Financing Mixed-Use and Financing Mixed-Use and Commercial Real EstateCommercial Real Estate

June 22, 2005June 22, 2005

New Markets Tax Credit New Markets Tax Credit FinancingFinancing

What I Hope to What I Hope to CoverCover

Overview of New Markets Tax Credits Overview of New Markets Tax Credits (NMTC)(NMTC) Potential “Commercial” ProjectsPotential “Commercial” Projects What NMTC Can Do for Your ProjectWhat NMTC Can Do for Your Project What NMTC What NMTC CannotCannot Do Do Challenges in Utilizing NMTCChallenges in Utilizing NMTC Putting a Deal TogetherPutting a Deal Together MHIC’s ApproachMHIC’s Approach Some ExamplesSome Examples Strategies When ConsideringStrategies When Considering

New Markets Tax New Markets Tax CreditsCredits

OverviewOverview 39% credit over 7 years for “qualified equity 39% credit over 7 years for “qualified equity

investments”investments” Eligible investments for real estate are Eligible investments for real estate are

largely determined by geography (“low largely determined by geography (“low income” areas)income” areas)

Tax credits allocated to Community Tax credits allocated to Community Development Entities (CDE’s) through annual Development Entities (CDE’s) through annual national competitionsnational competitions

Credit is attached to the flow of capital, Credit is attached to the flow of capital, rather than to the real estate (as with LIHTC rather than to the real estate (as with LIHTC and historic credits)and historic credits)

Complex tax and compliance issues Complex tax and compliance issues

PotentialPotential“Commercial” “Commercial”

ProjectsProjects Owner-occupied retail (or other Owner-occupied retail (or other

commercial) buildingcommercial) building ““Spec” commercial buildingSpec” commercial building Mixed-use (residential/commercial), Mixed-use (residential/commercial),

more than 20% commercialmore than 20% commercial Non-profit buildings (health Non-profit buildings (health

centers, community centers, non-centers, community centers, non-profit offices)profit offices)

Cultural facilitiesCultural facilities

What Can NMTC Do What Can NMTC Do for Your Project?for Your Project?

Provide gap financing (20% to 40% Provide gap financing (20% to 40% of total development costs)of total development costs)

Leverage historic rehabilitationLeverage historic rehabilitation Reduce hard debtReduce hard debt Reduce operating costs, rentsReduce operating costs, rents Strengthen otherwise “shaky” Strengthen otherwise “shaky”

projectproject

What New Markets What New Markets Tax Credits Tax Credits CannotCannot

DoDo Fill “unbridgeable” gaps – Fill “unbridgeable” gaps –

project must be able to support project must be able to support 60-80% of costs from other 60-80% of costs from other sourcessources

Improve finances of underlying Improve finances of underlying business (including non-profits)business (including non-profits)

Remove risks: construction, Remove risks: construction, lease-up, re-leasinglease-up, re-leasing

Challenges in Challenges in Utilizing NMTCUtilizing NMTC

Limitations of 7-year subsidyLimitations of 7-year subsidy Complexity of utilizationComplexity of utilization Working with a “CDE”Working with a “CDE” Limited availability of allocationLimited availability of allocation Planning and PredictabilityPlanning and Predictability

Putting a Deal Putting a Deal TogetherTogether

Pulling in other resources (public, Pulling in other resources (public, private, philanthropic, historic private, philanthropic, historic credits)credits)

Underwriting issues:Underwriting issues: Debt amount and coverageDebt amount and coverage Master leasesMaster leases

Underwriting the tenants:Underwriting the tenants: Value of “credit tenants”Value of “credit tenants” ““Credit tenant” vs. “community-based”Credit tenant” vs. “community-based” Tenant improvementsTenant improvements

MHIC’s New MHIC’s New Markets Markets ProgramProgram

MHIC’s initial mission: affordable housing. Yet, for MHIC’s initial mission: affordable housing. Yet, for number of years, MHIC has been financing mixed-use number of years, MHIC has been financing mixed-use and commercial properties. and commercial properties.

MHIC has received three NMTC allocations (in all 3 MHIC has received three NMTC allocations (in all 3 round) – $25 million in June 2003, $90 million in May round) – $25 million in June 2003, $90 million in May 2004, and $54 million in May 2005.2004, and $54 million in May 2005.

MHIC’s goal is to finance projects that would otherwise MHIC’s goal is to finance projects that would otherwise be infeasible, projects with be infeasible, projects with majormajor financing gaps. financing gaps.

Eight projects have been underwritten, reviewed and Eight projects have been underwritten, reviewed and approved. Six of these projects have closed. We have a approved. Six of these projects have closed. We have a pipeline of well over $250 million (far exceeding our pipeline of well over $250 million (far exceeding our allocation)allocation)

We closed our first New Markets Fund last year, and are We closed our first New Markets Fund last year, and are well on our way to raising the capital for our second well on our way to raising the capital for our second Fund.Fund.

MHIC makes extensive use of leverage to increase the MHIC makes extensive use of leverage to increase the impact of New Markets Credits – able to provide 22% to impact of New Markets Credits – able to provide 22% to 44% of total project costs as gap-filling equity.44% of total project costs as gap-filling equity.

TierTierStructureStructure

MHIC New Markets Fund

$26,999,262

MHIC NEW MARKETS CDE

Senior debt: $10,188,522Subordinate debt: $5,884,625

Equity: $8,061,639

$24,134,786

5 Projects

Equity Investors

$11,411,992

SeniorLenders

$10,188,522

Cash Reserves

$1,099,503

Fees to MHIC3rd Party Costs

$1,872,127

SubordinateLenders

$5,398,748

Fund Tier

CDE Tier

Project Tier

MHIC MHIC New MarketsNew MarketsFund IFund I

MHIC NMTC MHIC NMTC Financing Financing ImpactImpact

ProjectProject FinancingFinancing StatusStatusNMTC %NMTC %

Total Total CostCost

Border Street Office, East Border Street Office, East BostonBoston 1,902,8551,902,855 CompleteComplete 22%22%

Hibernian Hall, RoxburyHibernian Hall, Roxbury 6,674,9976,674,997 CompleteComplete 39%39%

Coffin Lofts, New BedfordCoffin Lofts, New Bedford 5,804,9915,804,991 ConstructioConstructionn

32%32%

Lawton Corner, New BedfordLawton Corner, New Bedford 4,843,2974,843,297 ConstructioConstructionn

37%37%

Palmer/Warren, RoxburyPalmer/Warren, Roxbury 7,909,1527,909,152 ConstructioConstructionn

25%25%

Holyoke Health Center, Holyoke Health Center, HolyokeHolyoke 21,940,05521,940,055 ConstructioConstructio

nn35%35%

Colonial Theatre, PittsfieldColonial Theatre, Pittsfield 15,355,55215,355,552 ApprovedApproved 44%44%Project Hope, BostonProject Hope, Boston 4,862,7254,862,725 ApprovedApproved 35%35%TotalTotal 62,884,83862,884,838 37%37%

Investor BenefitsInvestor Benefits

IRR: 10.8%IRR: 10.8%

YearYearCapital Capital

InvestedInvestedTaxTax

CreditsCreditsCashCashFlowFlow

Tax Tax BenefitsBenefits

TotalTotalBenefitsBenefits

20052005 (655,038)(655,038) 172,979172,979 1,243 1,243 12,381 12,381 186,603 186,603

20062006 (344,962)(344,962) 354,278354,278 5,332 5,332 23,442 23,442 383,053 383,053

20072007 0 0 102,405102,405 5,524 5,524 18,497 18,497 126,426 126,426

20082008 0 0 122,427122,427 6,791 6,791 15,992 15,992 145,210 145,210

20092009 0 0 122,886122,886 6,791 6,791 15,166 15,166 144,843 144,843

20102010 0 0 122,886122,886 6,446 6,446 11,402 11,402 140,734 140,734

20112011 0 0 122,886122,886 6,667 6,667 8,482 8,482 138,035 138,035

20122012 0 0 460460 20,099 20,099 (28,516)(28,516) (7,958)(7,958)

20132013 0 0 00 13,920 13,920 (10,924)(10,924) 2,995 2,995

20142014 0 0 00 0 0 0 0 0 0

TotalTotal(1,000,000(1,000,000

)) 1,121,2061,121,206 72,813 72,813 65,922 65,922 1,259,941 1,259,941

ProjectProject Financing Financing StatusStatus

Holyoke Health Center, HolyokeHolyoke Health Center, Holyoke 21,323,046 21,323,046 ApprovedApproved

Colonial Theatre, PittsfieldColonial Theatre, Pittsfield 20,053,32320,053,323 ApprovedApproved

Project Hope, RoxburyProject Hope, Roxbury 4,872,1294,872,129 ApprovedApproved

Four Corners, DorchesterFour Corners, Dorchester 4,169,2574,169,257 Under ReviewUnder Review

Cinema Center, PittsfieldCinema Center, Pittsfield 7,138,3147,138,314 Under ReviewUnder Review

The Brewery, Jamaica PlainThe Brewery, Jamaica Plain 9,829,5309,829,530 Under ReviewUnder Review

Project Place, South EndProject Place, South End 11,825,00011,825,000 Under ReviewUnder Review

Morehouse Bakery, LawrenceMorehouse Bakery, Lawrence 4,256,3834,256,383 Under ReviewUnder Review

Worcester Performing ArtsWorcester Performing Arts 15,820,03315,820,033 Under ReviewUnder Review

Our House for Design, LawrenceOur House for Design, Lawrence 4,000,0004,000,000 Under ReviewUnder Review

Tyler Street Center, BostonTyler Street Center, Boston 13,850,00013,850,000 Under ReviewUnder Review

Springfield Public MarketSpringfield Public Market 10,125,00010,125,000 Under ReviewUnder Review

TotalTotal $127,262,015$127,262,015

New MarketsNew MarketsFund IIFund II

Examples of MHIC Examples of MHIC New Markets Tax New Markets Tax Credit ProjectsCredit Projects

Border Street Border Street OfficesOfficesEast BostonEast Boston

Community: East BostonCommunity: East Boston Sponsor: NOAHSponsor: NOAHNMTC Investment: $0.6 millionNMTC Investment: $0.6 millionClosed Financing: March 2004Closed Financing: March 2004Construction Complete: March 2004Construction Complete: March 2004

Border Street Border Street OfficesOfficesEast BostonEast Boston

New Markets help bridge financing gap for New Markets help bridge financing gap for non-profit offices.non-profit offices.

Hibernian HallHibernian HallRoxburyRoxbury

Community: RoxburyCommunity: RoxburySponsor: Madison Park CDCSponsor: Madison Park CDCNMTC Investment: $2.6 millionNMTC Investment: $2.6 millionClosed Financing: March 2004Closed Financing: March 2004Construction Complete: March 2005Construction Complete: March 2005

Hibernian HallHibernian HallRoxburyRoxbury

Irish dance hall to multi-functional cultural Irish dance hall to multi-functional cultural center, taking advantage of historic credits center, taking advantage of historic credits

and significant fund-raising.and significant fund-raising.

Coffin Lofts Coffin Lofts New BedfordNew Bedford

Community: New BedfordCommunity: New Bedford Units: 18Units: 18Sponsor: Hall Keen LLCSponsor: Hall Keen LLCNMTC Investment: $1.9 millionNMTC Investment: $1.9 millionClosed Financing: April 2004Closed Financing: April 2004Construction Complete: November 2005Construction Complete: November 2005

Coffin Lofts Coffin Lofts New BedfordNew Bedford

Local leadership, working private developer and Local leadership, working private developer and local bank, create mixed-use, mixed-income local bank, create mixed-use, mixed-income

housing in downtown New Bedford.housing in downtown New Bedford.

Warren PalmerWarren PalmerRoxburyRoxbury

Community: RoxburyCommunity: RoxburySponsor: Jubilee Christian Church Sponsor: Jubilee Christian Church InternationalInternationalNMTC Investment: $2.3 millionNMTC Investment: $2.3 millionClosed Financing: December 2004Closed Financing: December 2004Construction Complete: December 2005Construction Complete: December 2005

Warren PalmerWarren PalmerRoxburyRoxbury

Church undertakes development of “spec” Church undertakes development of “spec” commercial building in Dudley Square, first commercial building in Dudley Square, first

new construction in 40 years.new construction in 40 years.

Holyoke Health Holyoke Health CenterCenterHolyokeHolyoke

Community: Holyoke Community: Holyoke Sponsor: Holyoke Health CenterSponsor: Holyoke Health CenterNMTC Investment: $7.96 millionNMTC Investment: $7.96 millionClosed Financing: March 2005Closed Financing: March 2005Construction Complete: December 2005Construction Complete: December 2005

Holyoke Health Holyoke Health CenterCenterHolyokeHolyoke

Combination of historic credits, federally-Combination of historic credits, federally-guaranteed debt, and New Markets credits guaranteed debt, and New Markets credits

allows consolidation of successful urban allows consolidation of successful urban health center.health center.

Holyoke Health Holyoke Health CenterCenterHolyokeHolyoke

Colonial TheatreColonial TheatrePittsfieldPittsfield

Community: PittsfieldCommunity: PittsfieldSponsor: Colonial Theatre AssociationSponsor: Colonial Theatre AssociationNMTC Investment: $7.1 millionNMTC Investment: $7.1 millionConstruction Complete: May 2006Construction Complete: May 2006

Colonial TheatreColonial TheatrePittsfieldPittsfield

Major fundraising, coupled with historic Major fundraising, coupled with historic credits, leverages significant New Markets credits, leverages significant New Markets credits, and allows project to be built with credits, and allows project to be built with

no hard debt.no hard debt.

Strategies When Strategies When Considering NMTCConsidering NMTC

(Next Steps)(Next Steps)

Make sure it’s the right fitMake sure it’s the right fit Understand limitations; confront Understand limitations; confront

risksrisks Start talking with potential CDE’s Start talking with potential CDE’s

early in your planningearly in your planning Cultivate partnershipsCultivate partnerships Balance your objectivesBalance your objectives

Financing Mixed-Use and Financing Mixed-Use and Commercial Real EstateCommercial Real Estate

June 22, 2005June 22, 2005

New Markets Tax Credit New Markets Tax Credit FinancingFinancing