1. 2013-2014 Economic
Outlook and Impact of
Finance and
Accounting
Debra Santos, CPA - Manager AMS
January 17, 2013
Thrive. Grow. Achieve.

2. RAFFA HISTORY
IN 1984, TOM RAFFA SET OUT TO CREATE
200 MEANINGFUL ACCOUNTING WORK THAT SUPPORTED
Employees, in GIVING BACK TO THE COMMUNITY.
3 separate
companies:
RAFFA’S VISION IS TO BE THE MOST CARING AND
• Raffa PC EFFECTIVE PROFESSIONAL FINANCIAL SERVICES
PARTNER IN THE INDUSTRY.
• Raffa
Financial
Services Inc.
• Raffa Wealth
Management
LLC

3. WHERE ARE WE NOW?
CURRENT
• Largest reduction in GDP over last 4 years, since the great depression
• Non profits struggle to find funding and maintain programs
Economic & • Tax increases may reduce donations
• Government funding cuts could reduce grants to organizations
“Fiscal Cliff” &
• Collaborative, Innovative, Interdisciplinary, Entrepreneurial
“ Debt Ceiling” • Elimination of uncertainty of personal tax rates
• Improved employment statistics in District
Impact
• Sequestration

4. 2013-2014
CHALLENGES
• Need to develop investment strategy/increase return on investment
• Open new revenue streams (improve program results and metrics)
• Managing organizational debt
• Attracting and retaining talent
• Understanding Capital Structure

5. UNDERSTANDING CAPITAL STRUCTURE
Pursuit of Mission
Preservation of Capital Structure
Organizational &
Financial Visibility

6. STRATEGIES
INNOVATIVE USE OF TECHNOLOGY
• Revenue generation – Social Media, Crowd-sourcing
• Improve efficiency of Program Delivery
NON PROFIT PARTNERING
• Space and resource sharing
• Integrated program delivery
USE OF DEBT
• Levering a Line of Credit
• Financing out of a Deficit
RETURN ON INVESTMENT
• Engaging financial consultant or fiduciary manager
• Building excess reserves

7. THANK YOU!
Debra Santos, CPA
Direct: 202-955-6746
E-mail: dsantos@raffa.com
www.raffa.com

8. Cresa
2013 Washington, DC Market Outlook
January 2013
Presented to:
Non-Profits & Associations of Washington DC

9. Table of Contents
Local Area Market/Economic Conditions
Real Estate Window-of-Opportunity
Nonprofit Real Estate Trends
Nonprofit Office Space Trends
Strategic Real Estate Planning
9 | Cresa Washington DC—DC Market Outlook/ Trends

10. Local Area Market/Economic Conditions
Current Market Conditions Expected Market Conditions in 2015
 Uncertainty as to the role of the Federal  A lot depends on politicians coming together in 2013.
Government and federal spending They’ve already shown that political bickering is still the
 Flight to quality; flight to efficiency norm.
 Low activity in the market; no new office demand  Still need a firm understanding on what will happen to
 Limited new development; must have pre-comment federal spending.
 Stable opportunities for leasing - Expect continued political posturing to make any resolution
 The rise of the special servicers difficult.
 Stable rents; rising concessions - Expect demand growth to stay sideline until certainty is
established.
Current Economic Conditions
Headwinds Tailwinds
 Spending Cut Debate  Federal Government has pent up demand and
 Next Debt Ceiling Debate needs to spend money
 2013 Fiscal Budget Debate  Increase demand for Healthcare; Education
 On going risk created by political uncertainty  Need for cyber-security and national intelligence to
 Slow economic growth grow
 European debt crisis  Strong corporate and personal balance sheets
 Strong tech sector
 Cheap debt
3 | Cresa Washington DC—DC Market Outlook/ Trends

11. Local Area Market/Economic Conditions
Economic Recovery and Leasing Opportunity Timeline (Projections)
Debt Ceiling Debate 2012 Elections Another Continuing Resolution
Super Committee Major BRAC Full implementation Major BRAC
Impasse Fiscal Cliff Move-Outs of new procurement Move-Outs
Averted Revised Spending and leasing
Priorities
Potential
Market Shift
2012 2013 2014 2015 2016
Leasing Sweet Spot
Economy Growth
Political Uncertainty
Federal Spending/Procurement
Flight to Efficiency
Demand for Office Space (Private Sector)
Demand for Office Space (Public Sector)
Concessions
Assumptions
Congress creates a spending cut agreement
reducing the federal debt by $ 2 trillion over the Trend
next 10 years.
No impact from European debit crises or Lighter the color; less pronounced the trend Darker the color; more pronounced the trend
economic recession
11 | Cresa Washington DC—DC Market Outlook/ Trends

12. MARKET + BUILDING + LANDLORD = WINDOW OF
OPPORTUNITY
12 | Cresa Washington DC—DC Market Outlook/ Trends

13. Current Real Estate Trends for Nonprofits
Reduce Real Estate Costs
 Evaluating layout to reduce space size and sublease additional space
 Restructuring Lease to reduce rates by extending term
 Evaluating Operating Expense and Real Estate Tax Additional Costs
 Reducing LAN rooms through cloud technology
Increase Space Efficiency
 Smaller standardized offices
 More open workstations decreases square footage (“benching”)
 Considering telecommuting option
Increase Office Collaboration
 More open workstations increases collaboration
 More “teaming rooms”
 Incorporating “Starbucks design” in pantry for more casual meeting area
 Increased use of glass for collaboration and LEED design principals
13 | Cresa Washington DC—DC Market Outlook/ Trends

14. Nonprofit Office Space Trends
14 | Cresa Washington DC—DC Market Outlook/ Trends

15. Strategic Real Estate Planning
15 | Cresa Washington DC—DC Market Outlook/ Trends

16. New Markets Tax Credits
and Tax Exempt Bond Financing
Olivia Shay-Byrne, Esq., (Partner, Reed Smith LLP)
OLIVIA SHAY-BYRNE | 202.414.9370 |
OSHAY@REEDSMITH.COM

17. BUY VERSUS LEASE
ANALYSIS

18. BUY VERSUS LEASE: CONSIDERATION FACTORS
THE BUSINESS’ FUTURE GOALS AND NEEDS
LONG TERM CASH FLOW ANALYSIS
FLEXIBILITY RELATING TO EXPANSION AND SPACE
UP FRONT COSTS
OPERATING EXPENSES
POTENTIAL FOR ADDITIONAL REVENUE SOURCE

19. ADVANTAGES TO BUYING
CURRENT LOW INTEREST RATES & PROPERTY VALUES
OPPORTUNITY TO BUILD EQUITY
FLEXIBILITY - ABILITY TO LEASE EXTRA SPACE
NO RENT INCREASES
CONTROL IN OPERATION AND MANAGEMENT OF BUILDING
TAX INCENTIVES POSSIBLE
LONG TERM FINANCING
PROFIT IF MARKET VALUE INCREASES

20. BUYING REQUIREMENTS
UP FRONT CAPITAL TO PURCHASE (TYPICALLY ABOUT 10 TO 20% OF TOTAL ACQUISITION)
SUFFICIENT CREDIT TO SECURE FINANCING
FAMILIARIZATION WITH OWNERSHIP AND/OR UNIT OWNER’S ASSOCIATION

21. LEASING BENEFITS
CREDITWORTHINESS IS NOT AS SIGNIFICANT.
MINIMAL UPFRONT COSTS.
ABILITY TO MOVE AT THE END OF THE LEASE TERM WITHOUT SELLING OR LEASING OTHER
SPACE.

22. DISADVANTAGES TO LEASING
MINIMAL FLEXIBILITY – LANDLORDS TYPICALLY LOCK TENANTS IN FOR LONGER TERMS (10
YEARS) WITH A SIGNIFICANT EARLY TERMINATION FEE
NO EQUITY BUILD UP
RENTAL RATES ON CURRENT MARKET CONDITIONS WITH ANNUAL ESCALATION
TENANT MAY BE REQUIRED TO MOVE AT END OF LEASE TERM.

23. TAX-EXEMPT BOND
FINANCING

24. TAX EXEMPT
BONDS
MAY BE USED TO:
PURCHASE A BUILDING
-- may use less than all of the building
RENOVATE A BUILDING
-- may use less than all of the building
NEW CONSTRUCTION
-- MAY PURCHASE A FLOOR IN AN OFFICE
CONDO

25. SELECTING PROJECTS THAT QUALIFY
FOR TAX EXEMPT FINANCING
ELIGIBLE ASSETS
TYPICALLY, TAX-EXEMPT BOND PROCEEDS ARE USED
TO FUND THE COST OF:
•Acquiring or constructing capital assets
•Interest during construction
•A debt service reserve fund
•Certain costs of credit enhancement
Costs of issuance funded from bond proceeds are limited to 2% of

26. 1430 K STREET, NW
AMERICAN
EDUCATION
RESEARCH
ASSOCIATION TAX
EXEMPT BONDS
AMERICAN
SOCIOLOGICAL
ASSOCIATION
TAX EXEMPT

27. NATIONAL ASSOCIATION OF REALTORS
WASHINGTON, D.C. HEADQUARTERS

28. ADVANTAGES OF TAX-EXEMPT FINANCING
LOWER INTEREST COST IN
COMPARISON TO THE INTEREST RATE
ON CONVENTIONAL DEBT AVAILABLE
TO THE BORROWER.
BECAUSE INVESTORS IN TAX-EXEMPT
BONDS DO NOT PAY FEDERAL INCOME
TAX ON INTEREST PAYMENTS
RECEIVED ON THE BONDS, THESE
INVESTORS ARE WILLING TO ACCEPT
AN INTEREST RATE LOWER THAN THE
INTEREST RATE ON COMPARABLE
TAXABLE BONDS, THE INTEREST ON
WHICH IS SUBJECT TO FEDERAL

29. LOWER INTEREST RATE
BENEFITS
EQUITY PROVIDED
HIGHER LEVERAGE
LONGER TERM LOAN
Burdens
• More complex
• 90 Days +
• More costly

30. TAX EXEMPT BONDS
RESTRICTIONS AND
COVENANTS

31. WHO MAY TYPICALLYTAX-EXEMPT BONDS?
ISSUE ISSUED BY THE STATE AND LOCAL
GOVERNMENT AUTHORITIES (THE
“AUTHORITY”).
TO APPLY, AN ELIGIBLE ORGANIZATION MUST
SUBMIT A COMPREHENSIVE APPLICATION
WITH SPECIFIC INFORMATION REGARDING THE
ORGANIZATION AND THE PROSPECTIVE
PROJECT.
THE AUTHORITY’S APPROVAL PROCESS
INCLUDING TEFRA HEARING AND APPROVALS
TYPICALLY TAKES ABOUT 90 DAYS.

32. SELECTING PROJECTS THAT QUALIFY
FOR TAX EXEMPT FINANCING
QUALIFIED USE VS. PRIVATE USE
SECTION 145 OF THE CODE IS THE PRIMARY FEDERAL
TAX STATUTE DEALING WITH TAX-EXEMPT BONDS FOR
501(C)(3) ORGANIZATIONS.
•Requires all property financed by the tax-exempt bonds to be owned
by a 501(c)(3) organization or a governmental unit.
•95% of the proceeds of the tax-exempt bonds be used in the exempt
activities of the 501(c)(3) organization ("Qualified Use").

33. NEW MARKET TAX CREDITS
(“NMTC”)

34. NEW MARKET TAX CREDITS UPDATE
ON JANUARY 3, 2013 PRESIDENT OBAMA SIGNED THE AMERICAN TAXPAYER RELIEF ACT OF 2012
WHICH INCLUDED AN EXTENSION OF THE NEW MARKETS TAX CREDIT PROGRAM FOR 2012 AND
2013. THE TAX CREDIT ALLOCATION AUTHORITY IS $3.5 BILLION FOR EACH YEAR.
THE CDFI FUND IS CURRENTLY REVIEWING APPLICATIONS RECEIVED UNDER THE 2012 ROUND
AND PLANS TO ANNOUNCE THE AWARDS IN APRIL.

35. NMTC PROGRAM
PURPOSE: TO ATTRACT PRIVATE
INVESTMENT TO PROVIDE CAPITAL
FOR SPECIFIC TYPES OF FOR-PROFIT
AND NON-PROFIT BUSINESSES IN
LOW-INCOME, ECONOMICALLY-
DISTRESSED COMMUNITIES (TARGET
ZONES)

36. GENERAL OVERVIEW
THE NEW MARKETS TAX CREDIT
PROGRAM IS DESIGNED TO:
–Stimulate job creation
–Encourage investment in and revitalization of low-income
urban and rural communities.
THE PRIMARY FINANCIAL BENEFIT OF
THE PROGRAM IS A SUBSTANTIAL
FEDERAL TAX CREDIT TO THE
INVESTOR.

37. Diagram: Example of NMTC Structure

38. NMTCS: WHAT’S THE
BENEFIT?
20%-25% EQUITY CONTRIBUTION BY
EQUITY WHICH MAY BE FORGIVEN WITH
A PUT/CALL PROVISION AFTER 7 YEARS
REDUCED INTEREST RATES
FLEXIBLE STRUCTURE

39. NMTC
RESTRICTIONS AND
COVENANTS

40. WHICH PROJECTS CAN USE
NMTCS?
NMTC PROCEEDS CAN BE USED
FOR A WIDE VARIETY OF
PROJECTS:
Offices
Retail
Mixed used projects
Manufacturing plants
Sporting facilities
Healthcare facilities

42. WHAT ARE THE BENEFITS FOR THE
INVESTOR?
NMTC INVESTOR CAN CLAIM A SIGNIFICANT TAX CREDIT
CREDIT CLAIMED OVER A “SEVEN YEAR” PERIOD AS FOLLOWS:
THE TOTAL TAX CREDIT IS 39% OF THE QUALIFIED EQUITY INVESTMENT (“QEI”)
• 5% of the QEI is paid in Years 1-3
• 6% of the QEI is paid in Years 4-7

43. WHAT ARE THE BENEFITS FOR THE
BORROWER?
GAP FINANCING - MAKES THE
PROJECT FEASIBLE.
BORROWER IS TYPICALLY
REQUIRED TO PAY “INTEREST
ONLY” ON LOAN PAYMENTS (7
YEARS).

44. FINANCING STRUCTURE
A LEVERAGE STRUCTURE
INVOLVES:
A LOAN FROM A LEVERAGE
LENDER
A CAPITAL CONTRIBUTION FROM
A NMTC EQUITY INVESTOR

45. “TARGET ZONE”
LOW INCOME COMMUNITY (“LIC”): WHAT QUALIFIES?
Location – Location – Location
A CENSUS TRACT WHERE:
AT LEAST 20% OF THE POPULATION IS AT OR
BELOW THE POVERTY LEVEL
THE AREA MEDIAN FAMILY INCOME IS NOT
MORE THAN 80% OF THE STATEWIDE OR
METROPOLITAN AREA INCOME, AS
APPLICABLE

46. EXAMPLES OF TARGET ZONES IN THE DISTRICT
TARGET ZONES INCLUDE PARTS OF:
 The H Street Corridor
 NOMA
 Pennsylvania Avenue
 Baseball Stadium
 Anacostia
 And More!

47. THANK YOU!
CONTACT INFORMATION:
OLIVIA SHAY-BYRNE
OSHAY@REEDSMITH.C
OM
202.414.9370