Tax Credit InvestmentAdvisory Services

Quantitative Economicsand Statistics

April 26, 2007

Understandingthe Dynamics IV Housing Tax CreditInvestment Performance

Roshni Patel, Ernst & Young

IPED: After the ClosingMaximizing Value and Avoiding PitfallsSan Diego, CA

Understandingthe Dynamics IV Housing Tax CreditInvestment Performance

Roshni Patel, Ernst & Young

IPED: After the ClosingMaximizing Value and Avoiding PitfallsSan Diego, CA

2

OverviewOverviewStudy will be sent to data providers and

financial contributors – also available at: www.ey.com/us/taxcreditadvisory

Includes two-thirds of all housing credit properties produced - nearly 14,000 properties, over one million units, and $34.6 billion of equity investment

Many new data points and analyses

This presentation includes additional data and analysis not found in the study

Study will be sent to data providers and financial contributors – also available at: www.ey.com/us/taxcreditadvisory

Includes two-thirds of all housing credit properties produced - nearly 14,000 properties, over one million units, and $34.6 billion of equity investment

Many new data points and analyses

This presentation includes additional data and analysis not found in the study

3

31 Data Providers:31 Data Providers:

• 2 direct investors

• 13 non-profit affiliated

• 16 for-profit

• 2 direct investors

• 13 non-profit affiliated

• 16 for-profit

4

Performance OverviewPerformance Overview

5

Construction DurationConstruction Duration39%

Behind39%

Behind31%

Ahead31%

Ahead

-12+thru-10

-10+thru-8

-8+thru-6

-6+thru-4

-4+thru-2

-2+thru

0

0+thru

2

2+thru

4

4+thru

6

6+thru

8

8+thru10

10+thru12

0369

1215182124273033363942454851545760

Months Ahead of Projections Months Behind Projections

Per

cent

of

Sam

ple

Figure 5.2 Projected vs. Actual Construction Duration

Properties < 5 years old

Properties 5-10 years old

Properties > 10 years old

30%30%

6

Lease-up DurationLease-up Duration41%

Behind41%

Behind32%

Ahead32%

Ahead

-12+thru-10

-10+thru-8

-8+thru-6

-6+thru-4

-4+thru-2

-2+thru

0

0+thru

2

2+thru

4

4+thru

6

6+thru

8

8+thru10

10+thru12

0

3

6

9

12

15

18

21

24

27

30

33

36

39

42

45

48

Months Ahead of Projections Months Behind Projections

Per

cent

of

Sam

ple

Figure 5.3 Projected vs. Actual Leasing Duration

Properties < 5 years old

Properties 5-10 years old

Properties > 10 years old

27%27%

7

Overall Property AveragesOverall Property Averages

MedianMedian

OccupancyOccupancy 96%96%

Hard Debt Coverage RatioHard Debt Coverage Ratio 1.151.15

Operating Expenses Per UnitOperating Expenses Per Unit $3,319$3,319

Cash FlowCash Flow $8,711$8,711

Cash Flow Per UnitCash Flow Per Unit $240$240

Repl. Reserve Contribution Per UnitRepl. Reserve Contribution Per Unit $250$250

Repl. Reserve Balance Per UnitRepl. Reserve Balance Per Unit $1,011$1,011

Balance to Contribution RatioBalance to Contribution Ratio 4.0 years4.0 years

8

Occupancy Trends: MedianOccupancy Trends: Median

Year

Me

dia

n O

cc

up

an

cy

Ra

te

96.1%

95.0

95.5

96.0

96.5

97.0

97.5

2000 2002 2003 2004 2005

Figure1.17 Median Occupancy Rate 2000-2005

All YearsAny Year

9

Occupancy Trends: % Below 90%Occupancy Trends: % Below 90%

Year

18%

2000 2002 2003 2004 20050%

10%

20%

30%

Occ

upan

cy R

ate

% U

nder

Per

form

ance

All YearsAny Year

Year

18%

2000 2002 2003 2004 20050%

10%

20%

30%

Occ

upan

cy R

ate

% U

nder

Per

form

ance

All YearsAny Year

18%

10

Cash Flow Trends: MedianCash Flow Trends: Median

Year

Me

dia

n C

as

h F

low

pe

r U

nit

$240

100

150

200

250

300

2000 2002 2003 2004 2005

Figure1.19 Median Cash Flow per Unit 2000-2005

All YearsAny Year

11

Cash Flow Trends: % Below $0Cash Flow Trends: % Below $0

Year

34%

Figure 1.24 Cash Flow per Unit Underperformance 2000-2005

2000 2002 2003 2004 20050%

10%

20%

30%

40%

50%C

ash

Flo

w p

er U

nit

% U

nder

Per

form

ance All YearsAny Year

12

Hard Debt Coverage Ratio Trends: MedianHard Debt Coverage Ratio Trends: Median

Year

Me

dia

n H

ard

De

bt

Co

ve

rag

e R

ati

o

1.15

1.0

81.1

21.1

61.2

0

2002 2003 2004 2005

Figure 1.18 Median Hard Debt Coverage Ratio 2002-2005

All YearsAny Year

13

Hard Debt Coverage Ratio Trends: % below 1.0Hard Debt Coverage Ratio Trends: % below 1.0

Year

34%

Figure 1.23 Hard Debt Coverage Ratio Underperformance 2002-2005

2002 2003 2004 20050%

10%

20%

30%

40%

50%

Ha

rd D

eb

t C

ove

rag

e R

atio

% U

nde

r P

erf

orm

an

ce

All YearsAny Year

14

Annualized Foreclosure Rate Annualized Foreclosure Rate

0.03%

0.28% 0.29%

0.32% 0.62%

0.86%0.83%

0.96%

1.24%Ta

x C

redi

t

1-4

Fam

.

Apa

rt.

Indu

stria

l

Ret

ail

Hot

el /

Mot

el

Mix

ed U

se

Oth

er C

omm

erci

al

Offi

ce

Source: ACLI Mortgage Loan Portfolio Profile 1993 - 2005 except tax credit data.

15

Less than-$2,000

-$1,800 to-$1,600

-$1,400 to-$1,200

-$1,000 to-$800

-$600 to-$400

-$200to $0

-$2,000 to-$1,800

-$1,600 to-$1,400

-$1,200 to-$1,000

-$800 to-$600

-$400 to-$200

Negative Cash Flow Per Unit

Figure 1.13 Distribution of Properties Reporting Under Performancein Cash Flow Per Unit

8%

2% 3%3% 4%

5%

8%9%

13%

18%

27%Magnitude of DeficitsMagnitude of Deficits 45%45%

16

Multiple Year DeficitsMultiple Year Deficits

16%

27.2%

16.5%

4.1%

02&03 03&04 04&05 All Years0%

5%

10%

15%

20%

25%

30%H

DC

R %

Chr

onic

Und

erpe

rfor

man

ce

17

Deficit Funding Sources –Each $1 of deficit funded by:Deficit Funding Sources –Each $1 of deficit funded by:

62%

23%

5%

5%4% 1% General Partner Advances (62%)

Lower Tier Reserves (23%)

Property Mgmt Fee Deferrals (5%)

Upper Tier Reserves (5%)

Syndicator Advances (4%)

Mortgage Workouts (<1%)

Additional Investor Advances (<1%)

10% upper tier/investor sources90% lower tier sources

18

Deficit Funding – By Size of DeficitDeficit Funding – By Size of Deficit

19

GeographyGeography

MT

WY

ID

WA

OR

NV

UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AR

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VAWV

OH

MI

NY

PA

MD DE

NJ

CT RI

MA

ME

VTNH

AK

HI

MT

WY

ID

WA

NV

UT

CA

AZ

SD

CO

TX

LA

MO

IL

KY

TN

MS AL

NC

VAWV

PA

VT

AK

20

GeographyGeography

ND

NE

KS

IA

IN

MI RI

North DakotaOcc: 95%DCR: 0.97

CF: $30

NebraskaOcc: 94%DCR: 1.04

CF: $39

KansasOcc: 94%DCR: 1.04

CF: $51

IowaOcc: 93%DCR: 1.03

CF: $64

IndianaOcc: 92%DCR: 0.76CF: ($398)

MichiganOcc: 93%DCR: 0.98CF: $10

Rhode IslandOcc: 97%DCR: 1.01

CF: $40

AR

GA

SC

OH

OhioOcc: 95%DCR: 1.04CF: $67

ArkansasOcc: 95%DCR: 1.05CF: ($73)

GeorgiaOcc: 95%DCR: 1.03CF: $81

South CarolinaOcc: 95%DCR: 1.08CF: $73

21

Median DCR by RegionMedian DCR by Region

The West: 1.26The Midwest: 1.06

The South: 1.14

The Northeast: 1.15

22

Median Operating Expenses by RegionMedian Operating Expenses by Region

The West: $ 3,942The Midwest: $ 3,754

The South: $ 3,341

The Northeast: $ 5,758

23

Construction Type – 2005 PerformanceConstruction Type – 2005 Performance

Figure 4.12.3 2005 Operating Performance Overview by Construction Type COMBINED NEW REHAB

PROPERTIES:

Properties in Category 122 6,067 3,044

Percent of Properties in Category 1.3% 65.7% 33.0%

EQUITY:

Equity in Category $418,945,172 $14,890,492,252 $5,967,038,420

Percent of Equity in Category 2.0% 70.0% 28.0%

MEDIAN:

Occupancy 95.9% 96.4% 96.0%

Hard Debt Coverage Ratio 1.07 1.15 1.14

Cash Flow $1,619 $9,465 $8,636

Cash Flow Per Unit $37 $255 $220

Replacement Reserve Contribution Per Unit $260 $250 $250

Replacement Reserve Balance Per Unit $1,103 $953 $958

Operating Expenses Per Unit $5,177 $3,674 $4,420

Data in this table is provided for 9,233 number of properties total. The number of properties used to calculate each performance measure may vary

depending on the number of valid entries received for that measure.

24

Construction Type – 2005 OpExp Per Unit by AgeConstruction Type – 2005 OpExp Per Unit by Age

25

Deal Size – Cash Flow TrendsDeal Size – Cash Flow Trends

Year

Me

dia

n C

as

h F

low

Pe

r U

nit

0100

200

300

400

500

2000 2002 2003 2004 2005

Figure 4.6.15 Median Cash Flow Per Unit 2000-2005

Smallest Third - 187Middle Third - 313Large Third - 469

Fewer than 61 Units61-112 UnitsMore than 112 UnitsLargest Third

26

Deal Size: Occupancy UnderperformanceDeal Size: Occupancy Underperformance

27

Deal Size: DCR UnderperformanceDeal Size: DCR Underperformance

28

Tenancy – 2005 PerformanceTenancy – 2005 PerformanceFigure 4.10.3 2005 Operating Performance by Tenancy Type

FAMILY MIXED SENIOR SPECIAL NEEDS

PROPERTIES:

Properties in Category 7,339 296 2,670 284

Percent of Properties in Category 69.31% 2.80% 25.21% 2.68%

EQUITY:

Equity in Category $17,182,585,414 $803,834,902 $4,621,311,991 $570,700,783

Percent of Equity in Category 74.1% 3.5% 19.9% 2.5%

MEDIAN:

Occupancy 95.4% 96.4% 97.9% 96.4%

Hard Debt Coverage Ratio 1.12 1.13 1.22 1.11

Cash Flow $8,240 $9,485 $9,721 $6,433

Cash Flow Per Unit $219 $223 $289 $196

Replacement Reserve Contribution Per Unit $248 $250 $259 $250

Replacement Reserve Balance Per Unit $917 $1,165 $1,274 $1,256

Operating Expenses Per Unit $4,037 $4,687 $3,533 $5,397

Data in this table is provided for 10,589 number of properties total. The number of properties used to calculate each performance measure may vary

depending on the number of valid entries received for that measure.

29

Tenancy – Cash Flow TrendsTenancy – Cash Flow Trends

Year

Me

dia

n C

as

h F

low

Pe

r U

nit

010

020

030

040

050

060

0

2000 2002 2003 2004 2005

Figure 4.10.15 Median Cash Flow Per Unit 2000-2005

Family - 219Mixed - 223Senior - 289Special Needs - 196

30

Tenancy – Occupancy TrendsTenancy – Occupancy Trends

Year

Me

dia

n O

cc

up

an

cy

Ra

te

9294

9698

2000 2002 2003 2004 2005

Figure 4.10.13 Median Occupancy Rate 2000-2005

Family - 95Mixed - 96Senior - 98Special Needs - 96

31

Tenancy – DCR UnderperformanceTenancy – DCR Underperformance

32

Location: UnderperformanceLocation: Underperformance

Figure 4.4.9 2005 Property Underperformance Overview by Area Type RURAL SUBURBAN URBAN

BELOW 90% OCCUPANCY:

Incidence of Underperforming Properties in Category 17.7% 19.4% 19.9%

Incidence of Underperforming Housing Credit Equity in Category 17.0% 15.4% 15.0%

BELOW 1.0 HARD DEBT COVERAGE RATIO:

Incidence of Underperforming Properties in Category 31.9% 32.1% 42.9%

Incidence of Underperforming Housing Credit Equity in Category 33.2% 26.5% 36.3%

NEGATIVE CASH FLOW:

Incidence of Underperforming Properties in Category 32.8% 31.6% 40.4%

Incidence of Underperforming Housing Credit Equity in Category 34.1% 26.5% 34.8%

Data in this table is provided for 8,269 number of properties total. The number of properties used to calculate each performance measure may vary

depending on the number of valid entries received for that measure.

33

Figure 4.4.3 2005 Operating Performance Overview by Area Type RURAL SUBURBAN URBAN

PROPERTIES:

Properties in Category 3,248 2,484 2,537

Percent of Properties in Category 39.3% 30.0% 30.7%

EQUITY:

Equity in Category $3,506,619,421 $7,110,110,764 $7,429,668,798

Percent of Equity in Category 19.4% 39.4% 41.2%

MEDIAN:

Occupancy 96.0% 96.0% 96.0%

Hard Debt Coverage Ratio 1.16 1.15 1.09

Cash Flow $5,347 $21,391 $10,188

Cash Flow Per Unit $173 $339 $211

Replacement Reserve Contribution Per Unit $268 $211 $245

Replacement Reserve Balance Per Unit $1,278 $716 $973

Operating Expenses Per Unit $3,378 $3,837 $4,881

Data in this table is provided for 8,269 number of properties total. The number of properties used to calculate each performance measure may vary

depending on the number of valid entries received for that measure.

Location: 2005 MedianLocation: 2005 Median

34

Year 15 Property Disposition Strategy Year 15 Property Disposition Strategy

42% Resyndicated42% Resyndicatedwith Tax Creditswith Tax Credits

25% Maintained as Affordable 25% Maintained as Affordable w/o Tax Creditsw/o Tax Credits

27% Other27% Other

6% Converted 6% Converted to Market Rateto Market Rate

35

Replacement Reserve MedianReplacement Reserve Median

National National MedianMedian

Replacement Reserve Contribution Per UnitReplacement Reserve Contribution Per Unit $250$250

Replacement Reserve Balance Per UnitReplacement Reserve Balance Per Unit $1,011$1,011

Balance to Contribution RatioBalance to Contribution Ratio 4.04 years4.04 years

36

Q & AQ & A

www.ey.com/us/taxcreditadvisory

Roshni Patel (617) 723-1053

roshni.patel@ey.com

www.ey.com/us/taxcreditadvisory

Roshni Patel (617) 723-1053

roshni.patel@ey.com