PNC  Affordable  Rental  Housing  Preservation  Funds

John NunnerySVP, Manager of Preservation InvestmentsPNC Bank, NA

PNC  Real  Estate,  Tax  Credit  Capital

• National  purchaser  of  federal  and  state  low  income,  historic,  and  new  market  tax  credits

• Distribution  platform  includes  syndicated  funds,  separate  accounts  and  direct  purchases  (PNC  account)

• $9B  in  equity  under  management,  130,000+  units• Balance  sheet  and  Agency  lending,  predevelopment  

equity,  and  acquisition  loans  on  a  select  basis• Formed  Preservation   Investments   in  2013  as  a  way  to  

provide  capital  (debt  and  equity)  into  the  “Year  15”  space  through  our  existing  platform

• Completed  3  fund  investments,  started  marketing  our  next  fund  earlier  this  year

PNC  Preservation  Investments

• Opportunity:  provide  debt  and  equity  financing  that  can  compete  with  non-­‐LIHTC/affordable  buyers  to  slow  the  loss  of  affordable  units

• Natural  extension  of  the  tax  credit  platform• Underwriters,   closers,  fund  managers,  lending  

capability,  LIHTC  knowledge  base,  LIHTC  developer  and  investor  base

• First  3rd party  fund  investments  in  2012• New  line  of  business   started  in  2013

• 2013  – Internal  approvals• 2014  – SEC  approvals• 2015  – First  PNC-­‐sponsored   fund  closing• 2016  – Additional  investors,  acquisitions• 2017  – Launched  PNC  Fund  2

PNC  Preservation  Investments

• NHP-­‐Urban  Atlantic  Fund  ($50M)• Closed  in  August  2012• Acquired  9  properties,   sold  1• 1,319  units• CT,  MD,  OH

• PNC  Preservation  Fund  1  ($100M)• First  closing  December  2015• Final  closing  September  2016  • Fully  invested  by  January  2017• Acquired  13  properties,   sold  1,  started  LIHTC  on  2• 1,960  units• MA,  IL,  FL,  AL,  UT,  VA,  CT,  MS

• PNC  Preservation  Fund  2  ($150-­‐175M  est.)

What  Is  Preservation?

• Acquisition  of  “at-­‐risk”  properties• Expiring  LIHTC,  Section  8• Properties  with  contractual  restrictions

• Intended  disposition  into  LIHTC  or  “affordable”  transaction• Extension,  i.e.,  “Preservation”  of  affordability

• What  is  NOT  Preservation…….• Ownership  of  affordable  housing  without  the  intent  to  preserve   affordability• Renovation  or  historic  preservation• Renewal  of  a  Section  8  contract• Workforce  housing• Naturally  occurring  affordable  housing

Multi-Investor LIHTC vs PNC Preservation Funds

LIHTC Preservation

Credits and Losses Form of Return Cash

Yes Construction Risk No

Yes Leasing Risk Yes, but Limited(Stabilized)

Yes Developer Risk No

Yes, but limited Operating Risk Yes

Yes Compliance Risk Yes, sometimes

Yes CRA Eligible Yes

7-8% Net Pre-Tax1

(Tax Reform?) Returns 11%-12% Net Pre-Tax1

Under 10% PNC Co-Investment Up to 25%

15 Years or longer Fund Life Approximately 10 Years

±15 Years Asset Hold Period 3-5 Years

National, CRA, Secondary, Tertiary Markets National, CRA,

Secondary

Acquisitions

• LIHTC  or  Subsidized,  less  than  20%  market  rate• Contractual  affordability  restrictions

• no  “naturally  affordable”• Expiring  affordability  within  15  years,  prefer  after  year  

15  but  have  completed  year  11  deals• GP  and  LP  interests,  100%  ownership• Stable/predictable  performers,   no  retenanting,  no  

significant  deferred  maintenance• Acquisition  of  partnership  interests  or  fee  simple• New  PNC  balance  sheet  debt  structured  to  match  the  

asset  strategy  (assumptions  are  possible)• Generally  11%-­‐13%  net  IRR’s• Not  a  Value-­‐Add  Fund  – Not  looking  to  do  significant  

immediate  repairs  and  push  rents  charged  to  low  income  residents,   interim  hold  to  get  to  a  LIHTC  transaction  in  order  to  renovate

• Can  work  as  either  a  9%  or  4%  transaction  at  exit

Developer  Role

• Developers  are  a  source  of  opportunities  for  fund  investment• Off  market  deals  – some  are  from  the  management  

portfolio• Existing  portfolio  – looking  to  cash  out  but  retain  some  

control  (sell  but  retain  the  option  to  repurchase)• For  deals  that  are  developer  sourced:

• PNC  executes  the  PSA,  funds  all  costs• Developer  provides  3rd party  management  for  the  fund• Developer  gets  an  option  to  purchase  the  property  at  FMV• No  equity  required  from  the  developer  and  no  guarantees• Developer  applies/reapplies   for  credits/bond  cap,  solicits  

offers  for  LIHTC  equity  and  debt,  sources  soft  financing  (if  required),  and  closes

• Developer  becomes  the  GP  and  the  fund  exits  the  transaction

Island  Terrace  ApartmentsChicago

• 240  units  including  1/3  HAP,  1/3  vouchers,  Chicago  Housing  Trust  subsidies• Acquired  in  April  2015  for  $19M• Brought  in  new  3rd  party  mgmt• Reduced  expenses  significantly  (payroll  and  utilities)• Improvements   to  security  and  hot  water  system• Recently  appraised  for  $24.9M• LIHTC  (4%)  process  started  • Syndication  in  early  2018• 1  block  south  of  the  Obama  Presidential  Library  site• Across  the  street  from  a  proposed  Tiger  Woods  PGA  course

New  Port  Antonio  Apartments  Boston• 227  units,  100%  HAP• 3  property  portfolio  ($104M)• Acquired  in  Dec  2015  for  $47M• Retained  existing  management  • No  major  capital  improvements• LIHTC  (4%)  process  started  • LIHTC  syndication  in  mid  2018• Current  HAP  rents  $400  below  comparables  (RCS)• RCS  adjustment  in  early  2018  – GPR  increase  of  approx.  $1M  is  possible

Bolton  North  ApartmentsBaltimore

• 209  units• Long  term  Section  8  contract  • Acquired  by  NHP-­‐UA  Fund  in  August  2013  for  $22.5M• Uniquely  structured  to  avoid  tax  complications• Negotiated  a  real  estate  tax  reduction• Received  a  bond  allocation  from  the  state  of  MD• Received  an  allocation  of  4%  tax  credits• Closing  August  2017

Contact  Information

John  N.  NunnerySenior  Vice  President

PNC  Real  Estate23B  – 1  Market

Beaufort,  SC  29906Tel:   (843)  644-­‐5649

John.Nunnery@PNC.com