1. Public HAND Educational Presentation January 15, 2015 Edmund K. Delany Senior Vice President Community Finance Low Income Housing Tax Credits, Tax Exempt Bonds, and Partnership Agreements Workshop

2. 2 Public Partnership Agreements and Tax Projections Tax Projections 1. Sources & Uses Eligible Basis Tax Credit Calculation Land/Building Value 50% Test Cash Developer Fee 2. Capital Accounts

3. 3 Public Eligible Basis The goal is to identify the tax credit eligible costs, determine the annual credit amount and calculate the total equity. Most project costs are eligible, however there are a few exceptions: –Parking –Commercial Space –Community Facility Space –Permanent Financing Costs (including some bond fees) –Reserves –Land

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7. 7 Land Value Land costs are not basis eligible New Construction Issues –Is the purchase price for the land less than the market value? If yes, then the partnership may have taxable income (the difference between the market value and the purchase price) which would reduce yield. Acquisition/Rehab Issues –Land / Building split – The purchase price needs to be allocated between land and building. The portion of the purchase price allocated to land is not eligible for tax credits. Appraiser needs to provide an as-is value for the land on all deals. –Is the purchase price for the property less than the market value? Same issue as new construction.

8. 8 Public 50% Test In order to qualify for 4% tax credits, 50% of the aggregate basis plus land must be financed with tax-exempt bonds. Formula = Short-Term Bonds / (Depreciable Basis* + Land**) –*Depreciable Basis includes some costs that are excluded from Eligible Basis. –**Land value should be the as-is market value and may be different than what the partnership is actually paying for the land. Timing – the 50% Test must be satisfied either: –Before the building is placed in service; or –Prior to the end of the first year of the credit period. Satisfaction of the 50% Test is a Capital Contribution requirement (usually at Completion or Conversion)

9. 9 Public Cash Developer Fee The “Cash Fee” is the portion of the Developer Fee paid from Capital Contributions while the Deferred Developer Fee is paid over time from cash flow after debt service. For example: –Total Developer Fee of $3,000,000 (“Use”) –Deferred Fee of $1,000,000 (“Source”) –Cash Fee of $2,000,000 The amount of the “Cash Fee” will be recalculated if there are cost overruns or cost savings. For example, assume we have a Cash Fee of $2,000,000 at initial closing –Assume cost overruns of $500,000 Deferred Developer Fee is increased by $500,000 to offset the cost overrun and the Cash Fee is reduced by a like amount to $1,500,000.

10. 10 Public Partnership Agreements and Tax Projections Limited Partnership Agreement (LPA) 1. Definitions 2. Capital Contributions 3. Adjusters 4. Guarantees 5. Developer Fees 6. Repurchase & Removal Provisions 7. Cash flow & Residual

11. 11 Public Definitions Breakeven Test

12. 12 Public Reps & Warranties and Covenants 1. Change Order Thresholds 2. Prevailing Wage Reps 3. No Permanent Loans have ongoing DSC & LTV Provisions 4. Maintain Insurance Coverage 5. Projected Credit Delivery 6. Develop in Accordance with the Tax Credit Application

13. 13 Public Duties and Obligations 1. Responsible for any Penalties/Fines 2. Notify us of any Construction Work Stoppage 3. Pay Taxes and Utilities 4. Maintain the Security Plan 5. Comply with ADA Provisions 6. Maintain Books and Records

14. 14 Public Capital Contributions

15. 15 Public Adjuster Provisions TIMING –Downward Typically 50% - 65% Penalty Rarely IRR Based –Upward Typically 30% - 65% Bonus VOLUME  Downward (at Cost Cert & 8609s) Maintain Original Price  Upward (8609s) At Original Tax Credit Price

16. 16 Public GUARANTEES

17. 17 Public Operating Deficit Guarantee & Reserves Operating Deficit Guarantee (ODG)  Obligation Limited to (ODG Limit) – 12 Months of Operating Expenses  Duration (“Time” Limit) –  3 Consecutive Years of “Syndicator Breakeven”  3 Consecutive Years of 1.15 DSC as per Audit  3 rd or 5 th Anniversary of Breakeven with 12 Month Look Back for 1.15 DSC Operating Reserves  6 months of Operating Expenses and Debt Service (with some exceptions)  How can it be used? Negotiable. Investors Prefer a “Guarantee First” Policy  First under ODG up to 50% of the ODG Limit, then equally Split between Guarantee and Reserves  50% / 100% Access to Reserve Allowed Prior to ODG Expiration with Obligation to Replenish to get off the ODG

18. 18 Public Repurchase Events - Deadlines 1. Placed in Service 2. Final Closing 3. 8609s & 50% Test 4. 100% Qualified Occupancy 5. Casualty Loss Prior to Last Capital Contribution 6. Default Prior to Last Capital Contribution REPURCHASE PRICE = CAPITAL + INTEREST + TAXES Removal Events 1. Violate Material Provisions of the Project Documents 2. Loan or LPA Default (after applicable cure periods) 3. Credit Amount drops below 75% of Originally Projected Amount 4. Felony Conviction / Fraud / Bankruptcy 5. Failure to make Payments under Master Lease 6. Failure to Maintain Tax Exemption

19. 19 Public Right of First Refusal (ROFR) 1. Available only to Non- Profits 2. 12 - 24 months after end of Compliance Period 3. ROFR Price = Debt + Exit Taxes of Investor (if any) 4. Un-enforceable if GP in Default or is Removed 5. Housing Authority Exception Option 1. 12 - 24 months after end of Compliance Period 2. Option Price = FMV + Taxes + Amounts owed to LP, if any 3. Un-enforceable if GP in Default or is Removed 4. Housing Authority Exception