1. Pendergraph Development, LLC HUD MAP Tune-Up II Workshop September 19-20, 2007

3. Frankie W. Pendergraph Frankie W. Pendergraph 28+ Years in the Housing Industry 28+ Years in the Housing Industry Owner of The Pendergraph Companies Owner of The Pendergraph Companies Development, Construction, Management and Consulting Development, Construction, Management and Consulting Headquartered in Raleigh Headquartered in Raleigh

4. Benefits of HUD 221(d)(4) Construction-to-Permanent Financing Construction-to-Permanent Financing Great Interest Rate Great Interest Rate Up to 40 year amortization Up to 40 year amortization 1.11 debt service coverage ratio 1.11 debt service coverage ratio Non-recourse debt Non-recourse debt Credit enhancement for bond transactions Credit enhancement for bond transactions

5. Potential Pitfalls of HUD 221(d)(4) Entails a higher level of knowledge and experience Entails a higher level of knowledge and experience Can be more time consuming – may need to have HUD commitment in hand prior to submission of tax credit application Can be more time consuming – may need to have HUD commitment in hand prior to submission of tax credit application Number lumping – good versus bad costs differ for each program Number lumping – good versus bad costs differ for each program Interest Expense – automatic conversion Interest Expense – automatic conversion 2530 (non) issue 2530 (non) issue Government Regulations – may be less flexible if unexpected issues arise Government Regulations – may be less flexible if unexpected issues arise

6. Tax Credits and 221(d)(4) Brief explanation of tax credits Brief explanation of tax credits 221(d)(4) is consistent with Housing Credit Agency and Investor desires: (i) long term loan, (ii) favorable interest rate, and (iii) non-recourse. 221(d)(4) is consistent with Housing Credit Agency and Investor desires: (i) long term loan, (ii) favorable interest rate, and (iii) non-recourse. Subordinate debt is allowed with HUD consent – usually must be soft debt. This is likely not an issue in the tax credit arena where subordinate debt is often very soft anyway. Subordinate debt is allowed with HUD consent – usually must be soft debt. This is likely not an issue in the tax credit arena where subordinate debt is often very soft anyway.

7. Tax Exempt Bonds and 221(d)(4) Brief explanation of Tax Exempt Bonds Brief explanation of Tax Exempt Bonds Very complex, many players, lots of moving parts Very complex, many players, lots of moving parts Costly – usually need $10 Million in bond debt to justify bond issuance costs – around 5-7% of bonds issued Costly – usually need $10 Million in bond debt to justify bond issuance costs – around 5-7% of bonds issued Credit Enhancement – Types: HUD, Fannie Mae, RD 538 and Letter of Credit Credit Enhancement – Types: HUD, Fannie Mae, RD 538 and Letter of Credit Public Offering versus Private Placement Public Offering versus Private Placement

8. USDA Rural Development and 221(d)(4) Brief explanation of RD programs Brief explanation of RD programs Not often utilized with HUD Financing – because RD itself is a funding source. Sometimes HUD RA is used with RD Financing Not often utilized with HUD Financing – because RD itself is a funding source. Sometimes HUD RA is used with RD Financing Why use HUD and RD together? If the transaction also utilizes bonds, credit enhancement is needed. Why use HUD and RD together? If the transaction also utilizes bonds, credit enhancement is needed.

9. HUD & RD: Potential Issues Multiple Government Agencies, many regulations Multiple Government Agencies, many regulations Subordination Rules and Requirements Subordination Rules and Requirements Reserve Accounts – supervision Reserve Accounts – supervision Amount of Rehabilitation – varies Amount of Rehabilitation – varies Surplus Cash vs RD Return to Owner vs Cash Flow Surplus Cash vs RD Return to Owner vs Cash Flow Good versus Bad Costs (pots of money for HUD, RD, Bonds, Tax Credits – a multidimensional puzzle) … but doable. Good versus Bad Costs (pots of money for HUD, RD, Bonds, Tax Credits – a multidimensional puzzle) … but doable.

10. Other Issues Every State is different Every State is different Each State has its own Housing Credit Agency Each State has its own Housing Credit Agency Each State has its own Qualified Allocation Plan addressing tax credits and tax exempt bonds Each State has its own Qualified Allocation Plan addressing tax credits and tax exempt bonds Each RD office operates a little differently Each RD office operates a little differently Each HUD office operates a little differently Each HUD office operates a little differently Early and open communication is essential! Early and open communication is essential!

11. Thank You. For Questions or Consulting Services contact: Frankie W. Pendergraph The Pendergraph Companies, LLC 3924 Browning Place Raleigh, NC 27609 (919) 755-0558