1. THE Affordable Housing Tax credit PROGRAM Presented by Dauby O’Connor & Zaleski, LLC and Midwest Housing Equity Group

2. Panelists Jeff Lathrop Dauby O’Connor & Zaleski, LLC Jim Rieker Midwest Housing Equity Group, Inc.

4. Curbed tax shelters and introduced Section 42

5. Pre-1986 multifamily housing developments sold to individual investors

6. Post-1986 Section 42 multifamily housing developments sold to corporate investors

7. Market for LIHTC was very slim 1987-1989 with tax credits rotting on the vine

8. The Omnibus Budget Reconciliation Act of 1993 signed by President Clinton – made the LIHTC permanent

10. Many corporate controllers/ treasurers were skeptical of an unproven product LIHTC

11. Result – pricing was in the mid .40 range in 1987-1988 producing 20%+ IRR

12. Early in mid-1990s – Financial institutions embrace LIHTC

14. 2008 – Sub-Prime mortgage crisis followed by full scale financial meltdown – Investors retreat

15. Housing and Economic Recovery Act of 2008 intended to boost returns bringing non-financial investors to the LIHTC market

16. 2009 – Many 2007 and 2008 deals unfunded and little prospect for 2009

18. The Housing and Economic Recovery Act of 2008 signed by President Bush on July 30, 2008

19. ARRA of 2009

21. Increase in-state LIHTC allocation authority by 10% = .20 (per capita) for 2008 and 2009

22. In 2010 credit authority returns to the 2008 amount $2.00 indexed for inflations

23. Additional $11 billion nationally of Tax-Exempt Housing Bonds in 2008 (additional 38.6% for each state)

24. Authority to issue bonds may be carried forward to 2010

25. Temporarily fix at 9% the credit rate for new construction and substantial rehabilitation costs

26. Effective for buildings placed into service after July 30, 2008 and before December 31, 2013

28. Alternative Minimum Tax (AMT) Relief

29. LIHTC offset AMT for buildings placed into service after December 31, 2007. AMT was an issued for many smaller C corporations.

30. Example: Widely used C Corp. with $5M of taxable income and no other AMT adjustments could use $700,000 in LIHTC under prior law; now is can use $1,581,250 (an increase of 83%)

31. HUD Moderate Rehabilitation projects are no longer prohibited from participation in the LIHTC program. Effective for buildings placed into service after July 30, 2008.

32. The 10-year hold provision for acquisition credits is no longer applicable to federally or state assisted buildings. HUD Section 8, 221(d)3, 221(d)4, 236 and RD section 515 properties and similarly assisted properties under various state programs.

33. Verify with state HFA for guidance respective as each state’s interpretation may vary

34. Allowable Related Party interest in subsequent ownership is increased to 50% from 10%.

36. 30% basis boost previously allowed for properties located in qualified census tracts or difficult to develop areas is allowed for any project that needs additional credits to be financially feasible as determined by the state housing finance agencies. Apples to projects placed in service after July 30, 2008. Does not apply to Tax Exempt bond financed properties.

37. The definition of federal subsidy no longer includes “or any below market federal loan” allowing HOME, RD and section 515 projects to utilize the 9% credit for new construction or substantial rehabilitation costs. Tax Exempt bond financed projects are still limited to the 4% tax credit.

38. Federal Grants received after construction no longer reduce tax credit basis – relief for IRP financed deals and other properties receiving federal operating subsidies.

40. Minimum threshold to qualify for substantial rehabilitation is increased to $6,000 per unit or 20% of acquisition basis from $3,000 or 10%. Indexed for inflation going forward.

41. LIHTC bond posting requirement is eliminated provided investor agrees to extend statute of limitations to three years after IRS notification.

42. Extends the time period to satisfy the 10% cost incurred test necessary for carryover to 1 year from 6 months.

43. Tax Exempt Bond rules now mirror LIHTC rules – Next available unit, Full time student, and Single room occupancy.

46. Section 1602: Grants to States for Low-Income Housing Projects in Lieu of Low-Income Housing Credits

47. aka the “Credit Exchange Program”

49. 100% of the state housing credit ceiling for 2009 attributable to unused and returned credits from the 2008 housing credit ceiling plus any amount of state housing credit ceiling returned in 2009. (This provisions applies to 2007 and 2008 allocations).

51. Treatment at the state level may vary

52. Funds received cannot exceed 85% of the amount Recipients of exchange funds must demonstrate a good faith effort to obtain private equity commitments. Good faith effort is determined by each state HFA.

53. of buildings eligible basis including any increase for buildings located in high cost areas. Direct tracing is not required.

55. Exchange does not mean one for one – funds obtained by a HFA from credits returned by one project may be used to fund other projects.

56. Eligible buildings must not be placed into service prior to 2009; however, substantially complete buildings are eligible. In this case, exchange funds can be used to repay equity or construction loans.

58. Appropriated $2.25 billion under the HOME Investment Partnerships program for a grant program to provide funds for capital investments in Low-Income Housing Tax Credit projects.

59. Eligible projects are those receiving LIHTC award under Section 42(h) or 1400N during the period October 1, 2006 through September 30, 2009.

60. Funds are intended to address funding gaps created by diminished investor demand for LIHTC.

61. TCAP funds may be used for eligible basis items.

63. Mission: Change lives for a better tomorrow by promoting the development and sustainability of quality affordable housing

65. single family homes

66. multi-unit and multi-building complexes

67. duplexes

68. historical renovations

69. specialty needs developments: elderly, assisted living, transitional homeless facilities, and developmentally disabled residents Number of Developments: 241 Number of Counties Represented: 104 Number of Housing Units: 6,517 Number of Cities Represented: 127 Equity raised: $570 million Current as of 10/31/09

70. Fund Investment Structure MHEG Tax Credit Syndicator Investors NF XIV, L.P. Owned 99.99% by Investors Owned 00.01% by MHEG Project B Lower Tier Partnership LP/LLC Owned .01% by Developer/GP Owned 99.99% by Fund Project A Lower Tier Partnership LP/LLC Owned .01% by Developer/GP Owned 99.99% by Fund Project C Lower Tier Partnership LP/LLC Owned .01% by Developer/GP Owned 99.99% by Fund NIFA Tax Credits

72. Regulators do vary on the scope of inclusion. Please check with your Regulator for their interpretation.

73. See OCC report dated 2/08– further adopted by FDIC and Federal Reserves

74. By purchasing tax credits in a MHEG fund banks can potentially fulfill the Investment portion of the CRA exam, typically the most difficult portion for most banks to meet, as well as opportunities to meet the lending and service tests.

76. HOME

77. TCAP

78. Exchange

79. Developer Fee

80. Various Contributions

82. Mitigated by MHEG’s investment policies, ongoing management and financial oversight, as well as MHEG’s financial strength

83. Compliance risk

84. Mitigated by MHEG’s continuing compliance practices and oversight

85. Changes in current law

86. Highly improbable any law change would affect any current investments

87. Reputation Risk

89. You receive no monetary return with your payment to the IRS.

90. You will receive an above market return and a CRA Investment Credit, if applicable, when you purchase tax credits with MHEG.