between 80% of AMI and 165% of AMI; 20% of units are affordable to households earning less than or equal to 60 % of AMI
As of right 4% Federal Low Income Housing Tax Credits on low income units
HDC Subordinate loans of $65,000- $85,000 per low and middle income unit 24

25. Mixed-Middle (M2) Program Mitchell-Lama Programs
HDC Programs (Cont’d)
Mixed-Middle (M2) Program
Mix and Match Program
Mitchell-Lama Programs
50% of the units are affordable to households earning between 130% of AMI and 165% of AMI; 30% of the units are affordable to households earning between 80% of AMI and 100% of AMI; 20% of the units are affordable to households earning less than or equal to 50 % of AMI
As of right 4% Federal Low Income Housing Tax Credits on low income units
HDC Subordinate loans of $85,000- $95,000 per unit
50% of the units are affordable to households earning less than or equal to 165% of AMI; 50% of the units are affordable to households earning less than or equal to 60% of AMI
HDC Subordinate loans of $40,000 to $105,000 per unit depending on the targeted level of affordability
Multi-family rental or cooperative housing affordable to middle income households
Senior debt restructured at lower rate.
Low interest repair loans available to address capital needs.
Extended affordability and commitment to stay in the Mitchell-Lama program 25

26. HDC Will Continue To Play A Critical Role Under The New Housing Plan
Mayor de Blasio rolled out the City’s new housing plan, Housing New York, on May 5th, 2014, which commits to create and preserve 200,000 affordable housing units over 10 years.
Under Housing New York, the City has financed the creation and preservation of 43,515 affordable units across the five boroughs.*
Since 2003, HDC has financed 124,000 units under prior administration’s housing plan and used over $13.7 billion in bonds.
HDC, in working with other City housing and community development agencies, was involved in shaping the policy and strategies in Mayor de Blasio’s new housing plan. HDC will continue to provide efficient and innovative financing tools to help implement the plan and achieve the 200,000-unit goal.
Plan calls for HDC to issue approximately $11 billion of bonds over ten years
Since 2012, HDC issued an average of $1.58 billion of bonds per calendar year.**
HDC will continue to use taxable issuances as well as tax-exempt (new volume cap and recycled) bonds to finance affordable housing in the City.
Plan calls for HDC to contribute $1.14 billion in subsidy loans and securitization proceeds
Since 2003, HDC has provided over $1.9 billion in subsidy loans to projects.***
In May 2014, HDC worked with the City to re-leverage certain securitized assets and generated approximately $160 million for the City’s affordable housing objectives.
HDC also expects a new securitization with the City in 2017 to generate approximately $125 million to fund affordable housing.
In addition, HDC will continue re-leverage its assets through loan securitizations and bond refundings to generate funds for affordable housing.
*As of  3/31/16.
**Includes publicly offered and direct placement deals as of 12/31/15
***As of 4/30/16. 26

27. Bonds can be a tool for Economic Development with Housing
Many of HDC financed projects have a significant non-residential purposes appurtenant to the housing but that amount usually is limited to less than 20% of the space, cost and rental income
Retail: including grocery stores, drugstores and convenience stores
Community facilities: medical, day care, educational facilities
Dining
Over 2,000,000 square feet of commercial and community space created in last ten years.
In certain instances
Particular focus on community needs and creating employment opportunities for community residents.
Sec. 42 excludes non-residential space designed for the general public from eligible basis. The one exception to this rule is for what are known as Community Service Facilities; these facilities must meet several criteria, including being in a QCT

28. Recycled Bonds Background
Recycled Bonds recognize the value of preserving volume cap for affordable housing by re-using bond authority that used to be burned off in traditional tax credit transactions and is similar to recycling authority for single family housing revenue bonds.
Enacted into Federal Law under the Housing and Economic Recovery Act of 2008 (Section 3007).
HDC has recycled approximately $900 million in bonds and financed 65 projects with over 20,000 units.

29. Competition for Volume Cap
New York State gets an allocation of approximately $2 Billion in bonds that can be used for private activities.
The State then allocates 1/3 of the cap to state issuers, 1/3 to local issuers and 1/3 is held in reserve.
New York City gets a share of the local amount equal to its percentage of the state’s population. Overall this allocation is around 14% of the total allocation ($283 million in 2016).
Additional allocations are made to NYCHDC pursuant to specific requests but the demand for bonds exceeds the amount available
HDC manages its pipeline in conjunction with the City to best use volume cap for affordable housing
NYS HFA is also an active issuer of bonds for affordable housing throughout the State.
Currently there is a lot of competition for volume cap, the process can be complex and HDC has sought alternative finance vehicles

30. The Bradford - Example
The
Bradford
The Bradford is in Stuyvesant Heights, Brooklyn.
It has105 units of very low- and moderate-income housing, 20% of the units areaffordable to households at 30% AMI , 30% target those at 125% AMI and half are affordable at 130% AMI.
The nine-story building has a varied façade of red brick, masonry, and expansive windows.
Picture of construction of the Bradford in Brooklyn 30

31. Benefits of Recycled Bonds
In states where there is a scarcity of volume cap recycling creates additional financing capacity.
Allows Issuers to prioritize their use of new money volume cap allocated for multifamily housing to be used on projects which need “as of right” LIHTC, maximizing public benefits.
Recycling is a tool to encourage more affordability in mixed income projects. Such projects need to satisfy the normal tax exempt bond rules of affordability in order to qualify for the tax exempt financing.
Permits more efficient use of volume cap for 80/20 financings with a portion of the bonds that are in excess of the 50% requirement (for LIHTC) utilize recycled cap.
Permits more efficient use of volume cap and leveraging private financing through use of “bifurcated” condominiums structure.

32. The Bradford - Example
The Bradford include below-grade parking and 9,700 square feet of ground-level commercial space.
The Bradford is the first HDC project to be funded partially with New Market Tax Credits generated by the commercial and part of the residential portion of the project.
Goldman Sachs provided the new markets equity and the construction loan. rd
Rendering of the Bradford,
Recycled Bonds: $20.7 Million
1% Subsidy Loan: $6.8 Million 32

33. Recycled Bonds as Preservation Tool: Tivoli Towers
Tivoli Towers is a 320 unit rental tower in the Crown Heights section of Brooklyn.
Originally built in 1975; Tivoli has a Section 236 contract.
Decoupling the contract led to rents (with most tenants getting enhanced vouchers) that are higher than would be normally eligible for tax exempt bonds.
Underwriting to the decoupled rents allowed for more bond proceeds than would have happened in a tax credit deal.
Significant rehab funds provided under recycled loan.
Tivoli Towers
Recycled Bonds: $37.2 Million
Funds for Rehab: $16 Million
Restructured 2nd Loan: $6 Million

34. Bifurcated Structures
Creatively using condominium structure as a tool for mixed income financings where only the low income units are financed with private activity bonds and LIHTC.
Mixed income developers have the following priorities:
Qualify for tax abatements (in NY §421(a) Real Property Tax)
Finance qualifying units with LIHTC
Lower financing costs by utilizing tax-exempt bond financing
In a Bifurcated Deal:
All units targeting low-income tenants are owned in a single condominium unit by a single purpose entity and financed using Tax-Exempt Bonds
All other units (e.g., market-rate, commercial) are owned in a separate condominium unit or units by a different entity. These are financed using Taxable Bonds or traditional bank loans.

35. Bifurcated Structures (Cont’d)
By financing only the low income units instead of all units with tax-exempt bonds, the amount of volume cap needed to meet the 50% test is greatly reduced.
There is no need for deep rent skewing and annual income certification since all of the units in the tax-exempt financed condo are low income and satisfy the LIHTC requirements.
Under federal law, only the low income condo is considered a low income building and the market component is irrelevant, but for New York law, the development is considered to be one unified building and will qualify for the §421(a) real property tax abatement.

36. Bifurcated Structures (Cont’d)
The bifurcated structure allows the developer to sell the credits for the low income units without allocating the tax credit investor the income from the market rate units.
Tax credit investors may prefer this structure because:
They are able to acquire the credits and the losses generated by the low income units
Once construction is completed and the low income units are placed in service, the tax-exempt debt is retired with the proceeds of the tax credits. There is no permanent tax-exempt debt outstanding for the low income units.
Compliance is easier on an all low-income development.

37. Use of Recycled Bonds at
St. Ann’s Terrace
St. Ann’s Terrace is the nation’s first moderate-income housing complex to use recycled bonds.
Developed on a 3.5-acre site formerly zoned for industrial use in the Melrose neighborhood of the South Bronx.
St. Ann’s Terrace is a mixed-use development with more than 600 residential units, 45,000-square-feet of ground floor commercial space and underground parking.
The moderate income component financed with recycled bonds includes 166 units and commercial space.
St. Ann’s Terrace Fully Constructed.
St. Ann’s Terrace has converted to perm.
Recycled Bond: $25.8 million
1% Subsidy Loan: $14.1 million

38. Downtown Manhattan Pre-9/11 Context
Original NYC settlement (highest density of historically significant buildings in NY)
Third largest CBD (after NYC midtown and Chicago)
About 25,000 residents (south of Chambers Street) and then the fastest growing neighborhood in NYC
Process begun to convert older office buildings into residential use encouraged with the use of real estate tax subsidies
Battery Park City (focus of new residential construction and mixed use development)
New land built on landfill from the original WTC construction
Home to 10,000 people 38

39. Liberty Bonds
Enacted by Congress as the Job Creation and Worker Assistance Act of 2002
Purpose is to finance the reconstruction of commercial and residential property in NYC (primarily lower Manhattan)
Maximum of $1.6 Billion for residential (exclusively downtown)
$6.4 Billion for commercial (no more than $2 Billion to be expended outside downtown)
Allocation split between NYS and NYC
At least half of the project cost must be spent on rehab in acquisition transactions
Originally had to be used by the end of 2004 (since then extended through 2009) 39

40. Map of Liberty Bond-Financed Residential Sites

41. 63 Wall Street, The Crest Date Financed: July 5, 2005
HDC Investment: $143.8 million
Units: 476

42. 2 Gold Street Date Financed: September 2003
HDC Financing: $217 million
Units: 650

43. 8 Spruce Street Date Financed: July 5, 2008
HDC Investment: $650 million
Units: 905
Last Liberty bond Rental Tower built
Designed by Frank Gehry
Tallest rental housing building in NYC (76 stories) when constructed
Five-story public elementary school built at the base

44. Ocean Village – Pre and Post Sandy
Ocean Village, an 11-building Mitchell-Lama rental property in the Rockaways, closed on the first phase of a construction financing on November 16, 2012.
Part of a multi-tranche financing to restructure this financially and physically distressed property that benefits from a Section 236 IRP contract
The property sustained significant flooding and related damage during super storm Sandy, but most of the affected areas were included in the anticipated construction scope. It is anticipated that insurance will cover the cost of replacing electrical transformers. 44

45. Ocean Village – Today and Tomorrow
Renderings of Ocean Village
Construction is currently under way. Upon completion, buildings will receive new roofs, extensive facade repair and waterproofing, mold remediation, interior renovations to units/common areas, and major upgrades to the building systems. 45

46. Questions & Answers Please visit our website: www.nychdc.com Contact:
Richard Froehlich
Chief Operating Officer,
EVP for Capital Markets, and
General Counsel Phone: (212) 46