florida housing finance corporation · 2008. 12. 8. · malabar cove - phase ii sail and...

Florida Housing Finance Corporation Credit Underwriting Report

Malabar Cove - Phase II

SAIL and Supplemental Loan Programs

2008-242S

2008 Supplemental Loan

Section A Report Summary

Section B SAIL and Supplemental Loan Conditions

Section C Supporting Information and Schedules

Prepared by

Seltzer Management Group, Inc.

Final Report

December 4, 2008

EXHIBIT A, PAGE 1

SMG

______________________________________________________________________________

December 4, 2008

MALABAR COVE - PHASE II

TABLE OF CONTENTS

Page Section A

Report Summary Recommendation A1-A11

Overview A12-A16 Uses of Funds A17-A23 Operating Pro Forma A24-A26

Section B General Conditions B1-B6

Section C

Supporting Schedules Additional Development and Third Party Information C1-C7 Borrower Information C8-C11 Guarantor Information C12 Syndicator Information C13-C14 General Contractor Information C15-C16 Property Manager Information C17

Exhibits

15 Year Pro Forma 1 Description of Features and Amenities 2. 1-4 Completeness and Issues Checklist 3. 1-2 Occupancy Comparisons 4

EXHIBIT A, PAGE 2

SMG

______________________________________________________________________________

December 4, 2008

Section A

Report Summary

EXHIBIT A, PAGE 3

SAIL CREDIT UNDERWRITING REPORT SMG

MALABAR COVE – PHASE I I A-1

December 4, 2008

Recommendation Seltzer Management Group, Inc. (“SMG” or “Seltzer”) recommends a State Apartment Incentive Loan (“SAIL”) Program loan in the amount of $2,000,000 and a Supplemental loan in the amount of $680,000 be awarded to this development by the Florida Housing Finance Corporation (“FHFC” or “Florida Housing”) for its construction and permanent financing.

DEVELOPMENT & SET-ASIDES Location South side of Malabar Road, NW, approximately ¾ mile

west of intersection of Malabar Road, NW, and Minton Road SE, Palm Bay, Brevard County, Florida 32907

Number of Units/Unit Mix Bed-

rooms Baths

No. of

Units

Unit Size (SF)

2 1 2 9782 1 14 9782 1 2 1,0752 1 14 1,0753 2 1 1,1943 2 3 1,1943 2 4 1,2964 3 1 1,4704 3 14 1,4704 3 2 1,5724 3 15 1,572

Totals 72 91,582 Demographic Commitment Set Asides Set Aside Term

Family SAIL - The applicant has committed to set aside 10% of units (8 ELI units) for residents earning 33% or less of the area median income (“AMI”), and 60% of units (44 units) for residents earning 60% or less of the AMI. Supplemental – The applicant has committed to set aside 10% of units (8 units) for Extremely Low Income (“ELI”) residents earning 33% or less of the AMI. HC - The applicant has stated that it will set aside 100% of units for residents earning 60% or less of the AMI in its 4% Housing Credit application, therefore, Seltzer has underwritten this transaction using the more restrictive ELI and HC set asides. SAIL - 50 Years; HC – 30 years; Supplemental – 15 years Note: ELI units are set aside at 33% or less of AMI for a

EXHIBIT A, PAGE 4



December 4, 2008

period of 15 years, and may convert to 60% or less of AMI for the remaining affordability period.

County Size Medium Development Category New Construction Development Type Garden Style Occupancy Rate N/A Parking A letter dated November 6, 2008 from PBS&J reflects 156

parking spaces for Phase II of the development, 10 of which are handicapped accessible.

Improvements The development will consist of five garden style two-story building and no accessory buildings. Construction will be wood frame on concrete slab on grade foundation.

Site Acreage 4.870 gross acres for Phase II; 13.25 acres for overall site containing two phases

Density 14.78 units per acre for Phase II; 11.17 units per acre for overall site containing two phases

Zoning RM-15, Single, Two and Multi-Family Residential, allows up to 15 units per acre for multifamily

Flood Zone Designation Zone X. Flood insurance is not required. DEVELOPMENT TEAM

Applicant/Borrower Malabar Cove II, Ltd. is a Florida Limited Partnership formed in November 2007.

General Partner Malabar Cove II Managers, L.L.C. is a Florida limited liability company formed in November 2007. The general partner holds a .01% ownership interest in the applicant.

Limited Partner/Syndicator FL Capital Holdings Malabar Cove II, L.L.C., a Florida limited liability company, formed in November 2007 is the 99.98% Investment Limited Partner and FCH Partners II, Ltd., a Florida limited partnership formed in December 2007 is the .01% Special Limited Partner.

Guarantors Malabar Cove II, Ltd., Malabar Cove II Managers, L.L.C., Alan H. Ginsburg Tenth Amended and Restated Revocable Trust under Instrument dated March 3, 2008 (“AHG Revocable Trust”) and Alan H. Ginsburg, individually

Developer Atlantic Housing Partners, L.L.L.P. General Contractor CPG Construction, L.L.L.P. Management Company Concord Management, Ltd. First Mortgage Lender Brevard County Housing Finance Authority Private Purchaser of Bonds Compass Bank, its successors and assigns

FINANCING INFORMATION FHFC Programs SAIL Program Loan and Supplemental Loan Total BCHFA Bond Amount $4,800,000 (permanent)

EXHIBIT A, PAGE 5



December 4, 2008

“All in” Underwritten Interest Rate

5.21%

Term/Amortization 32/30 (interest-only payments prior to stabilization and then amortized principal and interest payments thereafter)

SAIL Amount $2,000,000 “All in” Underwritten

Interest Rate 1.38%

Term/Amortization 32/ N/A Supplemental Loan Amount $680,000 Underwritten

Interest Rate 0.00%

Term/Amortization 32/ N/A Restricted Rent–Favorable Financing Value at Stabilization

$6,100,000

Restricted Rent-Market Financing Value at Stabilization

$5,200,000

Market Rent-Market Financing Value at Stabilization

$8,600,000

Restricted/Favorable Loan to Value – First Mortgage and SAIL

111.48%

Restricted/Market Loan to Value – First Mortgage and SAIL

130.77%

Market Loan To Value – First Mortgage and SAIL

79.07%

Projected Net Operating Income $347,293 Debt Service Coverage – First

Mortgage Only 1.10

Debt Service Coverage – First Mortgage and SAIL

1.01

Debt Service Coverage - All debt 1.01 FHFC SAIL Loan to Cost 15.38% FHFC Supplemental Loan to Cost 5.23% FHFC Assistance Per Unit (SAIL + Supplemental)

$37,222

Syndication Price $0.900 per dollar of HC Bond Structure Weekly Variable Rate Demand Bonds–Private Placement Debt Service Reserve None

EXHIBIT A, PAGE 6



December 4, 2008

Construction / Permanent Sources: Source Lender Construction Permanent Perm Loan/Unit Brevard Co. HFA MMRB Brevard HFA $6,400,000 $4,800,000 $66,667SAIL Loan FHFC $1,308,738 $2,000,000 $27,778Supplemental Loan FHFC $680,000 $680,000 $9,444Bridge Loan Interest FCH MC II $144,000 $144,000 $2,000HC Equity FCH MC II $4,021,712 $4,468,569 $62,063Deferred Developer Fee Atlantic Housing $446,857 $908,738 $12,621TOTAL $13,001,307 $13,001,307 $180,574 Changes from the Application: COMPARISON CRITERIA YES NO

Does the level of experience of the current team equal or exceed that of the team described in the application?

X

Are all funding sources the same as shown in the Application? 1

Are all local government recommendations/contributions still in place at the level described in the Application?

X

Is the Development feasible with all amenities/features listed in the Application? X

Do the site plans/architectural drawings account for all amenities/features listed in the Application?

2

Does the Applicant have site control at or above the level indicated in the Application?

X 3

Does the Applicant have adequate zoning as indicated in the Application? X

Has the Development been evaluated for feasibility using the total length of set-aside committed to in the Application?

X

Have the Development costs remained equal to or less than those listed in the Application?

4

Is the Development feasible using the set-asides committed to in the Application?

X

If the Development has committed to serve a special target group (e.g. elderly, large family, etc.), do the development and operating plans contain specific provisions for implementation?

X

HOME ONLY: If points were given for match funds, is the match percentage the same as or greater than that indicated in the Application?

N/A

EXHIBIT A, PAGE 7



December 4, 2008

HC ONLY: Is the rate of syndication the same as or greater than that shown in the Application?

X

Is the Development in all other material respects the same as presented in the Application?

5

The following are explanations of each item checked “No” in the table above:

1. The syndicator has changed from Regions Bank to FL Capital Holdings Malabar Cove II, L.L.C., a Florida limited liability company, as 99.98% Investment Limited Partner, and FCH Partners II, Ltd., a Florida limited partnership, as .01% Special Limited Partner. This syndication entity is a related party to the applicant, general partner, developer, and guarantor. Regions Bank was to purchase a 99.99% interest and invest equity based on $.90 per dollar of Housing Credits on 72 units. The new limited partners, collectively, will invest equity based on $.90 per dollar of Housing Credits on 72 units which is considered to be above market pricing.

2. The architectural plans and specifications do not provide for all the features and amenities committed to in the application; specifically, programmable thermostats in each unit, showerheads that use less than 2.5 gallons of water per minute, faucets that use 2 gallons of water per minute or less in the kitchen and all bathrooms, motion detectors on all outside lighting that is attached to the units, low VOC paint (less than 50 grams per gallon) in all units and common areas, Energy Star rating for all refrigerators, dishwashers and washing machines that are provided by the Borrower, Energy Star rating for all windows in each unit, Carpet and Rug Institute Green Label certified carpet and pad for all carpeting provided, daylight sensors on outdoor lighting, and Florida Yards and Neighborhood certification on all landscaping. Receipt and review of plans and specifications showing all features and amenities or receipt of a third party site observation report indicating that all items are provided at the site is a condition to loan closing.

On October 9, 2008, the applicant requested that a computer lab on-site with minimum one computer per 50 units with basic word processing, spreadsheets and assorted educational and entertainment software programs and at least one printer be changed to a car care area and that a library consisting of a minimum of 100 books and 5 current magazine subscriptions be changed to two or more parking spaces per total number of units. All amenities are 1 point items.

The number of bathrooms in the two bedroom units has changed from two bathrooms as committed to in the application to one bathroom. On December 4, 2008 the applicant made formal request to FHFC Staff to allow the two bedroom units to have one bathroom.

Approval of these changes by the Florida Housing Board of Directors is a condition of this loan recommendation.

3. The overall site is comprised of two parcels, Phase I and Phase II. Subsequent to filing the application, minor changes to the individual boundary lines were made to accommodate certain building locations. Therefore, the size of Phase II has been decreased from 5.21 acres to 4.87 acres. The number of buildings and units and unit mix has remained the same. On December 3, 2008, the applicant made formal request to FHFC Staff to allow this

EXHIBIT A, PAGE 8



December 4, 2008

change to the size of the development site. FHFC Staff approved the change on December 3, 2008.

4. Development costs have increased from $12,895,132 in the application to $13,001,307, primarily due to increases in construction costs, financial costs, and developer fee.

5. On November 7, 2008, the applicant filed a Petition for Waiver requesting that the Supplemental loan no longer be forgivable and the term thereof be extended. See the Waiver Requests section below.

These changes have no material impact to the loan recommendation for this development.

Does the Development Team have any FHFC Financed Developments on the Past Due/Non-Compliance Report? Florida Housing’s Past Due Report dated October 21, 2008 reflects no properties as past due. Florida Housing’s Asset Management Non-Compliance Report dated October 17, 2008 reflects Northbridge at Millenia II as non-compliant for failure to meet 126-unit overall set aside requirement. This loan recommendation is subject to satisfactory resolution (as determined by FHFC) of any outstanding past due or non-compliance notices applicable to the development team by closing of the loan(s). Strengths: 1. The principals, developer, general contractor, and the management company are

experienced in affordable multifamily housing. 2. The principals have sufficient experience and the guarantor has substantial financial

resources to develop, construct and operate the proposed development. Other Considerations: None Mitigating Factors: None Waiver Requests/Special Conditions:

On November 7, 2008, the applicant filed a Petition for Rule Waiver which requests a variance from Rule 67-48.0075(7)(a)(1), F.A.C. that provides for the forgiveness of Supplemental Loan principal at the end of the 15-year Affordability Period provided the units for which the Supplemental Loan is awarded are targeted to ELI households for at least 15 years. Applicant requests that the Supplemental Loan be payable at the end of the initial 15-year period and that at the end of the initial 15-year period that Applicant be given an automatic extension on the maturity date of the ELI loan to a date that is co-terminus with the senior financing if the units for which the Supplemental loan was awarded were targeted to ELI households during that initial 15 year period.

EXHIBIT A, PAGE 9



December 4, 2008

Seltzer’s loan recommendation is subject to approval of the applicant’s Waiver Request by the FHFC Board of Directors.

Additional Information: 1. Phases I and II – The Malabar Cove apartment community consists of Phases I (76 units,

2007 SAIL and Supplemental) and II (the subject). Both phases will be constructed concurrently. The development will be operated as a single property and residents will share access, features and amenities. Both phases will receive first mortgage loan financing through the sale of tax-exempt bonds issued by the Brevard County Housing Finance Authority.

2. Stabilized Occupancy: The subject is located in Palm Bay, Brevard County, Florida. In its September 15, 2008, Market Study, Novogradac and Company, L.L.P. (“Novogradac”), concluded a stabilized occupancy assumption of 94% (not including a 1% collection loss). Novogradac surveyed four restricted rent comparable properties in the subject’s sub-market. Average occupancy was reported at 87%. Utilizing monthly Occupancy Reports published by FHFC on its website, SMG analyzed historical data for two of Novogradac’s four comparable properties. Average occupancy for the nine, three and one month periods ending August 31, 2008 is reported at 87%, 90%, and 89%, respectively. Occupancy data for the other two properties is only reported to FHFC on an annual basis. Telephone surveys for these two properties report findings consistent with those of Novogradac. In addition, Novogradac provided historical occupancy rates, 2002 to 2007, for the same four properties. Average occupancy for 2004, 2005, and 2006 exceeded 95%. Average occupancy dropped to 92% in 2007, evidencing the beginning of a weakening market. This trend has continued into 2008, though based on the nine, three and one month averages cited above it appears that the overall market has stabilized and shows some signs of strengthening.

There have been no new affordable (serving 60% or less of the AMI) developments introduced to the market, and therefore, the supply of traditional affordable housing apartment units has remained steady. Novogradac has calculated over 2,000 income qualified renter households in the sub-market, representing a capture rate for the subject of 6.1%. Capture rates less than 10% are generally believed to be an indicator of sufficient demand. Novogradac concludes that the reduced occupancy rate is directly related to the current economic downturn in general, and to the decline in the single family home market specifically. Many single family foreclosed and unoccupied investor properties have entered into the rental market at rates that are competitive with the traditional affordable housing apartment units. Novogradac believes the current situation to be temporary and that single family home values will recover in the future. As home values recover, single family homes will revert to home ownership and no longer be available to the rental market or rents for the single family homes will rise to historical levels and no longer directly compete with the traditional

EXHIBIT A, PAGE 10



December 4, 2008

affordable housing apartment units. Novogradac concludes that when the supply of competing single homes is reduced to normal levels, affordable housing occupancy levels will increase to levels just below (which recognizes the subject’s additional units) those experienced between 2004 and 2006. Seltzer concludes that the underlying economic data, and its own due diligence, supports Novogradac’s stabilized occupancy assumption of 94% (not including a 1% collection loss). Accordingly, SMG has utilized this assumption for purposes of determining pro forma net operating income.

3. Achievable Rents: A comparable rent analysis for competing properties at 60% or less of AMI indicate that maximum allowable 2008 rents are not being obtained. In fact, current rent levels are below 2007 maximum allowable rent levels. Further, historical surveys indicate that rental rates in the Palm Bay market have been less than the maximum allowed. Novogradac concludes that this condition is not temporary and recommends rents for the two, three, and four bedroom units at rates that are 11%, 10%, and 12%, respectively, less than the 2008 maximum allowable rents. The recommended rental rates for the subject are somewhat higher than the rents currently being obtained in the subject market. This favorable adjustment is reflective of the superior condition and amenity package, along with the competitive unit sizes, offered at the subject. The subject also has eight units set-aside for tenants earning 33% or less of the AMI. None of the competing properties offer units at this set-aside. Based on a lack of competing supply, Novogradac concludes that the 33% set-aside units will obtain the maximum allowable 2008 rents. Seltzer concludes that the underlying economic data, and its own due diligence, supports Novogradac’s rental rate assumptions. Accordingly, SMG has utilized these assumptions for purposes of determining pro forma net operating income.

4. Economic Occupancy – Seltzer’s pro forma economic occupancy (estimate of actual collected rents as a percentage of maximum allowable rents at 100% occupancy) assumption is 85%. This percentage is somewhat greater than what comparable properties reported in 2007 and are most likely achieving in 2008. This favorable adjustment is reflective of the superior condition and amenity package, along with the competitive unit sizes, offered at the subject.

5. Rate Cap / Collar Agreement: The applicant has submitted a draft Rate Collar Agreement between the applicant and South Fork Financial, L.L.C., a related party, to provide a cap and a floor on the interest rate of the BCHFA bonds. It is hereby agreed by all parties to this transaction that in no event will any payments be made under the Agreement prior to the calculation and payment of SAIL loan interest and applicable fees.

Issues and Concerns: 1. Existing Property Impact – The Novogradac market study identifies two existing affordable

housing properties in the subject’s immediate sub-market (generally defined as a ten mile ring). Madalyn Landing (304 units) is located approximately 0.4 mile from the subject. Park at Palm Bay (234 units) is located approximately 2.7 miles from the subject. Both developments were partially financed with MMRB issued by FHFC and the sale of “in kind”

EXHIBIT A, PAGE 11



December 4, 2008

4% HC with 100% of the units set aside for tenants earning 60% or less of the AMI. Neither property has bond financing credit enhancement by Florida Housing’s Guarantee Program.

Both transactions have experienced financial trouble. Park at Palm Bay completed construction in December 2001. The development had a slower than anticipated lease-up and failed to meet stabilized occupancy requirements. In 2003, the original general partner was replaced by an entity approved by the HC equity investor limited partner. Affiliates of the HC equity investor limited partner have advanced funds to cover operating deficits and reduce outstanding debt in excess of $3.0 million. Economic occupancy was reported at 83% for the year ended December 31, 2007, and 85% for the six month period ended June 30, 2008. Average occupancy for the nine, three, and one month periods ending August 31, 2008, was 90%, 91%, and 90%, respectively.

Madalyn Landing completed construction in 2000. The development had a slower than anticipated lease-up and failed to meet stabilized occupancy requirements. Through 2004, the general partner funded operating deficits in excess of $3.5 million. In connection with the 2005 first mortgage refinancing, operating deficit loans totaling approximately $3.9 million was converted to equity. The general partner funded no operating deficits in 2005 and 2006 and $42,500 in 2007. Correspondence received from the developer indicates current economic occupancy at less than 80%.Average occupancy for the nine, three, and one month periods ending August 31, 2008, was 83%, 88%, and 87%, respectively.

The subject will compete directly with both Madalyn Landing and Park at Palm Bay. Novogradac does conclude that there are ample eligible renters in the sub-market, and once the current housing crisis eases the subject will achieve stabilized occupancy of 94%. However, the subject will have a competitive advantage as it relates to age, condition, amenities and unit size. This would suggest that economic occupancy at Park at Palm Bay and Madalyn Landing would be somewhat less than that of the subject and possibly at below break even levels once the market stabilizes. During the subject’s initial lease-up, it is anticipated that the subject will offer various move-in incentives that will be attractive to existing tenants at both Park at Palm Bay and Madalyn Landing. It is likely that some number of existing tenants from these developments will re-locate to the subject. Construction of the subject development will likely have a negative impact to both Madalyn Landing and Park at Palm Bay.

2. HC Equity Provider: The HC equity provider is FL Capital Holdings Malabar Cove II, L.L.C.

(“FCHMC”). FCHMC is the 99.98% Investment Limited Partner. FCH Partners II, Ltd., a Florida limited partnership, is the .01% Special Limited Partner. FCH Partners II, Ltd. was formed as a Florida limited partnership in December 2007. FL Tax Holdings, Ltd. is the sole member of the FCHMC and was formed in July 2005. Members, partners and principals of these entities are also members, partners, and principals of the developer and applicant entities. This is not an arms length transaction.

In and of themselves, these entities have minimal experience in providing equity investments in real estate. However, their members and partners and the principals thereof have extensive experience in the development of multifamily properties, and have elected to directly invest in the property in lieu of syndication due to the recent decline in syndication exchange rates offered in the current equity investment market.

EXHIBIT A, PAGE 12



December 4, 2008

Financial statements provided for FCHMC and FL Tax Holdings, Ltd. do not reflect sufficient capital or liquidity to fund the purchase amount indicated in the HC equity commitment letter. The developer representative has stated that additional funds in an amount sufficient to complete the equity investment will be advanced to FCHMC prior to or concurrent with bond and SAIL loan funding.

A condition to the private placement bond commitment from Compass Bank is that prior to release of any bond funds, all equity funds required to complete construction be expended. Similarly, SMG recommends that prior to the release of any SAIL/Supplemental funds, all equity funds required to complete construction be expended.

3. Cross Collateralization: The subject is the second phase of the Malabar Cove Apartment Community. Both phases will be partially financed with first mortgage financing funded through the sale of tax-exempt bonds issued by the Brevard County Housing Finance Authority (“BCHFA”) in the total amount of $13,100,000. Amounts allocated to Phase I and II total $6,700,000 and $6,400,000, respectively, with each phase having a separate mortgage and loan agreements in the respective amounts. As a condition of the related loans each related property will serve as collateral for each of the related loans and each related mortgagors will execute loan instruments to evidence this condition. The lien of each instrument is spread to encumber all of the related properties to secure the obligation of each related mortgagor. Each related mortgagor also agrees that the occurrence and continuance of any event of default under any of the related loan documents shall constitute an event of default under each of the related instruments. In order to facilitate the issuance of the requested SAIL/Supplemental loan to Malabar Cove – Phase II, Florida Housing Staff has agreed to the following, subject to Florida Housing Board approval: The SAIL/Supplemental loan will be cross-collateralized with each phase of the development. The SAIL/Supplemental loan will be cross-defaulted with each phase of the development; however, in the event of a default on any phase, the payment of the SAIL/Supplemental loan will be accelerated and all principal, interest, and fees will be required. A recourse guaranty from the AHG Revocable Trust and Alan H. Ginsburg, individually, for the full amount of the SAIL/Supplemental loan (principal plus any outstanding interest, and related fees) will be required to be in place for the full term of the SAIL loan and for the initial affordability period of the Supplemental loan (provided the units for which the Supplemental Loan were awarded were targeted to ELI households during that initial 15 year period), to insure payment in the event of default on either of the phases. The SAIL/Supplemental loan will require annual payments of interest and fees and such payment is not subject to the availability of cash flow or deferral. At the maturity of the SAIL/Supplemental loan, all principal and unpaid interest, if any, will be due.

EXHIBIT A, PAGE 13



December 4, 2008

A SAIL/Supplemental loan Land Use Restriction Agreement (“LURA”) will be placed on Phase II of the development and will continue throughout the affordability period. In the event of default as noted above, the LURA will remain in place and future compliance monitoring fees will be paid per a net present value calculation to insure the payment of fees even after the payoff of any SAIL/Supplemental loan.

Recommendation:

SMG recommends a $2,000,000 SAIL loan and a $680,000 Supplemental loan for the construction and permanent financing of this development.

This recommendation is based upon the assumptions detailed in the Report Summary (Section A) and Supporting Information and Schedules (Section C). In addition, this recommendation is subject to the Loan Conditions (Section B). The reader is cautioned to refer to these sections for complete information.

This recommendation is only valid for six months from the date of the report.

Prepared by: Reviewed by:

Cindy Highsmith Benjamin S. Johnson Credit Underwriting Supervisor President

EXHIBIT A, PAGE 14



December 4, 2008

Overview

Construction Financing Sources

Source Lender ApplicantRevised

Applicant UnderwriterInterest

RateConstruction Debt Service

First Mortgage MMRB Brevard HFA $7,000,000 $6,400,000 $6,400,000 5.71% $329,810SAIL Loan FHFC $2,000,000 $1,171,922 $1,308,738 1.38% $18,009Supplemental Loan FHFC $680,000 $680,000 $680,000 0.00% $0Bridge Loan Interest FCH MC I $0 $144,000 $144,000 $0HC Equity Bridge Loan FCH MC I $2,683,975 $4,021,712 $4,021,712 12.00% $482,605Defer. Developer Fee Atlantic $531,157 $446,857 $446,857Total $12,895,132 $12,864,491 $13,001,307 $830,424

MMRB Financed First Mortgage Loan

The Brevard County Housing Finance Authority (“BCHFA”) will provide first mortgage loan financing funded through the sale of multifamily municipal revenue bonds (“MMRB”) issued by BCHFA. Bonds issued total $13,100,000 for Phases I and II. Bonds allocated to Phases I and II total $6,700,000 and $6,400,000, respectively.

Based on an October 24, 2008, financing proposal, Compass Bank was to purchase the bonds through a private placement structure. The applicant has confirmed that the BCHFA bonds closed November 13, 2008. The interest only construction/stabilization period will be for a term up to 24 months. Terms during this period include a floating interest rate, payments of interest only, with a floor interest rate equal to the start rate. The interest rate will be calculated at 65% of 30-day LIBOR plus 225 basis points (“bps”). The floor rate will be equal to the initial start rate. The anticipated “all in” interest rate of 5.71% is calculated as follows: base rate of 2.29% (October 21, 2008 30-day LIBOR of 3.53% times 65%) plus 225 bps, plus Trustee fee, 4 bps, Issuer fee, 12.5 bps, and underwriter spread, 100 bps. There is also an origination fee equal to 65 bps of the bond amount.

Seltzer’s calculation of Construction Debt Service is based on the interest rate calculated above and an average MMRB loan balance of 57% during the construction period. Capitalized Interest included in the Development Budget is inclusive of this amount, but also takes into account Debt Service during the Stabilization Period and GIC earnings on undisbursed bond funds.

MMRB Private Placement/ Purchase:

The MMRB are anticipated to be privately placed or purchased by Compass Bank.

EXHIBIT A, PAGE 15



December 4, 2008

Other Construction Period Sources of Funds:

During the construction/stabilization phase, additional financing sources include a SAIL Mortgage loan, a Supplemental Mortgage Loan, imputed interest on bridge loan, an HC equity bridge loan, and deferred developer fees. See the Permanent Financing section below for details.

The SAIL loan totals $2,000,000. It is anticipated that only $1,308,738 of this amount will be needed to complete construction. However, the balance of these funds may be drawn during the period and held by the Trustee to cash collateralize the amount of bonds that ultimately will be retired at conversion. However, no SAIL or Supplemental funds are to be disbursed until all HC equity funds required to complete construction are expended.

Construction/Stabilization Period:

Based upon demographic and market analysis, including existing and proposed developments, the appraiser projects Malabar Cove – Phase II to be absorbed at a rate of approximately six units per month, slightly higher than Phase I due to the lack of four bedroom units in the market which Phase II will supply. SMG contemplates absorption beginning the month the first certificate of occupancy is issued, which is assumed to be month 8. This suggests a stabilized occupancy will be reached within 19 months of construction commencement. SMG has utilized a 19-month construction/stabilization phase in its capitalized interest calculation.

EXHIBIT A, PAGE 16



December 4, 2008

Permanent Financing Sources



RateAmort.

Yrs.Term Yrs.

Annual Debt

ServiceFirst Mortgage MMRB Brevard HFA $7,000,000 $4,800,000 $4,800,000 5.21% 30 32 $316,644SAIL Loan FHFC $2,000,000 $2,000,000 $2,000,000 1.38% N/A 32 $27,521Supplemental Loan FHFC $680,000 $680,000 $680,000 0.00% N/A 32 $0Bridge Loan Interest FCH MC II $0 $144,000 $144,000HC Equity FCH MC II $2,982,194 $4,468,569 $4,468,569Defer. Developer Fee Atlantic $232,938 $771,922 $908,738Total $12,895,132 $12,864,491 $13,001,307 $344,165 MMRB Financed First Mortgage Loan:

Upon construction completion and confirmation that the 50% test has been met, the bonds will be paid down to $4,800,000. Principal payments will be based on a 30-year amortization schedule and a 5.5% imputed interest rate. The actual interest rate will be calculated at 65% of 30-day LIBOR plus 175 basis points (“bps”), but not less than the floor rate. The floor rate will be equal to the initial start rate. The anticipated “all in” interest rate is calculated as follows: base rate of 2.29% (October 21, 2008 30-day LIBOR of 3.53% times 65%) plus 175 bps, plus Trustee fee, 4 bps, Issuer fee, 12.5 bps, and underwriter spread, 100 bps, for a combined “all in” rate of 5.21%. The term of the first mortgage loan will be up to 32 years (24 month construction stabilization plus 30-year permanent period).

As indicated earlier, Compass Bank will purchase the bonds through a private placement structure, with the option to put bonds anytime after the 17th anniversary of closing on the bonds, subject to 12 months written notice. In the event that Compass Bank exercises this option and the borrower must find alternative financing, the developer has requested that the term of the bonds be set at 35 years for added flexibility in the event of a refinancing.

Proposed SAIL Loan:

The applicant has applied for a $2,000,000 SAIL loan to be issued by Florida Housing to finance this development. The SAIL loan will have a term co-terminus with the maturity date of the first mortgage as provided by Rule. It will be non-amortizing and will bear 1% simple interest per annum.

Subject to Florida Housing Board approval, as discussed in the Issues and Concerns section of this CUR: The SAIL loan will be cross-collateralized and cross-defaulted with Phase I of the development and in the event of a default on either phase, the payment of the SAIL loan(s) will be accelerated and all principal, interest, and fees will be required. The SAIL loan will require annual payments of interest and fees and such payment is not subject to the availability of cash flow or deferral. At the maturity of the SAIL loan, all principal and unpaid interest, if any, will be due. This credit underwriting assumes interest payments at 1.38% (simple interest rate plus applicable fees).

EXHIBIT A, PAGE 17



December 4, 2008

Supplemental Loan:

The Supplemental Mortgage Loan in the amount of $680,000 is non-amortizing and will bear 0.00% simple interest per annum.

The Supplemental Loan shall be payable at the end of the initial 15-year period, however, at the end of the initial 15-year period the Applicant shall be given an automatic extension on the maturity date of the ELI loan to a date that is co-terminus with the senior financing if the units for which the Supplemental loan was awarded were targeted to ELI households during that initial 15 year period. (See Rule Waiver section for further information.)

Subject to Florida Housing Board approval, as discussed in the Issues and Concerns section of this CUR: The Supplemental loan will be cross-collateralized and cross-defaulted with Phase I of the development and in the event of a default on any phase, the payment of the Supplemental loan(s) will be accelerated and all principal, interest, and fees will be required. The Supplemental loan will require annual payment of fees and such payment is not subject to the availability of cash flow or deferral.

Housing Credits (“HC”) Equity Investment:

The applicant has applied to Florida Housing to receive 4% Housing Credits directly from the Federal Treasury. However, a HC recommendation will be made in a separate underwriting report.

A Limited Liability Limited Partnership Agreement dated October 1, 2008 reflects FL Capital Holdings Malabar Cove II, L.L.C., a Florida limited liability company, as 99.98% Investment Limited Partner, and FCH Partners II, Ltd., a Florida limited partnership, as .01% Special Limited Partner, and is summarized as follows:

Capital Contributions AmountPercent of

Total When Due

1st Installment $4,021,712 90%

Prior to or concurrent with the construction loan closing, this installment will be in the form of a bridge loan.

2nd Installment $446,857 10%

Latest of no event causing a repurchase of LP interest, GP Affidavit of no default under LP Agree, IRS Forms 8609, 100% occupancy of 100% of the HC units, or 1/1/09

Total $4,468,569 100% Annual Tax Credits per Syndication Agreement: $496,557 Total HC Syndication: $4,965,073 Syndication Percentage (combined limited partner interest): 99.99% Calculated HC Exchange Rate (per dollar): $0.900 Proceeds Available During Construction via Bridge Loan: $4,021,712

EXHIBIT A, PAGE 18



December 4, 2008

Although the applicant committed to set aside 70% of the units for the SAIL loan, the above calculations are based upon the applicant setting aside 100% of the units for purposes of the 4% HC application. The draft Limited Liability Limited Partnership Agreement requires the general partner to use reasonable efforts to cause up to 100%, but no less than 70%, of the residential rental units to be occupied by individuals with income equal to no more than 60% of the AMI, as adjusted for family size. It is also noted that the draft Limited Liability Limited Partnership Agreement provides for an internal bridge loan from the Investment Limited Partner (or its sole member) to the partnership in a maximum amount of $4,021,712 bearing interest at 12% per annum. This bridge loan will be made available prior to or simultaneously with the closing of the first mortgage loan which meets the requirement for a minimum of 15% of equity to be paid in at closing. All HC equity funds required to complete construction must be expended prior to bond, SAIL, or Supplemental funds being disbursed.

Deferred Developer Fee

Assuming a Hard Cost Contingency of $326,401 is expended during construction, Developer fees totaling $908,738 must be deferred from payment during the permanent/amortization period after all available MMRB, SAIL and Supplemental loan proceeds plus HC Equity contributions have been received.

Per the 2008 SAIL Rule, the applicant has the option to reduce the 1.10 to 1 debt service coverage requirement on the SAIL loan plus any superior loans to 1.00 to 1 by deferring at least 35% of its developer fee for at least six months following construction completion. The operating pro forma indicates the developer will have to defer additional developer fees of $631,321 for at least six months following construction completion to meet the 1.00 to 1 combined debt service coverage for the first mortgage and SAIL loan.

EXHIBIT A, PAGE 19


MALABAR COVE – PHASE I I PAGE A-17

December 4, 2008

Uses of Funds

Applicant Total Costs

Applicant Revised

Total CostsUnderwriter Total Costs

Actual Construction CostsConstruction ContractSite Work $0 $0 $1,818,596Off-Site $0 $0 $0New Rental Units $6,120,000 $6,528,026 $4,669,931Rehabilitat ion of Existing Units $0 $0 $0Accessory Buildings $0 $0 $0Recreational Amenities $0 $0 $39,500Rehabilitat ion of Common Areas $0 $0 $0Contractor's Fee (Not to Exceed 14%) $856,799 $913,925 $913,924Total Construction Contract $6,976,799 $7,441,951 $7,441,951Other-Hard Cost Contingency $305,999 $326,401 $326,401Total Actual Construction Costs $7,282,798 $7,768,352 $7,768,352

Notes to the Actual Construction Costs:

1. The applicant has provided an executed construction contract between the applicant and CPG Construction, L.L.L.P. dated August 12, 2008. The contract is a “Cost of the Work plus a Fee with a Negotiated Guaranteed Maximum Price” contract. This contract includes all construction hard costs and contractor’s fees. The contract provides for retainage of 10% until 50% completion and 5% retainage thereafter, which meets or exceeds Florida Housing’s retainage requirements. The contract requires substantial completion of the entire work not later than 480 days from the date of commencement which will be fixed in a notice to proceed. Final payment will be made when the contract has been fully performed and within 30 days after issuance of the Architect’s final Certificate for Payment.

2. General contractor fees are within the Rule.

3. Other represents an amount for hard cost contingency equal to 4.39% of the construction contract which is within the Rule requirement. This hard cost contingency is currently included in the construction contract amount; however, no general contractor fee is calculated on the hard cost contingency. Removal of the hard cost contingency from the construction contract is a condition to closing.

4. SMG received a Pre-Construction Analysis/Plan and Cost Review (“PCA/PCR”) from Construction Analysis Systems, Inc. (“CASI”) dated April 2008 and last updated dated October 13, 2008. Complete results of the PCR report are provided in Section C of this report.

EXHIBIT A, PAGE 20



December 4, 2008


Applicant Revised


General Development CostsAccounting Fees $5,000 $0 $0Appraisal $10,000 $10,000 $10,000Architect 's Fee - Design $75,200 $107,995 $107,995Architect 's Fee - Supervision $0 $7,500 $7,500Builder's Risk Insurance $27,360 $55,080 $55,080Building Permit $50,000 $153,963 $153,963Brokerage Fees - Land $86,400 $0 $0Brokerage Fees - Buildings $0 $0 $0Closing Costs - Construction Loan $0 $0 $0Closing Costs - Permanent Loan $0 $0 $0Engineering Fee $79,045 $75,284 $75,284Environmental Report $15,000 $4,955 $4,955FHFC Administrative Fee $26,511 $61,099 $40,984FHFC Application Fee $5,000 $0 $2,000FHFC Compliance Fee $43,110 $43,028 $47,981FHFC Credit Underwriting Fee $18,410 $0 $15,262Impact Fees $492,713 $492,712 $492,712Inspection Fees $0 $0 $0Insurance $0 $0 $0Legal Fees $70,000 $200,000 $79,000Market Study $0 $0 $2,500Marketing and Advertising $51,400 $50,400 $50,400Pre-Constr. Analysis / Existing Prop. Eval. $0 $0 $0Property Taxes $15,000 $40,000 $40,000Soil Test $15,000 $3,584 $3,584Survey $25,000 $5,724 $5,724Title Insurance $40,000 $40,000 $40,000Utility Connection Fees $148,400 $148,400 $148,400Other- Inspections, Photos, Prints $257,089 $50,000 $50,000Contingency $77,781 $0 $0Total General Development Costs $1,633,419 $1,549,724 $1,433,324

Notes to the General Development Costs:

1. The Accounting budget to secure the final cost certification for HC is included in Miscellaneous.

2. The cost of the original appraisal performed for BCHFA Bond closing is not known; however, the appraisal performed for SAIL underwriting was $2,400; therefore, the applicant’s budget is reasonable. The cost of the market study performed for SAIL underwriting is shown in the Market Study line item.

3. Closing Costs-Construction and Closing Costs-Permanent are included in other line items.

EXHIBIT A, PAGE 21



December 4, 2008

4. The FHFC Administrative Fee is based on 8% of the annual estimate of HC.

5. The Compliance Monitoring fee is based on 100% of units being set aside for 30 years (the HC commitment) per the 2008 FHFC fee chart.

6. The FHFC Credit Underwriting fee reflects the 2008 SAIL and Supplemental underwriting fees ($15,262).

7. Supporting documentation has been submitted for the impact fees and utility connection fees.

8. Inspection fees are reportedly included in the Architect-Supervision line item.

9. Insurance is included in Builder’s Risk Insurance.

10. The cost of the Pre-Construction Analysis and update is included in the Architect-Supervision line item.

11. Other General Development Costs are based on the applicant’s estimates, which appear reasonable.


Applicant Revised


Financial CostsConstruction Loan Origination Fee $105,000 $0 $41,600Construction Loan Interest $165,523 $226,523 $389,891Construction Loan Bond Issuance Costs $288,000 $64,050 $185,050Bridge Loan Interest $163,000 $144,000 $144,000Interest Rate Cap $0 $32,000 $32,000Guaranty Fee $0 $128,000 $0Perm. Loan Orig. Fee/SAIL/Suppl. Commit. Fees $70,000 $0 $26,800Prepaid Replacement Reserves $0 $0 $18,000Total Financial Costs $791,523 $594,573 $837,341 Notes to the Financial Costs:

1. Construction Loan Origination Fee reflects the Compass Bank origination fee (65 basis points).

2. Bond Loan Interest is Seltzer’s calculation based upon an MMRB funding schedule provided by the applicant.

3. The Construction Loan Bond Issuance Costs include the HFA Issuer fee, the HFA financial advisor, the bond purchaser fee, the bond and issuer counsel, and trustee counsel and trustee fee.

4. The developer included a budget for imputed bridge loan interest expense on an internal loan from the Investment Limited Partner (or its sole member) to the partnership which will be paid back from the equity capital contribution at completion, in order to include that interest expense in HC eligible basis.

EXHIBIT A, PAGE 22



December 4, 2008

5. Permanent Loan Origination Fee/ SAIL/Supplemental Commitment Fees reflect the SAIL loan commitment fee in the amount of 1% of the recommended SAIL loan amount ($20,000) and the Supplemental loan commitment fee in the amount of 1% of the recommended Supplemental loan amount ($6,800).

6. The applicant will pre-pay replacement reserves for Years 1 and 2.


Applicant Revised


Non-Land Acquisition CostsBuilding Acquisition Costs $0 $0 $0Other $0 $0 $0Total Non-Land Acquisition Costs $0 $0 $0 Notes to the Non-Land Acquisition Costs:

1. Since this is a new construction development, there are no non-land acquisition costs.


Applicant Revised


Development Cost Before Land & Developer Fee $9,707,740 $9,912,649 $10,039,017

Other Development CostsDeveloper Fee on Acquisition of Buildings $0 $0 $0Developer Fee $1,747,392 $1,784,275 $1,675,783Other-Guaranty Fees $0 $0 $128,000Total Other Development Costs $1,747,392 $1,784,275 $1,803,783 Notes to the Other Development Costs:

1. The Developer Fee is equal to 18% of development costs exclusive of land acquisition and developer fees for tax exempt bond transactions per Rule.

2. Other reflects the reallocation of the third party guaranty fee ($128,000) as a subset of Developer fee as these services are those typically provided by the Developer. Therefore, the amount of developer fee available for deferral is $1,675,774.

EXHIBIT A, PAGE 23



December 4, 2008


Applicant Revised


Development Cost Before Land $11,455,132 $11,696,924 $11,833,740

Land Acquisition CostsLand $1,440,000 $1,167,567 $1,167,567Other $0 $0 $0Total Land Acquisition Costs $1,440,000 $1,167,567 $1,167,567

Notes to the Land Acquisition Costs:

Applicant submitted a Vacant Land Contract (“Underlying Contract 1”) from Mary Monts de Oca, Seller, to Southern Investment Group, L.L.L.P. dated December 28, 2006 to purchase a parcel of land (approximately 6 acres) for the purchase price of $1,200,000, said parcel to be assembled with another parcel of land owned by Marilyn Platt, with a closing not later than April 30, 2007. A Reinstatement and Amendment to Contract for Sale and Purchase executed May 3, 2007 extended closing to May 31, 2007. A Second Amendment to Contract for Sale and Purchase executed June 8, 2007 extended closing to June 30, 2007.

Applicant also submitted a Vacant Land Contract (“Underlying Contract 2”) from Marilyn Platt, Seller, to Southern Investment Group, L.L.L.P. dated December 28, 2006 to purchase a parcel of land (approximately 5 acres) for the purchase price of $1,200,000, said parcel to be assembled with another parcel of land owned by Mary Monts de Oca, with a closing not later than April 30, 2007. A Reinstatement and Amendment to Contract for Sale and Purchase executed May 3, 2007 extended closing to May 31, 2007. A Second Amendment to Contract for Sale and Purchase executed June 8, 2007 extended closing to June 30, 2007. Third and Fourth Amendments to the Contract were executed further extending the closing date but copies were not provided for review.

An Assignment and Assumption of Vacant Land Contract dated January 10, 2008, by and between Southern Investment Group, L.L.L.P., and Southern Malabar Cove, L.L.C., assigned the Underlying Contracts, as amended, to the latter.

A Warranty Deed dated January 10, 2008 was executed by Mary Monts de Oca to Southern Malabar Cove, L.L.C. and recorded in Official Record Book 5837, Page 7443, of the Clerk of the Courts of Brevard County.

A Warranty Deed dated January 10, 2008 was executed by Marilyn Platt to Southern Malabar Cove, L.L.C. and recorded in Official Record Book 5837, Page 7440, of the Clerk of the Courts of Brevard County.

A Warranty Deed dated February 21, 2008 was executed by Mary Monts de Oca to Southern Malabar Cove, L.L.C. and recorded in Official Record Book 5847, Page 6867, of the Clerk of the Courts of Brevard County.

A title commitment dated October 10, 2008 indicates that there is a recorded Agreement Not to Encumber or Transfer Property signed by Southern Malabar Cove, L.L.C. with Regions Bank. Release of this Agreement is a condition to loan closing.

EXHIBIT A, PAGE 24



December 4, 2008

Applicant subsequently submitted a Purchase Agreement by and between Southern Malabar Cove, L.L.C., a Florida limited liability company, as Seller, and Malabar Cove II, Ltd., the applicant, as Purchaser, dated March 12, 2008. Under the terms of this Purchase Agreement, the purchase price is $1,440,000 and closing shall be no later than December 31, 2008, and at the Purchaser’s option, in lieu of a warranty deed, the Seller may execute a 99 year lease of the premises to the Purchaser. In the event the Purchaser elects to enter into a long-term lease with Seller, the purchase price will be paid to Seller as a one-time payment at the time the lease is entered into. No additional payments will be required under the lease, other than standard maintenance and operational costs. Upon closing, Purchaser shall pay to Global Realty Company, L.L.L.P., a related entity, a 6% real estate commission.

The Applicant advises that they intend to lease the property. Draft lease documents are described below. Receipt and satisfactory review of an executed ground lease and sublease is a condition to loan closing. Applicant submitted a draft Ground Lease by and between Southern Malabar Cove, L.L.C., as Lessor, and Malabar Cove LHC II, L.L.C., as Lessee, for Phase II of the development. The Ground Lease has a term of 96 years and because the Lessee is a wholly-owned subsidiary of the Lessor, upon the Lease Commencement Date, the Lessee will pay to Lessor a single payment equal to $10.00 as the sole rent paid by Lessee to Lessor for the term of the Lease. The Ground Lease grants the Lessee the right and option to purchase the Premises for the purchase price of $1.00, provided that all payments are current and that Lessee has obtained approval from the City of Palm Bay (or such other governmental authority then responsible for the land use regulations of the premises) with respect to the splitting of the premises from real property that is contiguous to the premises and under common ownership of the Lessor. Applicant also submitted a draft Sublease by and between Malabar Cove LHC II, L.L.C., as Sublessor, and Malabar Cove II, Ltd. as Sublessee, for Phase II of the development. The Sublease has a term of 96 years and because the Sublessee is a wholly-owned subsidiary of the Sublessor, upon the Sublease Commencement Date, the Sublessee will pay to Sublessor a single payment equal to $10.00 as the sole rent paid by Sublessee to Sublessor for the term of the Sublease. The Sublease grants the Sublessee the right and option to purchase the Premises for the purchase price of $1.00 upon the first to occur of: (i) the expiration of the term or (ii) within 7 days after the date Sublessor notifies Sublessee that the Purchase Option has been activated. To support its acquisition cost budget, applicant also submitted a draft Assignment of Member Interest wherein the fee simple title holder of the property, Southern Malabar Cove, LLC, who is also the sole member of Malabar Cove LHC II, L.L.C., will transfer and assign all of its sole member interest in Malabar Cove LHC II, L.L.C. to the applicant for a stated consideration of $1,167,567.

The appraisal estimated a leasehold value of $1,200,000, which supports the applicant’s reported purchase price.

EXHIBIT A, PAGE 25



December 4, 2008


Applicant Revised


Total Development Cost $12,895,132 $12,864,491 $13,010,367

EXHIBIT A, PAGE 26



December 4, 2008

Operating Pro forma ANNUAL PER UNIT

$618,396 $8,589

$19,440 $270$39,312 $546$34,200 $475

$0 $0$711,348 $9,880

Vacancy Loss - 6.0% ($42,681) ($593)Collection Loss - 1.0% ($7,113) ($99)

$661,554 $9,188

$41,605 $578$16,776 $233

Management Fees 4.6% $30,520 $424$21,600 $300$79,200 $1,100$72,000 $1,000

$0 $0$29,160 $405$14,400 $200

$0 $0$9,000 $125

$0 $0$0 $0

$314,261 $4,365

$347,293 $4,824

$316,644 $4,398$27,521 $382

$0 $0$0 $0$0 $0

$344,165 $4,780

$3,128 $43

Other Fees - Agency/Trustee/Servicer

Total Expenses

Net Operating Income

Debt Service Payments

Total Debt Service Payments

Operating Income After Debt Service - Before Tax Cash Flow

First MortgageSAIL LoanOther - Supplemental LoanOther Fees - Letter of Credit/Guarantee

Ground LeaseReplacement ReserveOther: Resident ProgramsOther: Pest Control

UtilitiesMarketing and AdvertisingMaintenance and RepairsGrounds Maintenance

InsuranceVariable:

General and AdministrativePayroll Expenses

Total Effective Gross Revenue

ExpensesFixed:

Taxes

DESCRIPTIONRevenue

Gross Potential Rental Revenue

Less:Gross Potential Income

Other Income:Washer/Dryer RentalsCable Television IncomeMiscellaneous IncomeInterest Income

EXHIBIT A, PAGE 27



December 4, 2008

1.101.011.011.01

47.5%92.6%

Financial Ratios

Debt Service Coverage Ratios

Operating Expense RatioBreak-Even Ratio

Debt Service Coverage - First OnlyDebt Service Coverage - First and SecondDebt Service Coverage - All MortgagesDebt Service Coverage - All Mortgages and Fees

Notes to the Operating Pro forma and Ratios:

1. The SAIL program does not impose any rent restrictions. However, this development will be requesting Housing Credits (“HC”) in conjunction with the tax exempt bond financing, which will impose rent restrictions. Therefore, restricted rents are based upon the 2008 restricted rents published by Florida Housing, less utility allowances as required by the HC Program. Utility allowances reflect the resident paying electricity, and the applicant paying water, sewer and trash disposal. Utility allowances are based on a Florida Power and Light utility provider letter. No manager/employee units are anticipated. The rent roll is shown below:

MSA/County: Palm Bay-Melbourne-Titusville/Brevard

Bed-rooms Baths

No. of

Units

Unit Size (SF)

Median Income

%

Max Gross

HC Rents

Utility Allow-ance

Max Net HC Rents

Applicant Rents

Underwriter Rents

Annual Rents

2 1 2 978 33% $455 $90 $365 $365 $365 $8,7602 1 14 978 60% $828 $90 $738 $738 $665 $111,7202 1 2 1,075 33% $455 $90 $365 $365 $365 $8,7602 1 14 1,075 60% $828 $90 $738 $738 $665 $111,7203 2 1 1,194 33% $525 $122 $403 $404 $403 $4,8363 2 3 1,194 60% $956 $122 $834 $834 $759 $27,3243 2 4 1,296 60% $956 $122 $834 $834 $759 $36,4324 3 1 1,470 33% $586 $127 $459 $460 $459 $5,5084 3 14 1,470 60% $1,066 $127 $939 $940 $840 $141,1204 3 2 1,572 33% $586 $127 $459 $460 $459 $11,0164 3 15 1,572 60% $1,066 $127 $939 $940 $840 $151,200

Totals 72 91,582 $618,396

2. Underwriter rents are set at the lower of Maximum Net HC Rents or Appraiser Rents. Appraiser Rents less than Maximum Net HC Rents are based on current and historical market conditions.

3. Washer/Dryer Rental Income is based upon renting washer/dryers at $45 per month with a 50% penetration rate, which is supported by the market comparables and the appraisal.

4. Cable Television Income reflects net revenues from cable television service based upon annualized income of $65 per subscriber per month with a 70% penetration rate, which is

EXHIBIT A, PAGE 28



December 4, 2008

supported by the market comparables and the appraisal. The gross cable television cost to the applicant is included in the Utilities expense.

5. Miscellaneous Income typically includes application fees, cancellation fees, late fees, and forfeited deposits as well as excessive cleaning charges, clubhouse rental, and vending machine income, and is based on market comparables and supported by the appraisal.

6. Vacancy Loss and Collection Loss are based on the appraiser’s estimate and discussed in detail earlier in this report.

7. Management fees are based on the management agreement, which stipulates compensation of 4.5% of gross receipts, an annual tax preparation fee of $750, a credit processing fee of $25 per unit payable the month after each new resident’s occupancy, and a 40% collection fee for any bad debts collected which results in a fee of approximately 4.6%.

8. Other operating expense estimates are supported by the appraisal.

9. Replacement Reserves of $250 per unit per year meet the 2008 minimum per the Rule. The applicant has opted to pre-pay one-half of reserves for Years 1 and 2. The terms of the bonds requires $200 per unit per year in Years 1-5, an increase to $250 per unit per year in Years 6-10 and to $300 per unit per year thereafter subject to a Physical Needs Assessment in Years 9 and 19.

10. The cost of Resident Programs is included in the Administrative budget and/or the Advertising budget. These costs primarily reflect resident activities and job training. Most other resident programs are provided without charge by various local organizations.

11. Pest Control is included in Grounds Maintenance.

12. A 15-year income and expense projection shows increasing debt service coverage. This projection is attached to this report as Exhibit 1.

EXHIBIT A, PAGE 29

SMG

December 4, 2008

Section B

SAIL Loan Conditions

EXHIBIT A, PAGE 30


MALABAR COVE – PHASE I I PAGE B-1

December 4, 2008

Special Conditions This recommendation is contingent upon the review and approval of the following items by SMG and Florida Housing at least two weeks prior to closing. Failure to receive approval of these items within this time frame may result in postponement of the closing date.

1. Florida Housing’s Board approval of the modification of terms of the SAIL/Supplemental loan in connection with the cross collateralization/ cross default of the first mortgage MMRB loan

2. Florida Housing’s Board approval of the applicant’s Petition for Rule Waiver that the Supplemental loan no longer be forgivable and the term thereof be extended.

3. Release of the Agreement Not to Encumber or Transfer Property signed by Southern Malabar Cove, L.L.C. with Regions Bank

4. Receipt and satisfactory review of an executed ground lease and sublease

5. Receipt and satisfactory review of a construction contract evidencing removal of the hard cost contingency from the construction contract

6. Receipt of a legal opinion verifying the ability of the AHG Revocable Trust to act as guarantor for this development

7. The developer must defer $631,321 (35%) of its developer fee for at least six months after construction completion to meet the 1.00 to 1 combined debt service coverage for the first mortgage and SAIL loan as permitted by Rule.

General Conditions This recommendation is contingent upon the review and approval of the following items by SMG and Florida Housing at least two weeks prior to closing. Failure to receive approval of these items within this time frame may result in postponement of the closing date.

1. Borrower to comply with any and all recommendations noted in the pre-construction analysis/ plan and cost review which has been prepared by Construction Analysis Systems, Inc.

2. Signed and sealed survey, dated within 90 days of closing, unless otherwise approved by Florida Housing, and its legal counsel, based upon the particular circumstances of the transaction. The Survey shall be certified to Florida Housing and its legal counsel, as well as the title insurance company, and shall indicate the legal description, exact boundaries of the Development, easements, utilities, roads, and means of access to public streets, total acreage and flood hazard area, and any other requirements of Florida Housing.

3. Building permits and any other necessary approvals and permits (e.g., final site plan approval, water management district, Department of Environmental Protection, Army Corps of Engineers, Department of Transportation, etc.). Acceptable alternatives to this requirement are receipt and satisfactory review of a letter from the local permitting and approval authority that the above referenced permits and approvals will be issued upon receipt of applicable fees (with no other conditions), or evidence of 100% lien-free completion, if applicable. If a letter is provided, copies of all permits will be required as a condition of the first post-closing draw.

EXHIBIT A, PAGE 31



December 4, 2008

4. The final “as permitted” (signed and sealed) site plans, building plans, and specifications showing all features and amenities committed to in the application. The Geotechnical Report must be bound within the final plans and specifications.

5. Final sources and uses of funds itemized by source and line item, in a format and in amounts approved by the Servicer. A detailed calculation of the construction interest based on the final draw schedule (see below), documentation of the closing costs, and draft loan closing statement must also be provided. The sources and uses of funds schedule will be attached to the Loan Agreement as the approved development budget.

6. A final construction draw schedule showing itemized sources and uses of funds for each monthly draw. SAIL and Supplemental Loan Program loan proceeds shall be disbursed during the construction phase in an amount per Draw which does not exceed the ratio of the SAIL and Supplemental loan to the Total Development Cost, unless approved by the Credit Underwriter. The closing draw shall include appropriate backup and ACH wiring instructions.

7. Evidence of general liability, flood (if applicable), builder’s risk and replacement cost hazard insurance (as certificates of occupancy are received) reflecting Florida Housing as Loss Payee / Mortgagee, with coverages, deductibles and amounts satisfactory to Florida Housing.

8. If the development is not 100% lien-free completed at the time of initial SAIL/Supplemental loan funding, 100% Payment and Performance (“P&P”) Bonds or a Letter of Credit (“LOC”) in an amount not less than 25% of the construction contract is required in order to secure the construction contract between the general contractor and the Borrower. In either case, Florida Housing must be listed as co-obligee. The P&P bonds must be from a company rated at least “A-“by A.M. Best & Co with a financial size category of at least FSC VI. Florida Housing and/or legal counsel must approve the source, amount(s) and all terms of the P&P bonds or LOC.

9. Architect, Construction Consultant, and Borrower certifications on forms provided by Florida Housing will be required for both design and as-built with respect to Section 504 of the Rehabilitation Act, the Americans with Disabilities Act, and Federal Fair Housing Act requirements, as applicable.

This recommendation is contingent upon the review and approval of the following items by Florida Housing and its legal counsel at least two weeks before closing. Failure to receive approval of these items, along with all other items listed on counsel’s due diligence list, within this time frame may result in postponement of the closing date.

1. Documentation of the legal formation and current authority to transact business in Florida for the Borrower, the general partner/principal(s)/manager(s) of the Applicant, the guarantors, and any limited partners of the Applicant.

2. Signed and sealed survey, dated within 90 days of closing, unless otherwise approved by Florida Housing, and its legal counsel, based upon the particular circumstances of the transaction. The Survey shall be certified to Florida Housing and its legal counsel, as well as the title insurance company, and shall indicate the legal description, exact boundaries of the

EXHIBIT A, PAGE 32



December 4, 2008

Development, easements, utilities, roads, and means of access to public streets, total acreage and flood hazard area, and any other requirements of Florida Housing.

3. An acceptable updated Environmental Audit Report, together with a reliance letter to Florida Housing, prepared within 90 days of closing, unless otherwise approved by Florida Housing, and legal counsel, based upon the particular circumstances of the transaction. Borrower to comply with any and all recommendations noted in the Environmental Assessment(s) and Update and the Environmental Review, if applicable.

4. Title insurance pro-forma or commitment for title insurance with copies of all Schedule B exceptions, in the amount of the Loan naming FHFC as the insured. All endorsements required by FHFC shall be provided.

5. Florida Housing and its legal counsel shall review and approve all other lenders closing documents and the limited partnership or other applicable agreement. Florida Housing shall be satisfied in its sole discretion that all legal and program requirements for the SAIL and Supplemental Loan have been satisfied.

6. Evidence of general liability, flood (if applicable), builder’s risk, and replacement cost hazard insurance (as certificates of occupancy are received) reflecting Florida Housing as Loss Payee / Mortgagee, with coverages, deductibles and amounts satisfactory to Florida Housing.

7. Receipt of a legal opinion from the Applicant’s legal counsel acceptable to Florida Housing addressing the following matters:

a. The legal existence and good standing of the Borrower and of any partnership or limited liability company that is the general partner of the Borrower (the "GP") and of any corporation or partnership that is the managing general partner of the GP, of any corporate guarantor and any manager.;

b. Authorization, execution, and delivery by the Borrower and the guarantors, of all Loan documents;

c. The Loan documents being in full force and effect and enforceable in accordance with their terms, subject to bankruptcy and equitable principles only;

d. The Borrower's and the guarantor's execution, delivery and performance of the loan documents shall not result in a violation of, or conflict with, any judgments, orders, contracts, mortgages, security agreements or leases to which the Borrower is a party or to which the Development is subject to the Borrower’s Partnership Agreement and;

e. Such other matters as Florida Housing or its legal counsel may require.

8. Evidence of compliance with local concurrency laws.

9. Such other assignments, affidavits, certificates, financial statements, closing statements and other documents as may be reasonably requested by Florida Housing or its legal counsel in form and substance acceptable to Florida Housing or its legal counsel, in connection with the SAIL and Supplemental Loan.

10. UCC Searches for the Borrower, its partnerships, as requested by counsel.

11. Any other reasonable conditions established by Florida Housing and its legal counsel.

EXHIBIT A, PAGE 33



December 4, 2008

Additional Conditions This recommendation is also contingent upon the following additional conditions:

1. The SAIL/Supplemental loan will be cross-collateralized with both phases of the development.

The SAIL/Supplemental loan will be cross-defaulted with both phases of the development; however, in the event of a default on any phase, the payment of the SAIL/Supplemental loan will be accelerated and all principal, interest, and fees will be required. A recourse guaranty from the AHG Revocable Trust and Alan H. Ginsburg, individually, for the full amount of the SAIL/Supplemental loan (principal plus any outstanding interest, and related fees) will be required to be in place for the full term of the SAIL loan and for the initial affordability period of the Supplemental loan (provided the units for which the Supplemental Loan were awarded were targeted to ELI households during that initial 15 year period), to insure payment in the event of default on either of the phases. The SAIL/Supplemental loan will require annual payments of interest and fees and such payment is not subject to the availability of cash flow or deferral. At the maturity of the SAIL/Supplemental loan, all principal and unpaid interest, if any, will be due. A SAIL/Supplemental loan Land Use Restriction Agreement (“LURA”) will be placed on Phase II of the development and will continue throughout the affordability period. In the event of default as noted above, the LURA will remain in place and future compliance monitoring fees will be paid per a net present value calculation to insure the payment of fees even after the payoff of any SAIL/Supplemental loan.

2. The applicant has submitted a draft Rate Collar Agreement between the applicant and South Fork Financial, L.L.C., a related party, to provide a cap and a floor on the interest rate of the BCHFA bonds. It is hereby agreed by all parties to this transaction that in no event will any payments be made under the Rate Collar Agreement prior to the calculation and payment of SAIL loan interest and applicable fees.

3. Compliance with all provisions of Sections 420.507(22) and 420.5087, Florida Statutes and Rule Chapter 67-48, F.A.C.

4. Acceptance by the Applicant and execution of all documents evidencing and securing the SAIL and Supplemental Loan in form and substance satisfactory to Florida Housing, including, but not limited to, the Promissory Note, the Loan Agreement, the Mortgage and Security Agreement, and the Land Use Restriction Agreement.

5. At all times there will be un-disbursed loan funds (collectively held by Florida Housing, First Lender and any other sources) sufficient to complete the development. If at any time there are not sufficient funds (held by Florida Housing, First Lender and any other sources) to complete the Development, the Borrower will be required to expend additional equity on development costs or to deposit additional equity with Florida Housing which is sufficient (in Florida Housing’s judgment) to complete the development before additional Loan funds are disbursed. This condition specifically includes escrowing at closing all syndication and other

EXHIBIT A, PAGE 34



December 4, 2008

equity necessary to complete construction or another alternative acceptable to Florida Housing in its sole discretion.

6. If applicable, Guarantors are to provide the standard FHFC Construction Completion Guarantee, to be released upon lien free completion as approved by the Servicer.

7. Guarantors are to provide the standard FHFC Operating Deficit Guarantee. This guarantee will be released upon achievement of 1.10 combined debt service coverage for the first mortgage and the SAIL/Supplemental Loan for six consecutive months.

8. Guarantors are to provide the standard FHFC Environmental Indemnity.

9. Guarantors are to provide the standard FHFC Guaranty of Recourse Obligations.

10. Closing of the first mortgage loan simultaneous with or prior to closing of the SAIL and Supplemental Loan.

11. A mortgagee title insurance policy naming Florida Housing as the insured in the amount of the SAIL and Supplemental Loan is to be issued immediately after closing. Any exceptions to the title insurance policy must be acceptable to Florida Housing or its legal counsel.

12. Property tax and hazard insurance escrows are to be established and maintained by the First Lender or the Servicer. In the event the reserve account is held by Florida Housing’s loan servicing agent, the release of funds shall be at Florida Housing’s sole discretion.

13. Replacement Reserves in the amount of $250 per unit per year will be required to be deposited on a monthly basis into a designated escrow account, to be maintained by the First Mortgagee or Florida Housing’s loan servicing agent. However, Applicant has the option to prepay Replacement Reserves, as allowed per Rule 67-048.12, F.A.C., in the amount of $18,000 (one-half the required Replacement Reserves for Years 1 and 2), in order to meet the SAIL Program 1.10:1 DSC requirement. Applicant can waive this election, if at closing of the SAIL Loan the required DSC is met without the need to exercise the option. It is currently estimated that Replacement Reserves will be funded from Operations in the amount of $125 per unit per year for Years 1 and 2, followed by $250 per unit per year thereafter. An inflation factor based upon the Consumer Price Index will be applied to the Replacement Reserve deposit beginning in Year 7, unless waived or reduced in the event Obligor provides a Physical Needs Study prepared by an independent third party acceptable to FHFC that evidences an increase in the deposit is excessive or unnecessary. [It is noted that the terms of the BCHFA bonds requires $200 per unit per year in Years 1-5, an increase to $250 per unit per year in Years 6-10 and to $300 per unit per year thereafter subject to a Physical Needs Assessment in Years 9 and 19.]

14. Operating Deficit Reserves (“ODR”) in the collective amount of three months of expenses and three months of debt service plus six months of replacement reserves will be permitted within the applicant’s budget, unless the credit underwriter deems a larger reserve is necessary. The calculation of developer fee will be exclusive of the budgeted ODR and any ODR “proposed or required by a limited partner or other lender” in excess of the amount of the ODR deemed satisfactory by the credit underwriter will be a subset of developer fee.

Upon expiration of the ODR, the balance in the reserve will be used to pay down SAIL, Bond, HOME or other FHFC administered loan debt, if any, and if there is no FHFC

EXHIBIT A, PAGE 35



December 4, 2008

administered loan debt, then the balance of the reserve shall be deposited in to a replacement reserve account.

15. CASI is to act as Florida Housing’s inspector during the construction period, if applicable.

16. A minimum of 10% retainage holdback on all construction draws until the Development is 50% completed, and 0% retainage thereafter is required. Retainage will not be released until successful completion of construction and issuance of all certificates of occupancy. The Malabar Cove – Phase II general construction contract indicates a 10% retainage holdback through 50% completion then 5% retainage holdback thereafter, which satisfies the minimum requirement.

17. Satisfactory resolution of any outstanding past due or non-compliance notices applicable to the development team by closing of the loan(s).

18. Satisfactory completion of a pre-loan closing compliance audit conducted by Florida Housing or its Servicer, if applicable.

19. Any other reasonable requirements of the Servicer, Florida Housing or its legal counsel.

EXHIBIT A, PAGE 36

Exhibit 1

Malabar Cove - Phase II Credit Underwriting Report 15 Year Income and Expense Projection

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15

$618,396 $636,948 $656,056 $675,738 $696,010 $716,890 $738,397 $760,549 $783,366 $806,867 $831,073 $856,005 $881,685 $908,135 $935,379

$19,440 $20,023 $20,624 $21,243 $21,880 $22,536 $23,212 $23,909 $24,626 $25,365 $26,126 $26,910 $27,717 $28,548 $29,405$39,312 $40,491 $41,706 $42,957 $44,246 $45,573 $46,941 $48,349 $49,799 $51,293 $52,832 $54,417 $56,050 $57,731 $59,463$34,200 $35,226 $36,283 $37,371 $38,492 $39,647 $40,837 $42,062 $43,324 $44,623 $45,962 $47,341 $48,761 $50,224 $51,731

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$711,348 $732,688 $754,669 $777,309 $800,628 $824,647 $849,387 $874,868 $901,114 $928,148 $955,992 $984,672 $1,014,212 $1,044,639 $1,075,978

Vacancy Loss - 6.0% ($42,681) ($43,961) ($45,280) ($46,639) ($48,038) ($49,479) ($50,963) ($52,492) ($54,067) ($55,689) ($57,360) ($59,080) ($60,853) ($62,678) ($64,559)Collection Loss - 1.0% ($7,113) ($7,327) ($7,547) ($7,773) ($8,006) ($8,246) ($8,494) ($8,749) ($9,011) ($9,281) ($9,560) ($9,847) ($10,142) ($10,446) ($10,760)

$661,554 $681,400 $701,842 $722,898 $744,584 $766,922 $789,930 $813,628 $838,036 $863,177 $889,073 $915,745 $943,217 $971,514 $1,000,659

$41,605 $43,269 $45,000 $46,800 $48,672 $50,619 $52,644 $54,749 $56,939 $59,217 $61,586 $64,049 $66,611 $69,275 $72,046$16,776 $17,447 $18,145 $18,871 $19,626 $20,411 $21,227 $22,076 $22,959 $23,877 $24,833 $25,826 $26,859 $27,933 $29,051

Management Fees - 4.6% $30,520 $31,436 $32,379 $33,350 $34,350 $35,381 $36,442 $37,536 $38,662 $39,822 $41,016 $42,247 $43,514 $44,820 $46,164$21,600 $22,464 $23,363 $24,297 $25,269 $26,280 $27,331 $28,424 $29,561 $30,744 $31,973 $33,252 $34,582 $35,966 $37,404$79,200 $82,368 $85,663 $89,089 $92,653 $96,359 $100,213 $104,222 $108,391 $112,726 $117,235 $121,925 $126,802 $131,874 $137,149$72,000 $74,880 $77,875 $80,990 $84,230 $87,599 $91,103 $94,747 $98,537 $102,478 $106,578 $110,841 $115,274 $119,885 $124,681

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$29,160 $30,326 $31,539 $32,801 $34,113 $35,478 $36,897 $38,373 $39,907 $41,504 $43,164 $44,890 $46,686 $48,554 $50,496$14,400 $14,976 $15,575 $16,198 $16,846 $17,520 $18,221 $18,949 $19,707 $20,496 $21,316 $22,168 $23,055 $23,977 $24,936

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$9,000 $9,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $18,000 $21,600 $21,600 $21,600 $21,600 $21,600

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

$314,261 $326,166 $347,538 $360,396 $373,759 $387,645 $402,077 $417,076 $432,664 $448,864 $469,300 $486,798 $504,983 $523,883 $543,527

$347,293 $355,234 $354,304 $362,501 $370,826 $379,277 $387,852 $396,551 $405,373 $414,314 $419,773 $428,947 $438,234 $447,630 $457,133

$316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644 $316,644$27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521 $27,521

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

$344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165 $344,165

$3,128 $11,069 $10,139 $18,337 $26,661 $35,112 $43,687 $52,387 $61,208 $70,149 $75,608 $84,782 $94,069 $103,466 $112,968

1.10 1.12 1.12 1.14 1.17 1.20 1.22 1.25 1.28 1.31 1.33 1.35 1.38 1.41 1.441.01 1.03 1.03 1.05 1.08 1.10 1.13 1.15 1.18 1.20 1.22 1.25 1.27 1.30 1.331.01 1.03 1.03 1.05 1.08 1.10 1.13 1.15 1.18 1.20 1.22 1.25 1.27 1.30 1.331.01 1.03 1.03 1.05 1.08 1.10 1.13 1.15 1.18 1.20 1.22 1.25 1.27 1.30 1.33

47.5% 47.9% 49.5% 49.9% 50.2% 50.5% 50.9% 51.3% 51.6% 52.0% 52.8% 53.2% 53.5% 53.9% 54.3%92.6% 91.5% 91.7% 90.6% 89.7% 88.7% 87.9% 87.0% 86.2% 85.4% 85.1% 84.4% 83.7% 83.1% 82.5%

Other Income:Washer/Dryer RentalsCable Television Income

DESCRIPTIONRevenue


Miscellaneous IncomeInterest Income


Expenses

Gross Potential IncomeLess:

Fixed:TaxesInsurance

Variable:

General and AdministrativePayroll ExpensesUtilitiesMarketing and AdvertisingMaintenance and RepairsGrounds Maintenance and LandscapingSecurityReplacement ReserveOther: Resident ProgramsOther: Pest Control

Total Expenses


Other Fees - Letter of Credit/GuaranteeOther Fees - Agency/Trustee/Servicer


Debt Service PaymentsFirst MortgageSecond MortgageThird Mortgage


Financial RatiosOperating Expense RatioBreak-Even Ratio

Debt Service Coverage RatiosDebt Service Coverage - First OnlyDebt Service Coverage - First and SecondDebt Service Coverage - All MortgagesDebt Service Coverage - All Mortgages and Fees

Seltzer Management Group, Inc. Page 1 of 1 12/4/08

EXHIBIT A, PAGE 55


MALABAR COVE - PHASE II 2008-242S / 2008 Supplemental Brevard County

DESCRIPTION OF FEATURES AND AMENITIES

MALABAR COVE PHASE II EXHIBIT 2, PAGE 1

December 4, 2008

A. The Development will consist of 72 garden apartment units located in 5 residential buildings.

Unit Mix: 32 two bedroom / one bath units

8 three bedroom / two bath units 32 four bedroom / three bath units

72 Total units

The Development is to be constructed in accordance with the final plans and specifications approved by the appropriate city or county building or planning department or equivalent agency, and approved as reflected in the Pre-Construction Analysis prepared for Florida Housing or its Servicer, unless a change order has been approved in writing by Florida Housing or its Servicer. The Development will conform to requirements of local, state and federal laws, rules, regulations, ordinances, orders and codes, Federal Fair Housing Act and Americans with Disabilities Act (“ADA”), as applicable.

B. Each UNIT will be fully equipped with the following:

1. Air conditioning in all units (window units are not allowed; however, through-wall units are permissible for rehabilitation)

2. Window treatments for each window inside each unit

3. Termite prevention and pest control throughout the entire affordability period

4. Peephole on all exterior doors

5. Cable or satellite TV hook-up in all units

6. Full size range, oven and refrigerator in all units

7. At least two full bathrooms in all three bedroom or larger new construction units 8. Bathtub with shower in at least one bathroom in at least 90% of the new construction

non-Elderly units

C. The Borrower has committed to provide the following features in each UNIT:

1. Ceramic tile bathroom floors

2. Dishwasher in all new construction units

3. Garbage disposal in all new construction units

EXHIBIT A, PAGE 56





December 4, 2008

4. Double compartment kitchen sink

5. Pantry in kitchen area in all new construction units - must be no less than 20 cubic

feet of storage space. Pantry cannot be just an under- or over-the-counter cabinet.

6. Laundry hook-ups and space for full-size washer and dryer

7. Wired for high speed internet

8. Emergency Call Service in all units D. The Borrower has committed to the following amenities in the DEVELOPMENT:

1. Playground/tot lot, accessible to children with disabilities (must be sized in proportion to Development’s size and expected resident population with age-appropriate equipment)

2. Picnic area with hard cover permanent roof of a design compatible with the

Development, open on all sides, containing at least three permanent picnic tables with benches and an adjoining permanent outdoor grill

3. Outside recreation facility – volleyball court

4. Car Care Area

5. Thirty-year expected life roofing on all buildings

6. Exterior lighting in open and common areas

7. Two or more parking spaces per total number of units

E. The Borrower has committed to provide the following energy conservation features for all UNITS in the Development:

1. Electric water heater with energy factor of .93 or better

2. Wall insulation of R-15 or better for frame built construction

3. Attic insulation of R-30 or better

4. Ceiling fans in all bedrooms and living area in each unit

5. Energy Star certified refrigerator and dishwasher in each unit

Excluding windows on doors and sidelights:

EXHIBIT A, PAGE 57





December 4, 2008

6. Double-pane glass on all windows

F. The Borrower has committed to provide 10 of the following Green Building features as specified during Credit Underwriting:

1. Programmable thermostats in each unit 2. Showerheads that use less than 2.5 gallons of water per minute 3. Faucets that use 2 gallons of water per minute or less in the kitchen and all Bathrooms

4. Motion detectors on all outside lighting that is attached to the units 5. Low VOC paint (less than 50 grams per gallon) in all units and common areas 6. Energy Star rating for all refrigerators, dishwashers and washing machines that are

provided by the Borrower

7. Energy Star rating for all windows in each unit

8. Carpet and Rug Institute Green Label certified carpet and pad for all carpeting provided

9. Florida Yards and Neighborhood certification on all landscaping 10. Daylight sensors or timers on all outdoor lighting

G. The Borrower has committed to provide the following Resident Programs:

1. Welfare to Work or Self-Sufficiency Type Programs: The Borrower commits to actively seek residents who are participating in or who have successfully completed the training provided by these types of programs.

2. Homeownership Opportunity Program – Financial Assistance with Purchase of a

Home: The Borrower commits to provide a financial incentive which includes the following provisions:

a. the incentive must be applicable to the home selected by the resident and

may not be restricted to or enhanced by the purchase of homes in which the Borrower, Developer, or other related party has an interest;

b. the incentive must be not less than 5% of the rent for the resident’s unit during the resident’s entire occupancy (Note: Resident will receive the 5% credit for all months for which the resident is in compliance with the terms and conditions of the lease. Damages to the unit in excess of the security deposit will be deducted from the incentive.);

EXHIBIT A, PAGE 58





December 4, 2008

c. the benefit must be in the form of a gift or grant and may not be a loan of any nature;

d. the benefits of the incentive must accrue from the beginning of occupancy; e. the vesting period can be no longer than 2 years of continuous residency;

and f. no fee, deposit or any other such charge can be levied against the resident

as a condition of participation in this program.

3. First Time Homebuyer Seminars: The Borrower or its Management Agent must arrange for and provide, at no cost to the resident, in conjunction with local realtors or lending institutions, semiannual on-site seminars for residents interested in becoming homeowners. Electronic media, if used, must be used in conjunction with live instruction.

4. Job Training: The Borrower or its Management Agent must provide, at no cost to the

resident, regularly scheduled classes in keyboarding, computer literacy, secretarial skills or other useful job skills, which will be provided at least once each quarter. If the training is not provided on-site, transportation at no cost to the resident must be provided. Electronic media, if used, must be used in conjunction with live instruction.

5. Resident Activities: These specified activities are planned, arranged, provided and

paid for by the Borrower or its Management Agent. These activities must be an integral part of the management plan. The Borrower must develop and execute a comprehensive plan of varied activities that brings the residents together and encourages community pride. The goal here is to foster a sense of community by bringing residents together on a regularly scheduled basis by providing activities such as holiday and special occasion parties, community picnics, newsletters, children’s special functions, etc.

6. Health and Nutrition Classes: The Borrower or its Management Agent must provide,

at no cost to the residents, at least eight hours per year, provided on site. Electronic media, if used, must be used in conjunction with live instruction.

7. Mentoring: Establish a partnership with a primary or secondary education institution

to encourage mentoring, tutoring and/or financial support that will benefit the residents of the affordable housing community. This service must be provided at no cost to the resident. Electronic media, if used, must be used in conjunction with live instruction.

8. Resident Assistance Referral Program: The Borrower or its Management Agent will

make available to residents information about services such as crisis intervention, individual and family needs assessment, problem solving and planning, appropriate information and referral to community resources and services based on need, monitoring of ongoing ability to retain self sufficiency, and advocacy to assist clients in securing needed resources. This service must be provided at no cost the resident. Electronic media, if used, must be used in conjunction with live instruction.

EXHIBIT A, PAGE 59


MALABAR COVE – PHASE I I EXHIBIT 3 – PAGE 1

December 4, 2008

COMPLETENESS AND ISSUES CHECKLIST

DEVELOPMENT NAME: Malabar Cove – Phase II _ DATE: December 4, 2008

In accordance with applicable Program Rule(s), the Applicant is required to submit the information required to evaluate, complete, and determine its sufficiency in satisfying the requirements for Credit Underwriting to the Credit Underwriter in accordance with the schedule established by the Florida Housing Finance Corporation (“Florida Housing” or “FHFC”). The following items must be satisfactorily addressed. “Satisfactorily” means that the Credit Underwriter has received assurances from third parties unrelated to the Applicant that the transaction can close within the allotted time frame. Unsatisfactory items, if any, are noted below and in the “Issues and Concerns” section of the Executive Summary.

STATUS NOTECREDIT UNDERWRITING

REQUIRED ITEMS: Satis. / Unsatis.

1. The development’s final “as submitted for permitting” plans and specifications.

Note: Final “signed, sealed, and approved for construction” plans and specifications will be required thirty days before closing.

Satis. 1

2. Final site plan and/or status of site plan approval. Satis.

3. Permit Status. Satis.

4. Pre-construction analysis (“PCA”). Satis.

5. Survey. Satis.

6. Complete, thorough soil test reports. Satis.

7. Full or self-contained appraisal as defined by the Uniform Standards of Professional Appraisal Practice.

Satis.

8. Market Study separate from the Appraisal. Satis.

9. Environmental Site Assessment – Phase I and/or Phase II if applicable (If Phase I and/or II disclosed environmental problems requiring remediation, a plan, including time frame and cost, for the remediation is required). If the report is not dated within one year of the application date, an update from the assessor must be provided indicating the current environmental status.

Satis.

10. Audited financial statements for the most recent fiscal year ended or acceptable alternative as stated in the Rule for credit enhancers, applicant, general partner, principals, guarantors and general contractor.

Satis.

EXHIBIT A, PAGE 60


MALABAR COVE – PHASE I I EXHIBIT 3 – PAGE 2

December 4, 2008

11. Resumes and experience of applicant, general contractor and management agent.

Satis.

12. Credit authorizations; verifications of deposits and mortgage loans. Satis.

13. Management Agreement and Management Plan. Satis.

14. Firm commitment from the credit enhancer or private placement purchaser, if any.

Satis.

15. Firm commitment letter from the syndicator, if any. Satis.

16. Firm commitment letter(s) for any other financing sources. Satis.

17. Updated sources and uses of funds. Satis.

18. Draft construction draw schedule showing sources of funds during each month of the construction and lease-up period.

Satis.

19. Fifteen-year income, expense, and occupancy projection. Satis.

20. Executed general construction contract with “not to exceed” costs. Satis.

21. HC ONLY: 15% of the total equity to be provided prior to or simultaneously with the closing of the construction financing.

Satis.

22. Any additional items required by the credit underwriter. Satis.

NOTES AND APPLICANT’S RESPONSES:

1. The architectural plans and specifications do not provide for all the features and amenities committed to in the application. Applicant’s Response: The applicant states that all features and amenities will be shown on the plans and specifications prior to closing.

EXHIBIT A, PAGE 61

Exhibit 4Malabar Cove - Phase II Occupancy Comparison

Novogradac Restricted Rent Comparables tracked by Florida Housing Other Brevard County Affordable Properties tracked by FHFC

Property Park at Palm Bay Madalyn Landing Average Market Study Average Wickham Club Willow Brook Village Mission Bay1200 Hadley Circle SE 500 Malabar Road SW by Novogradac* 2905 Kemblewick Drive 3033 College Wood Drive 1734 Mission Bay Circle

Palm Bay Palm Bay Melbourne Melbourne VieraCounty Brevard Brevard Brevard Brevard BrevardFHFC Program(s) MMRB/HC MMRB/HC SAIL/HC SAIL/PLP MMRB/HC# of Units 234 304 132 56 339Distance from Subject 2.7 miles 0.4 miles 11.3 miles 11.8 miles 22.0 miles

Occupancy per FHFC Monthly Reporting

Dec-07 87% 82% 84.5% 93.7% 96% 96% 89%Jan-08 90% 80% 85.0% 93.0% 90% 100% 89%Feb-08 88% 79% 83.5% 92.7% 95% 96% 87%Mar-08 89% 81% 85.0% 94.3% 98% 98% 87%Apr-08 90% 82% 86.0% 90.3% 89% 98% 84%

May-08 89% 81% 85.0% 89.7% 86% 98% 85%Jun-08 93% 87% 90.0% 90.3% 85% 100% 86%Jul-08 91% 91% 91.0% 89.0% 85% 95% 87%

Aug-08 90% 87% 88.5% 87.0% 81% 96% 84%89.7% 83.3% 86.5% 91.1% 89.4% 97.4% 86.4%

Market Study HC Comparables:1 Hampton Greens 86.1% 2 Madalyn Landing 87.5% 3 Park at Palm Bay 88.9% 4 Sabal Palms 84.7%5 The Villas at Palm Bay n/a (in lease up)

Average 86.8%

* Stabilized Occupancy per Novogradac Market Study dated September 15, 2008 93% - 95%

EXHIBIT A, PAGE 62

SELTZER MANAGEMENT GROUP, INC.17633 ASHLEY DRIVE

PANAMA CITY BEACH, FL 32413TEL: (850) 233-3616FAX: (850) 233-1429

PANAMA CITY BEACH • ORLANDO • TAMPA • MIAMI

December 4, 2008 Ms. Debbie Blinderman Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, FL 32301-1329 RE: Malabar Cove Phases I and II – Aggregate Overview Dear Ms. Blinderman: Per Florida Housing’s request, we have consolidated key information from both credit underwriting reports for the above referenced phases of Fairview Cove. Malabar Cove - Phase I (2007-197BS) had applied for Multifamily Mortgage Revenue Bonds (“MMRB”), State Apartment Incentive Loan (“SAIL”), and Supplemental loan financing as well as 4% Housing Credits; however, withdrew from the Florida Housing MMRB program and secured local bonds from the Brevard County Housing Finance Authority. The Applicant closed on $6,700,000 of MMRB from the County on November 13, 2008, which will be paid down to $3,900,000 at permanent loan conversion. The SAIL loan request is $4,000,000 and the Supplemental loan request is $680,000. The 4% Housing Credits will be underwritten separately. This phase of the development is comprised of 76 three bedroom units, with 10% of the units (8 units) set aside for residents earning up to 33% of the area median income (“AMI”), and 60% of the units (46 units) at 60% of the AMI for SAIL and Supplemental loans. The Borrower intends to set aside 100% of the units at 60% of AMI or less for HC. Malabar Cove – Phase I will serve a family demographic. Malabar Cove - Phase II (2008-242S) has applied for SAIL and Supplemental loan financing from Florida Housing. This phase of the development also received Brevard County Housing Finance Authority MMRB in the amount of $6,400,000 which will be paid down to $4,800,000 at permanent loan conversion. Malabar Cove - Phase II is comprised of 72 two, three and four bedroom units, with set asides of 10% of the units (8 units) for residents earning up to 33% of the AMI and 60% of the units (44 units) for residents earning 60% or less of the AMI. The Borrower intends to set aside 100% of the units at 60% of AMI or less for HC. Malabar Cove – Phase II will serve a family demographic. For detailed information regarding each phase, the reader is cautioned to refer to the individual credit underwriting report submitted for each phase. Sincerely,

Cindy Highsmith

Credit Underwriting Supervisor

EXHIBIT 5, PAGE 1

EXHIBIT A, PAGE 63

CONSOLIDATED CREDIT UNDERWRITING REPORT

MALABAR COVE December 4, 2008

A summary of the aggregate data for both phases is as follows:

AGGREGATE FINANCING INFORMATION FHFC Programs SAIL / Supplemental Loan Total First Mortgage Bond Amount $8,700,000 at permanent Permanent “All in” Underwritten

Interest Rate 5.21%

Permanent Term/Amortization 32/ 30 SAIL Loan Amount $6,000,000 Underwritten Interest Rate 1.31% on Phase I and 1.38% on Phase II Term/Amortization 32/ N/A Supplemental Loan Amount $1,360,000

Underwritten Interest Rate 0.00% Term/Amortization 32/ N/A

Market Rent-Market Financing Value at Stabilization

$17,600,000 (Note: Appraisal dated 9-15-08 values the property “as combined” the same as two separate phases.)

Restricted Rent-Favorable Financing Value at Stabilization

$13,500,000 (Note: Appraisal dated 9-15-08 values the property “as combined” slightly than as two separate phases.)

Market Loan To Value–MMRB + SAIL 83.52% Restricted Loan to Value–MMRB + SAIL

108.89%

Projected Net Operating Income $702,248 Debt Service Coverage – First

Mortgage Only 1.22

Debt Service Coverage – First Mortgage and SAIL

1.07

Debt Service Coverage - All debt 1.07 SAIL Loan to Cost 22.56% Supplemental Loan to Cost 5.11% FHFC Assistance Per Unit - SAIL + Supplemental

$49,730

Syndication Price $0.900 per dollar of HC Bond Structure Weekly Variable Rate Demand Bonds - Private

Placement

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Aggregate Sources of Funds



RateAmort.

Yrs.Term Yrs.

Annual Debt

ServiceFirst Mortgage MMRB Brevard HFA $16,800,000 $8,700,000 $8,700,000 5.21% 30 32 $573,903SAIL Loan FHFC $6,000,000 $6,000,000 $6,000,000 1.345% N/A 32 $80,042Supplemental Loan FHFC $1,360,000 $1,360,000 $1,360,000 0.00% N/A 32 $0Bridge Loan Interest FCH MC I & II $0 $296,000 $296,000HC Equity FCH MC I & II $7,776,158 $9,126,600 $9,126,600Defer. Developer Fee Atlantic $36,972 $790,147 $1,107,954Total $31,973,130 $26,272,747 $26,590,554 $653,945

Capital Contributions AmountPercent of

Total When Due

1st Installment $8,213,940 90%Prior to or concurrent with the construction loan closing, this installment will be in the form of a bridge loan.

2nd Installment $912,660 10%

Latest of no event causing a repurchase of LP interest, GP Affidavit of no default under LP Agree, IRS Forms 8609, 100% occupancy of 100% of the HC units

Total $9,126,600 100%

Annual Tax Credits per Syndication Agreement: $1,014,168

Total HC Syndication: $10,140,666

Syndication Percentage (limited partner interest): 99.99%

Calculated HC Exchange Rate (per dollar): $0.900

Proceeds Available During Construction: $8,213,940

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ANNUAL PER UNIT

$1,276,428 $8,625

$39,960 $270$80,808 $546$70,273 $475

$0 $0$1,467,469 $9,915

Vacancy Loss - 6.0% ($88,048) ($595)Collection Loss - 1.0% ($14,675) ($99)

$1,364,746 $9,221

$85,521 $578$34,484 $233

Management Fees 4.6% $62,914 $425$55,040 $372

$162,800 $1,100$148,000 $1,000

$0 $0$59,940 $405$29,600 $200

$0 $0$24,200 $164

$0 $0$0 $0

$662,499 $4,476

$702,248 $4,745

$573,903 $3,878$80,042 $541

$0 $0$0 $0$0 $0

$653,945 $4,419

$48,302 $326

DESCRIPTIONRevenue


Less:Gross Potential Income

Other Income:Washer/Dryer RentalsCable Television IncomeMiscellaneous IncomeInterest Income


ExpensesFixed:

TaxesInsurance

Variable:

General and AdministrativePayroll ExpensesUtilitiesMarketing and AdvertisingMaintenance and RepairsGrounds MaintenanceGround LeaseReplacement ReserveOther: Resident ProgramsOther: Pest Control

Total Expenses


Debt Service Payments



First MortgageSAIL LoanOther-Supplemental LoanOther Fees - Letter of Credit/GuaranteeOther Fees - Agency/Trustee/Servicer

1.221.071.071.07

Debt Service Coverage RatiosDebt Service Coverage - First OnlyDebt Service Coverage - First and SecondDebt Service Coverage - All MortgagesDebt Service Coverage - All Mortgages and Fees

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48.5%89.7%

Financial RatiosOperating Expense RatioBreak-Even Ratio

Notes to the Aggregate Operating Pro Forma: The Underwriter has consolidated the annual revenues and expenses for purposes of this analysis. Although when combined the development does not meet 1.10 debt service coverage on the first mortgages and SAIL/Supplemental loans, it must be noted that the applicant is deferring 35% of developer fee for six months past construction completion on Phase II in order to meet the Rule allowing only 1.00 debt service coverage on that phase. The Replacement Reserves amount reflects Malabar Cove - Phase II prepaying one-half of its reserves in Years 1 and 2. The Aggregate 15 Year Pro Forma below reflects revenues increasing at 3% annually and expenses increasing at 4% annually.

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EXHIBIT A, PAGE 67

florida housing finance corporation · 2008. 12. 8. · malabar cove - phase ii sail and...

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