Overcoming Developer Challenges and Success Stories MODERATOR PANELISTS

Renee Beaver Novogradac & Company LLP

Neala Martin CREA LLC

Harrison Rayford Lemor Development Group

Joshua Greenblatt Vesta Corporation

JOSHUA GREENBLATT Vesta Corporation

Vesta Corporation

• 36 year as fully integrated Affordable Housing Company – Developer – Owner – Manager

• Connecticut Based – Currently Operates in Four States (CT, NJ, OH, TX) plus District of Columbia

• Current Portfolio – greater than 7,100 units • Co-Founder Retired at end of 2016

• Villa Serena, Inc. • Formed in 1963 • $3 million HUD 202 Loan • Constructed 242 unit high rise for low income

seniors • Loan was set to mature in May 2015

Villa Serena Apartments

Vesta Partnered with One of the Original Non Profit Owners

• Villa Serena Affordable Housing L.P. • Vesta assisted the owner to put together a plan to preserve this affordable

housing resource • In 2013, applied for and received one of twelve HUD Senior Preservation Rental

Assistance Contract (SPRAC) awards nationally • Program specifically targeting expiring 202s • Provides $2 MM, 20 year rental subsidy

• Received a 2014 9% LIHTC award from the State of Ohio • Closed on Construction Financing in Q1 2015 & Commenced Rehab

• Prepayment of 202 • New, FHA 221 (d)(4)

• Construction was completed in mid-2016

Sources and Uses Source

FHA-Insured First Mortgage $9,680,000

St. Francis Foundation Note 875,000

LIHTC Equity 9,720,615

Construction Period NOI 772,789

Deferred Developer Fee 0

Total $20,998,404

Uses

Acquisition Costs $5,884,962

Predevelopment Costs 573,444

Hard Construction 10,010,378

Interim / Financing Costs 1,157,192

Professional Fees 454,201

Compliance Costs 275,600

Reserves 964,880

Developer Fee 1,677,747

Total $20,998,404

Before and After Photos

HARRISON RAYFORD Lemor Development Group

Lemor Development Group

• 30 year history of multifamily ownership in NYC • Upper Manhattan-Based • Approximately 1,000 units under ownership • Approximately 1,000 units under development in the next 12 - 24 months • Achieve growth through acquisitions and new construction opportunities.

Developing in NYC

• High Barrier to Entry – Close quicker – Less Contingencies – Sellers aren’t as apt to take a chance on a newbie

• Amphibious Developers – Competitive Market – Market Rate – Affordable

• Access to Institutional Equity • Restrictions – Affordabilty and Tax abatements

Example Project West 133rd/West 134th Street

New York, NY

• 71 units – All Low-Income – Many Formerly Homeless – AMIs range from 40 % - 60%

• Acquired through a Year 15 LP exit

• 50/50 ownership with not-for-profit GP – NFP partner provides social services to

tenants of the project

Project Needs • Completed in YR15 process

– Windows - Weatherization – Boilers – Energy-Efficient Lighting

• To Be Completed – Elevators – Roof

• Solar Panels

– Kitchens & Bathrooms • Low Flow Fixtures • Energy-Efficient Appliances

– Courtyard Refurbishment – Dishwashers/Low Flow toilets and Shower Heads

Proposed Execution • 9% LIHTC Equity

– Applied for 9% LIHTC Allocation in December of 2016 NYSHCR – Credit raise pricing decreased approximately 2 weeks prior to application

submission, 10% haircut. – Rising construction costs – Rates have moved almost a 100 basis points over the last couple of months. – Is our deal feasible under what we proposed if we get the credits?

• Reduce scope • Ask for City subsidy to fill gap • Push for more tenants to get on section 8

9% LIHTC

• Allocation request of approximately $625,000 • Approximately $7,500,000 in construction costs • Total Development Costs: $19,500,000

– Inclusive of subordinate debt, developer fee and reserves

• No need for additional subordinate subsidy debt from agency (HPD) if tax credit pricing and construction costs are maintained.

9% LIHTC Source Construction Permanent

First Loan $5,780,000 $2,120,000

Assumed Subordinate Debt $6,835,000 $6,835,000

LIHTC Equity $685,000 $6,880,000

Solar ETC Equity $0 $75,000

Deferred Developer Fee $2,000,000 $540,000

Existing Reserves $3,165,000 $3,165,000

Deferred Reserves $1,150,000 $0

Total $19,615,000 $19,615,000

Uses Construction

Acquisition Costs $6,975,000

Hard Costs $8,020,000

Soft Costs $2,620,000

Developer Fee $2,000,000

Total $19,615,000

What happens if we don’t get the 9% Allocation?

• Private Lender, Public Subsidy & Developer Equity (PLP) – Back up execution – Scaled down scope of work – focus in on most cost effective items. – Leverage existing reserves – developer / investor equity – private first position loan – AIM for a 7% cash on cash return – NYC Funding -

EQUITY - PLP

• In the event that a LIHTC allocation is not awarded • Infuse much needed dollars into the rehabilitation of the most vital building

needs • Fund less pressing needs over time through reserves • Private first loan and subordinate Agency subsidy • Leveraging of existing reserves allows for a lower equity contribution to

generate a market-based return

EQUITY - PLP Source Construction Permanent

First Loan $2,460,000 $2,460,000

Assumed Subordinate Debt $6,835,000 $6,835,000

HPD Subsidy Debt $1,420,000 $1,420,000

Developer Equity $780,000 $780,000

Existing Reserves $3,165,000 $3,165,000

Total $14,660,000 $14,660,000

Uses Construction

Acquisition Costs $6,975,000

Hard Costs $5,265,000

Soft Costs $2,420,000

Total $14,660,000

Pros and Cons • 9% Tax Credit Deal

– Dev Fee – Time Value – Subsidy + TC help – YR15 Redo – Limited sell options

• PLP Equity – Depreciation – More flexibilty terms – More sell options

NEALA MARTIN

CREA LLC

Concerns from market changes

If equity pricing is reduced 10-15% due to conversations around the changes to tax reform, developers will need to address how to fill the funding gap: • How the state agencies fill funding gaps? • Cost containments and controlling construction hard costs. • What do I build? New construction vs rehab projects. • Where are we shoring up more sources of funds? • What potential state and federal policies are being discussed?

How the state agencies fill funding gaps?

1) To make deals work, the agencies will need to take a closer look at the QAP’s and program term sheets.

2) Will the agencies consider lifting the per unit cap for issuing 9% credits to leverage more equity?

Cost containments and controlling construction hard costs

1) Construction prices are very high due to increased demand over the last couple of years, material costs and labor costs.

- More bids to secure competitive pricing. - Can the agencies get involved to control pricing, especially in high cost markets - Economies of scale with purchasing materials 2) There are innovative approaches to property rehabilitation via models that

create efficiencies within the construction and development process. - Consultants can work hand-in-hand with owners and managers prior to acquisition to incorporate new technologies throughout the properties.

What do I build? New construction vs. rehab

1) It’s easier to cut the scope on a rehab vs. new construction project

2) Go back to municipalities to re-negotiate tax abatements on existing projects

3) Do we partner with a non-profit organization that could potentially have access to more tax abatements, grants and other funding.

Where are we shoring up more sources of funds?

1) Grants: Home Depot, other corporations that support housing, are building materials available for donation?

2) More involvement from municipalities to help close the gap

3) Look for innovative bridge lending, especially for mixed-income projects

4) How can you incorporate solar panels to control costs? Are there programs with electric companies for rebates?

5) If a Housing Authority is involved, can they access additional funding?

6) Increasing the seller note on an acquisition rehab with support of an appraisal

What potential state and federal policies are being discussed?

1) Maintaining QCT’s for all areas.

2) States should set-aside more credits to keep deals solvent.

3) Since most projects have excess basis, why not reduce unit count

4) Granting extensions of time for applications to see where the market turns out

5) Proposal for the credits to be taken over 7 years vs. 10 years to accelerate the benefit to the investor and help close the gap

6) Fixing the 4% credit rate

New York

• NYSHCR addressed the uncertainty of pricing in the recent submission for 9% tax credits which were due December 2016.

• The state contacted applicants to make sure they were aware of the change in the financing environment and to recommend that applicants engage their equity investors and lenders to better understand how changes in the market would potentially impact their application.

• NYSHCR noted that there would be no competitive points awarded based on pay-in on the dollar amount or a more accelerated pay-in, and urged realistic equity pay-ins that both the applicants and investors believed could be achieved.

New Jersey

• The state has a limited amount of subsidy, and with the upcoming round in spring 2017, the state hasn’t finalized underwriting criteria, but hopes to have a better understanding this month. There are limited HOME funds, no additional Sandy funds, and the Balanced Housing Funds which were generated from transfer taxes have not been given out by DCA in years.

• The agency has discussed allocating the balance of 2017 credits as well as

2018 credits and to set-aside some credits for a hardship reserve in case projects need them.

California

• Five members of the CA Assembly introduced four bills to address CA’s housing crisis: - AB71 would eliminate the state mortgage deduction on vacation homes and apply the $300M

annual savings to the state LIHTC. - AB72-74 would address the enforcement of existing state housing laws, by encouraging the

production of housing on infill sites around public transportation and create a program to pay for the cost of housing certain chronically homeless residents on Medi-Cal.

• TCAC extended the readiness deadlines for both first- and second-round 2016 state LIHTC

awardees. TCAC will neither rescind credits nor assign negative points to 2016 first-round awardees if they meet the readiness criteria within three months of their 180/194-day readiness deadline. The same holds true for 2016 second-round awardees who meet the readiness criteria within two months of their deadline. It is a blanket extension and applicants don’t need to apply for specific extensions. TCAC also announced that if a 2016 development can’t meet the extended readiness deadline, it will rescind the state LIHTC award, but not impose negative points.

Conclusion

• Until tax reform is in place, it will be important for all partners in a deal to be nimble and creative to be able to get projects done.

Overcoming Developer Challenges and Success Stories MODERATOR PANELISTS

Renee Beaver Novogradac & Company LLP

Neala Martin CREA LLC

Harrison Rayford Lemor Development Group

Joshua Greenblatt Vesta Corporation