National Association of Local Housing Finance Agencies 2012 Annual Educational Conference April 26, 2012 “New Developments in Multifamily Housing Finance”

John B. Rucker, III Executive Vice President Merchant Capital, LLC [email protected]

Richard A. (“Ad”) Eichner Partner Eichner & Norris PLLC [email protected]

Overview

■ ■ ■ ■ Standard & Poor’s (“S&P”) defines unenhanced affordable housing projects (“AHP”) as public-purpose real estate supported by below-market rents.

While many affordable housing transactions are structured with credit enhancement, AHP projects are sized and rated based on the strength of the underlying real estate.

The analysis of AHP projects focuses on the following criteria: – Real estate quality – – Legal structure Property performance – Strength of Sponsor – Construction risk (if any) and lease-up risk It usually takes 90-120 days to close (this may be expedited with an experienced team) Slide | 2

Third party reports and supporting documentation

■ – – – – Standard & Poor’s will generally review independent third-party reports as part of the rating process. These reports include: – Profile reports 1 – Appraisal – – Market study Phase I Environmental Physical needs assessment (PNA) Financial audits (most recent three years) Original HAP contract and HAP assignment Current and historical rent rolls Notes: 1 Profile report templates are provided by Standard & Poor’s and include Sponsor, Property Manager, Asset Manager, and Property Slide | 3

Financing Assumptions

■ While each AHP is different, Standard & Poor’s will generally look for the following assumptions in the financing: – – DSC of 1.20x

1 Underwriting is based on “stabilized” NOI – – – Occupancy assumptions based on historical trends Reserve fund funded with proceeds and sized at 50% maximum annual debt service Repair and replacement reserves – $325 to $350 per unit for properties that are 15 to 20 years old – S&P will also refer to the PNA report – 35-year amortization Notes: 1 DSC of 1.40x for AHP without Section 8 HAP Contract Slide | 4

With interest rates below historical averages, the S&P execution is very attractive

1,2 8.00% 7.00% 30-year MMD Current 3.73

% time below current 1.01% High 7.01

Low 3.53

Ave 5.08

6.00% 5.00% 4.00% 3.00% Apr-91 Apr-94 Apr-97 Apr-00 Apr-03 30-year MMD Historical Average Notes: 1 Reflects market conditions as of April 20, 2012 2 Long bonds (30+ years) usually price at a credit spread of 230-250 basis points over MMD Apr-06 Apr-09 Apr-12 Slide | 5

Fixed Rate Underwriting Comparison

1,2 Criteria Mode Term Fee Stack Rate Guaranty Fee Servicing Fee Trustee Fee Issuer Fee Underwriting Rate Constraints Amortization DSC LTV Freddie Mac / Fannie Mae Fixed 18 years 4.000% 1.180% 0.150% 0.050% 0.125% 5.505% 35 years 1.15x

90% Notes: 1 2 Reflects market conditions as of April 20, 2012 DSC for Standard & Poor’s AHP transaction without Section 8 HAP contract is 1.40x

Standard & Poor's Fixed 35 years 5.500% 0.050% 0.125% 5.675% 35 years 1.20x

100% Slide | 6

Case Study – GMF Stonybrook Apartments

■ ■ Bond proceeds were used to finance the acquisition and rehabilitation of an 216-unit apartment complex known as Stonybrook Apartments, located in Riviera Beach in Palm Beach County, Florida.

Characteristics of the financing include: – – First mortgage lien on the property Projected DSC of 1.25x

– – Property secured by a Section 8 HAP contract Reserve fund sized at 6-months maximum annual debt service – 35-year amortization $14,725,000 Florida Capital Trust Agency (Multifamily Revenue Bonds) April 11, 2012 Term 2015 1 2025 2032 ($000) 500 2,340 2,415 Coupon 4.25% 4.50% 5.00% Yield 4.62% 4.81% 5.24% 2047 9,470 5.50% 5.69% Notes: 1 Due to 2% cost of issuance test, taxable tail was issued The Sponsor’s all-in cost of capital for 35-years was 5.44% Slide | 7

Recent Transactions

$43,405,000 Texas State Affordable Housing Corporation (Multifamily Revenue Bonds) $13,615,000 City of Indianapolis (Multifamily Revenue Bonds) $49,000,000 Louisiana Housing Finance Agency (Multifamily Revenue Bonds) May 18, 2011 $7,300,000 Health Education & Housing Facility Memphis (Multifamily Revenue Bonds) April 21, 2011 $6,250,000 South Carolina State Housing & Finance Agency (Multifamily Revenue Bonds) August 26, 2009 $14,725,000 Florida Capital Trust Agency (Multifamily Revenue Bonds) June 18, 2010 May 18, 2011 April 11, 2012 Slide | 8