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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…..
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