Participating in Public Housing Tax Credit Equity Financing: An Investment Opportunity for Community Banks MRHA VIII/SMHD Mixed Finance Training MHC 2013

Participating in Public Housing Tax Credit Equity Financing: An Investment Opportunity for

Community Banks

MRHA VIII/SMHD Mixed Finance TrainingMRHA VIII/SMHD Mixed Finance TrainingMHC 2013 Affordable Housing Conference

I. IntroductionA. Panel Participants:

Brian Heeger, Managing Director Duvernay + Brooks, LLC Jennifer Brunetti, Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C. Don Peterson, Managing Director, Raymond James & Associates, Inc. Aron Weisner, Enterprise Community Investment

B. South Mississippi Housing and Development Corporation Instrumentality of Mississippi Regional Housing Authority VIII Mission to Preserve and Develop Affordable Housing

MHC 2013 Affordable Housing Conference

I. IntroductionSMHD Corporate Highlights SMHD is a non-profit instrumentality community development corporation established by

MRHA VIII. SMHD has served as co-developer of more than 1,000 tax credit and public housing units for

families and seniors:

• Azalea Gardens, 900 Camp Street, Lumberton, MS (Under Construction)• McIntosh Homes, 1320 Highway 63 North, Leakesville, MS (Under Construction)• The Preserve at Fairground Village, 14281 County Farm Road, Gulfport, MS• Baywood Place Apartments, 1900 Switzer Road, Gulfport, MS• Highland Springs Apartments, 8100 Seaman Road, Ocean Springs, MS• Morrison Village Apartments, 2503 Old Mobile Hwy., Pascagoula, MS• Regency Way Apartments, 1400 28th Street, Gulfport, MS• Taylor Heights Apartments, 2313 Old Mobile Highway, Pascagoula, MS• The Estates at Juan De Cuevas, 10472 Gorenflo Road, D’Iberville, MS• Timber Grove Apartments, 10687 Auto Mall Pkwy., D’Iberville, MS• Village Place Apartments, 18059 Robinson Road, Gulfport, MS


I. IntroductionRaymond James Corporate Highlights Total capital of $11.9 billion; equity capital of more than $3 billion; capacity to underwrite up to $7.1 billion. More than 14,000 employees, including more than 7,000 financial advisors in the U.S. 100 straight quarters of profitability.

Fixed Income Capital Markets More than 180 Public Finance professionals in 26 offices nationwide. More than 400 Institutional Fixed Income Sales and Trading Professionals. Top 10 retail network and among 10 largest municipal institutional desks in the industry. More than 2,800 offices throughout the United States.Raymond James Tax Credit Funds Raymond James Tax Credit Funds, Inc. (“RJTCF”) ranks in top 5 for LIHTC dollars raised and invested. Since 1986, RJTCF has raised more than $3 billion in equity for more than 1,300 properties in 44 US states. Experienced professionals focused on regional product and market expertise.


I. IntroductionEnterprise Community Investment Corporate Highlights Since 1982, Enterprise has invested more than $12 billion in equity, grants and loans to help build or

preserve nearly 300,000 affordable homes to create vital communities and more than 410,000 jobs. Enterprise Community Partners is a nonprofit that provides expertise to local developer partners, carries out

policy work and initiatives, provides grants and predevelopment financing to affordable housing developers. Enterprise Community Investment is vehicle through which we bring capital into projects, including offers

equity for New Markets, Low-Income Housing, and Historic Tax Credit transactions and permanent mortgage financing for affordable and market rate housing.

Enterprise in the Gulf Coast Since 2005, Enterprise has invested nearly $180 million to support the production of more than 6,400

affordable homes in Louisiana and Mississippi. Enterprise operates nine Impact Markets nationally, including one in New Orleans that covers the Gulf Coast

Region, including the majority of the State of Mississippi. Enterprise Green Communities supported the development of over 1,300 green homes in the Gulf region.


I. IntroductionD+B Corporate Highlights Consultant to public- and private-sector developers of affordable housing, as well as a

developer of urban revitalizations and affordable housing developments Advised housing authorities and developers on the closing of more than 115 residential and

mixed-use developments in the last ten years, comprising nearly 14,000 rental and homeownership units, these closings have totaled over $2.1 billion.

D+B’s financial and development advisory services include the following:• Planning and Structuring Development Programs• Analyzing Government Regulations• Preparing Financing Plans• Feasibility Analysis• Financial Modeling and Analysis• Proposal Evaluation/Due Diligence • Developer Selection and Negotiations• Selecting and Negotiating with Investors, Lenders and Third-Party Professionals• HUD Knowledge and Experience• Advising on and Coordinating Closings• Strategic Advisory Services.


I. IntroductionBaker Donelson Corporate Highlights•For more than 120 years, Baker Donelson has built a reputation for achieving results for our clients on a wide range of legal matters. While providing legal services is our focus, it is how we deliver them that sets us apart. Our goal is to provide clients with more than what they have come to expect from a law firm. •Our unique approach to providing legal services is enabled by our extensive support structure. As the 72nd largest law firm in the U.S., Baker Donelson gives clients access to a team of more than 600 attorneys and public policy advisors representing more than 30 practice areas, all seamlessly connected across 18 offices to serve virtually any legal and policy need. The experience, integrity and commitment we bring to our clients have earned Baker Donelson numerous distinctions, including:

•76 attorneys across 26 practice areas recognized by Chambers USA as leaders in their field (2012); •25 practice areas also recognized by Chambers USA as leading practices in individual states (2012); •229 attorneys in Best Lawyers in America® 2013 edition; and •150 attorneys recognized as Super Lawyers.


I. IntroductionB. SMHD Mixed Finance Development

Azalea Gardens, Lumberton, MS• SMHD General Partner and Co-Developer with Landmark Development Services, LLC• 48 Units for Seniors in Four Two-Story Elevator Buildings• 50% Public Housing, 50% Section 8 Project-Based Voucher• Tax-Exempt Bond Financed/4% LIHTC• MRHA VIII Public Housing Capital and Other Funds (RHF, 901)


II. Public Housing Mixed Finance DevelopmentA. Role of Housing Authorities

Self-Develop vs. Third Party Developer Turn Key vs. Long-term Ownership

Owner Member or Managing Member/GP

Lender Land Owner and Ground Lessor Subsidy Provider (ACC and PBV)


II. Public Housing Mixed Finance DevelopmentB. Legal/Regulatory Framework

HUD Issues Capital and Replacement Housing Funds

Faircloth Unit Limit Formula Based Annual Appropriations TDC Limits

Public Housing Operating Subsidy Formula Based Annual Appropriations

PBV Rents Section 8 Rent Payment Standards and FMR 25% of Authority’s Vouchers can be Project-Based



Procurement Ownership Structure Transaction Participants

Equity Investor Acquisition, Construction and Permanent Lenders Bond Underwriters and Purchasers Credit Enhancers/Mortgage Insurers


II. Public Housing Mixed Finance DevelopmentC. Azalea Gardens Transaction Participants

Landmark Development Services Lead Developer SMHD Co-Developer SMHD Affiliate Managing Member MHC Bond Issuer Investor Member: Enterprise Community Capital

$2.4 million LIHTC Equity Investment Underwriter: Raymond James

$4.5 million Bond Issue Subordinate Construction and First Priority Permanent Loan: MRHA VIII

$7.18 million Cash Collateral



HUD Approvals Public Housing Mixed Finance Approval

Mixed Finance Submission and HUD Panel Review HUD OGC Document (Evidentaries) Review Local Office Management and Legal Review Design Review Environmental Approval

Subsidy Layering Review


III. Unique Issues for Public Housing LIHTC/Bond Developments

A. Equity Syndicator Perspective Economics vs. Other LIHTC/Bond Transactions

Subsidy/Market Risk Layering unit types, subsidy programs, and funding sources Greater Operating Complexity

Partner Experience, Guarantees, Net Worth/Liquidity Track record with mixed-finance/public housing is critical Five-year operating deficit reserve and long-term tax credit guarantees required Substantial liquidity necessary (varies depending on the amount of equity invested)

Reserves ACC Reserve for Public Housing funding delays/reductions Transition Reserve for appropriation risk

Other Investor and Current Equity Market Considerations Identify investor and lender early to coordinate and assure execution Make sure all partners understand and support your target market and operating plan


III. Unique Issues for Public Housing LIHTC/Bond Developments

B. Bond Underwriter Perspective


FHAFHA

Current Market Rates

3.40 – 4.00%*

Amort: 40 yrs

Maturity: 40 yrs

LTV: ~90%

Min DSC: 1.11-1.20x

Timeline: 6-12 months

*Including MIP.

Criteria

FNMA/FreddieFNMA/Freddie

5.00 – 5.75%

Amort: 30-35 yrs

Maturity: 18/30 yrs

LTV: 80-90%

Min DSC: 1.15x

Timeline: 90-120 days

ConventionalConventional

4.50 – 5.50%

Amort: 30 yrs

Maturity: 10-15 yrs

LTV: 80-90%

Min DSC: 1.25x


S&P UnenhancedS&P Unenhanced

4.25 – 5.50%

Amort*: 30 yrs

Maturity*: 30 yrs

LTV*: 70-90%

Min DSC*: 1.20-2.70x


* Depends solely on the strength of the real estate and/or the sponsors.


TRADITIONAL MARKET EXECUTIONS

48-unit senior housing development located in Lamar County, Mississippi.

Closed on December 21, 2012.

Bond Yield: 0.55% (lowest coupon recorded as of pricing).

Investment Yield: 0.217%. Maturity: 18 months. Rating: AA+ (S&P).

Bonds priced at 2.5x Treasuries. Real estate not pledged as collateral. Retail and institutional investor

participation.

MISSISSIPPI HOME CORPORATION CMHB

Transaction Highlights

17MHC 2013 Affordable Housing Conference

IV. Trends in Public Housing Mixed Finance Development

A. Opportunities with New and On-Going HUD Programs RAD Choice Neighborhoods Refinancings/Refundings

Year 15


V. Questions/Discussion


Documents

Participating in Public Housing Tax Credit Equity Financing: An Investment Opportunity for Community Banks MRHA VIII/SMHD Mixed Finance Training MHC 2013