1. Market for Property Disposition at Year 15 and Earlier Katherine Alitz Boston Capital Asset Management IPEDBoston October 11 – 12, 2007

2. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 The perceived value of the property will dictate the disposition strategy Third party sale Resyndication Transfer for multiple of management fees or future cash flow

3. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Industry trends demonstrate that almost all LIHTC properties sold remain affordable, so: Property operations and location are the major determinants of property value Property may have value outside the traditional measures of value (i.e. option to resyndicate)

4. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Existing and future restrictions sometimes may affect property value The ability to exercise a Qualified Contract Extended restrictions with continued rent restrictions below 60% AMI Some restrictions terminate or can be terminated while others remain in place (i.e. Florida SAIL Loan LURA)

5. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Steps to determining value: Gather all relevant information Review and analyze information Prepare value analysis using income approach Prepare resyndication model

6. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Relevant Information: Audit(s) 8609 Form(s) Partnership agreement Disposition agreements, if any Use restrictions Current loan documents

7. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Analyze relevant information: LIHTC Compliance Expiration date Current rent levels Potential post-Compliance rent levels Historic occupancy Notice periods or other information related to previous disposition agreements Prepayment penalties or yield maintenance provisions

8. Market for Property Disposition at Year 15 and Earlier Determining Value at Year 15 Estimate value using income approach: Determine current annual income Estimate annual income at prevailing market rents Determine NOI by reducing current annual income and estimated annual income by average of last two years of operating expenses Capitalize NOI

9. Market for Property Disposition at Year 15 and Earlier Analysis at Current Rents Annual Income: 800,000 Average Expenses: 600,000 NOI 200,000 Cap Rate: 9% Value: 2,222,222 Analysis at Market Rents Annual Income: 950,000 Average Expenses: 600,000 NOI 350,000 Cap Rate: 9% Value: 3,888,889 Difference in Value is approximately $1,700,000

10. Market for Property Disposition at Year 15 and Earlier Income approach allows us to define value parameters: We now have an estimate of current value at the existing use as affordable housing What prevents the property from achieving market rents and thus commanding a higher value –Continued affordability restrictions –Physical upgrades and replacements necessary to compete in the market

11. Market for Property Disposition at Year 15 and Earlier A few comments about this type of analysis: The analysis is just an estimate to use for planning purposes You may never choose the right cap rate, but you can usually identify a range or use an average You should always consider the highest and best use for the property, but if it is a use other than rental housing, it usually jumps out

12. Market for Property Disposition at Year 15 and Earlier A resyndication analysis allows you to analyze potential cash proceeds generated by a resyndication of a property for LIHTC after Year 15 Resyndication analyses include the following assumptions: Rehabilitation costs Subsequent funding, if any Pricing

13. Market for Property Disposition at Year 15 and Earlier Sources First Mortgage 3,000,000 Second Mortgage 600,000 LIHTC Equity 800,000 Deferred Developer Fee 50,000 Total Sources: 4,450,000 Uses Mortgage Assumption 3,000,000 Rehab Expenses: 1,000,000 Developer Fee 250,000 Total Uses: 4,250,000 Sources - Uses: 200,000

14. Market for Property Disposition at Year 15 and Earlier Resyndication analysis allows us to recognize value outside of income approach: When a property has no market value, value can be created by sharing available proceeds with a new developer The value in these cases is the value of the option to resyndicate the property

15. Market for Property Disposition at Year 15 and Earlier A few comments about this type of analysis: The resyndication analysis is only as good as the sum of its assumptions We use the analysis to identify properties that have resyndication potential These properties tend to demonstrate limited value in the traditional sense

16. Market for Property Disposition at Year 15 and Earlier The analyses described above help formulate the disposition plan for a property Third Party Sales Properties that have value as indicated through the income approach to valuation Properties in this group may also be good resyndication candidates, but we prefer to let the market determine the ultimate disposition of the property Properties in this group may be transferred to an existing partner in a related party sale, but the price paid will be determined as if there were a third party arms length transaction

17. Market for Property Disposition at Year 15 and Earlier Resyndications Properties that have little value as indicated through the income approach but might generate cash proceeds as a resyndication. Transfers Properties that are not candidates for either a third party sale or a resyndication. Management fees have some value as does any limited cash flow a property may produce. You can apply a multiplier to, or capitalize, these fees and cash flow

18. Qualified Contract Analysis