Financing Housing with New Markets Tax Credits February 21, 2008

Financing Housing with New Markets Tax Credits

February 21, 2008

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Since 1982 Enterprise has invested more than $8 billion in communities, which has produced more than 215,000 affordable homes

Enterprise works with a national base of partners -- developers, investors, community groups, government, and CDCs to reach our common goal: provide decent housing and rebuild communities

Enterprise invests at a rate of $1 billion a year in housing and community enrichment facilities


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How can NMTCs be used for housing?

Mixed use developments (with residential rental)

For-sale housing

Business loans


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Types of Properties Which Can Use NMTC

Commercial, non-residential, or mixed-use (office/retail/hotel and residential) property– Mixed-use developments must have at least 20% of gross

income generated by commercial component For sale product Cannot use NMTC for:

Residential rental property (buildings which derive 80% or more of income from residential rental dwellings do not qualify)

Under IRS Regulations, NMTC-enhanced financing cannot be combined with Section 42 (LIHTC) financing.

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Business Lending Can be used to provide working capital to real-estate related entities

Provides pre-development and acquisition financing for real estate developers who develop housing

Investment product must be flexible – Line of credit or other mechanism to allow for reinvestment

(typical pre-development loan would have a shorter term) Developer entity must be a qualified business (QALICB)

– Limitations on total non-qualified financial property and locations of owned property

Mitigating factors NMTC allows flexibility for reinvestment NMTC allows flexibility for QALICB as long as they meet the tests

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Impact of Business Lending financed by NMTC Allows developers to use less expensive

capital to fund operations of their Qualified Business

Lower capital costs can lead to lower prices to ultimate consumers

Provides jobs, goods & services to residents of low income areas

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Example of NMTC used for Business Lending to allow a not-for-profit housing organization to expand its program

NMTC Allocation - $9.5 Million Net Interest Rate - approximately 2% Term – 7 year business loan Total development costs approximate

$90 million, resulting in the recycling of the $9.5 million more than 9X

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Developer: Columbus Housing Partnership (“CHP”) Project Type: For Sale Housing Project Description: Phased construction or rehab of up to

700 single family homes over a 7-year period; homes are targeted to buyers 65% - 80% of AMI

Total Development Costs: Approximately $90 million Expands CHP’s homeownership program and allows CHP to

reach size, scale & sustainability Catalytic project and central to Columbus’s Home Again

Program

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Total QEI of $9,500,000 Business loan of $9,500,000 CHP borrower qualified as a QALICB; involved the borrower

relocating its location to a qualified census tract Home sites at various locations throughout Columbus; the

majority verified as qualified low-income communities Requires significant commitment and support from local

government:• Effort is consistent with City’s Home Again program

• Critical that CHP acquires properties at or below FMV• Subsidies of approximately $20 million include

infrastructure reimbursement and gap financing

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Sources of NMTC QEI: $ RateUT Fund Lenders:

World Financial $1,500,000 2%

The Affordable Housing Trust for Columbus and Franklin County $1,000,000 3.5%

Nationwide Mutual Insurance $2,000,000Below

market

Huntington Community Development Corporation $2,000,000

Below market

UT Fund Investors:

Nationwide Mutual Insurance $1,500,000Huntington Community Development Corporation $1,500,000

Total $9,500,000

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Qualifying QALICB – required borrower to re-locate to a highly distressed qualified census tract and a review of assets (current & potential) to ensure continued QALICB status

Significant local government commitment – in support and $$ Tailored Lender requirements -

– Limitations on Inventory - draw of funds limited at certain inventory levels to prevent financing proceeds from being “stalled” in finished inventory

– Prohibition of unentitled land beyond a certain level and an imposed time limit

– Affordable housing requirements pushed down to borrower level Detailed analysis of project and developer results of operations was

required

Significant Issues

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Subsidy to ultimate homebuyers Need for other subsidies Addressing REO/Scattered Sites (Foreclosures!!) Local/Regional Investors involved Addressing Workforce Housing Committed sponsor City involvement Innovative use of NMTC Program

Important Points

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“So where do I begin?” Figure out if your project is in a qualifying

tract/community or qualify your business as a QALICB

Develop a pro-forma that assumes NMTC financing

Begin conversations with “investors”

Begin conversations with “CDE’s”– CDE’s are required to use their allocation in a

manner that is consistent with their NMTC Application.

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“What ought to be can be with the will to make it so.”

James W. Rouse, Co-Founder, Enterprise


Documents

Financing Housing with New Markets Tax Credits February 21, 2008