The Tax Credit Time MachineFred Copeman

CohnReznick LLP

Homes Within Reach ConferenceNovember 19, 2014

We’ve come a long way……

Born in the cradle of Tax Reform

It was painfully slow at first…

It started with public funds…

Gross Proceeds $100,000,000 Broker commissions (9,000,000) Offering & Org. costs (2,500,000) Available for investment $88,500,000 Acquisition fees (10,000,000) Acquisition exp/other (2,000,000) Fund working capital (3,500,000) Net Lower Tier Equity $73,000,000

And at the lower tier…..

• First Mortgage 1,900,000 (11.5% int)• Soft second/CDBG 2,500,000• LP equity 5,000,000• Total proceeds 9,400,000• Developer fee (2,000,000) (27%)• Builder profit (500,000)• Synd. Cons. Fee (450,000)• Net for dev. costs $6,450,000

Do it again 14.6 times…..

• Gross investor equity $100,000,000• Hard debt 27,740,000• Soft second loans 36,500,000• Total capital sources $164,240,000• Fees, expenses, etc (70,070,000)• Net development capital $94,170,000

– $94/$164mm = 57%

Now for some “under”writing…

• 225 unit historic building• 3.5% construction contingency• Vacancy assumption 3% (no rent subsidy)• Rents inflate at 6%, expenses at 4%• Operating expenses per unit $1,600• Repl. Reserve funding per unit $88

Finally it was time…

• To stop raising money from widows and orphans…and start hitting on the:

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%18.00%

13.00%

11.50%

7.20% 7.14%

4.76%

10.61%

$0.55

$0.71

$0.82

$0.92

$0.98

$1.09

$0.82

Tax Credit Price vs. Yield

Conventional IRR Price Per Credit

Year of InvestmentAverage annual values (not monthly)

Prop

erty

Pri

ce p

er t

ax c

redi

t

Aft

er -t

ax F

und

IRR

We started with…..

And were rescued by…..

So….you want to see the track record?

Good…..

Better…

Best…..