2. CURRENT DEVELOPMENTS IN RURAL HOUSING PRESERVATION

3. The Rural Housing Service and Rural Development are, together, the successor to the Farmers Home Administration: Financed approximately 16,500 Section 514 and 515 apartment complexes with some 460,000 units. 28 unit average project size Most of these properties were developed nearly 30 years ago. Portfolio

4. Residents Portfolio wide occupancy of 95% or better $10,200 annual average income 59% elderly 30% minority 24% handicapped

5. Unique Restrictions – RD-Specific Structures – 515 and 514 are Direct Loans – 514 is farm worker restricted, unless a waiver is obtained – Rental Assistance or Section 8 or No Rent Subsidy Portfolio

6. – The Emergency Low Income Housing Preservation Act of 1987 (ELIHPA). – Even if your documents say you can prepay; ELIHPA says you cant - - not without asking. – ELIHPA sparked lawsuits, including Franconia, resulting in damages payments to owners ELIHPA

7. Handbook – HB-3-3560 – Chapter 15 – Apply to prepay – Must be complete – but completeness can vary by office – Must demonstrate ability to prepay with loan commitment or assets You can receive incentives – equity take-out loan – From RD – 1% interest rate but little money and long wait – Obtain yourself – must locate and educate lenders ELIHPA

8. You may be able to prepay with a life -estate use restrictions for current residents – If housing determined to be unnecessary – If no adverse impact on minority persons And/Or you can offer for sale to a non-profit, at appraised value – Must offer for 6 months – If non profit makes offer, have up to 24 months to close – If neither happens, can prepay

9. 515 mortgage subordination and tax credit re-syndication to reposition properties. 9% LIHTC are possible with strict adherence to old and cold Bond transactions combining multiple sites have been closed repeatedly Preservation Tools

10. We have seen a number of non-Preservation preservations, sometimes called 4010s. Use transfer process. USDA transfer Handbook, HB-3-3560, Chapter 7 Revision underway to conform to transfer bill, H.R. 3873 – Will be single comprehensive application – Will be timeframe for RD review 1 property – 45 days 2-10 properties – 90 days 11 or more properties – 120 days Will have guidance on tiered rents for LIHTC properties Approval requirements will be clarified New 30 year RUP required CRCU rents will probably continue to be the standard Equity can be paid by non-RD sources or from RD sources with appraisal 20 year CNA H.R. 4002 Under Consideration Preservation Tools

11. Vouchers True Preservation –Legislation In the Works – H.R. 4002 In The Meantime – We Have Tools – Rural Vouchers – The 2008 voucher NOFA came out March 24 th – These are rural vouchers used for residents on properties able to navigate ELIHPA prepayment and prepay. – Rent will be based on comparable market rent for the unit the resident occupies and the amount does not increase.

12. MPR – Multifamily Housing Preservation Demo Program – The Rural Housing Service recently issued its 2008 Notice of Funding Availability (NOFA) for the Section 515, 514 and 516 Multifamily Housing Revitalization Demonstration program (MPR). – The main feature continues to be the opportunity to defer current 515/514 debt for 20 years, with small grants amounts available to non profits, and no-interest or soft-second loan to selected applicants. – The MPR this year provides for a further return on investment for additional equity advanced to cover immediate hard cost construction needs. – The MPR recognizes the possibility of third party lenders, and RD will subordinate its debt, but not its use restrictions. – The MPR this year provides a 30 percent on income tenant rent limit on completed transactions. – It also allows applicants to use a community market rent, where the owner can essentially increase rents to market so long as incoming tenants can pay that rent based on 30 percent of income. Preservation Tools - MPR

13. 538 Loan Guarantees – Up to 90% guarantee – Interest credit (interest rate buy down) up to $1.5 million for up to 20% of loans – 2.5% of amortized balance – New construction and acquisition with rehabilitation of at least $6,500/unit – For all hard costs and soft costs- professional services, bond fees, developers fees, land acquisition and development, financing costs – Rural areas with a population up to 20,000 – 90% LTV or less of loans made to for-profit entities – 97% LTV or less of loans made to non-profit entities – 25 year minimum, 40 year maximum – 25 year minimum for balloon with 40 year amortization – 1.15% DSCR usually – Initial occupancy cannot exceed 115% of area median income. After initial occupancy, a tenants income may exceed these limits. – Rent (including tenant-paid utilities) for any unit at initial occupancy cannot exceed 30% of 115% of area median income, adjusted for family size – Average rent (including tenant-paid utilities) for all units in a project cannot exceed 30% of 100% or area median income, adjusted for family size 538

14. Why are These Things Happening? In 2003, CARH issued its Aging Section 515 Rural Housing Portfolio report calling for a more rational process at USDA and a focus on preservation. In 2004, the congressionally mandated, USDA Comprehensive Property Assessment (CPA), recommended ending the ELIHPA prepayment prohibition, funding a tenant-based voucher-style subsidy for prepaid properties, and a mortgage restructuring process similar to HUDs mark-to-market process. Effective in 2005, RHS issued new regulations and handbooks, on an interim basis, the 3560, reformatting a number of procedures and streamlining regulations. For the past several year USDA Appropriations Acts have included some small demonstration-type programs. For example, the Agriculture Appropriations Act for 2006 provided for the MPR and a small rural housing voucher program, which has carried over into FY 2007, and continued in FY 2008

15. How Can You Get More Involved? Look at USDA/RHS/RD/old FmHA deals and portfolios with common GPs. Probably we cant preserve the vast majority without new legislation and new funding. RD is more interested in allowing some to prepay and others to leave in non-program sales. But there are likely a couple thousand properties that can and should be preserved with existing tools.

16. Richard Michael Price Nixon Peabody LLP 401 Ninth Street Suite 900 Washington, DC 20004 Telephone: (202) 585-8716 Facsimile: (202) 585-8080 E-Mail: rprice@nixonpeabody.com