The Investor’s PerspectiveTony Bertoldi, Portfolio Manager

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Why Invest in Tax Credits?

• Tax credits and tax losses produce economic benefits for taxable investors Yields are based on the credit stream and tax deductions over

the life of the investment. They are not based on cash flow or residual value.

Some also motivated by community-based investing (CRA)

• Highly predictable benefit stream Tax credits are based on the costs of construction, and do not

vary directly with property operations. Credits flow to the property for 10 years over a 15 year

compliance period. Credits can be lost due to foreclosure or substantial non-

compliance. Experience has shown this to be very rare.

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How Investors Evaluate A Sponsor

• Track Record years in business, historic target vs. estimated yields, accuracy of

credit and loss delivery, timing, health of upper-tier fund reserves• Financial Strength

Warehouse capability, size of business relative to the company, asset management sustainability, market capitalization

• People experience, number

• Process acquisitions, underwriting, asset management, information systems,

quality of reporting• Independent Verification

client references, third-party advisors, secondary market transactions

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Keys to capital allocations

• Return on Equity (ROE) is the key to capital allocations Cost of funds Risk-based capital charge Long-term interest rates

• Community investment component Important to 95% of the market Factored in to assessment of return

• Alternative investments

• Strength of the syndicator and underlying partnerships

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Types of tax credit investments

• Unguaranteed LIHTC Funds Multi-investor funds (national funds) Single investor funds (aka private label or separate

account funds)

• Guaranteed LIHTC Funds (Credit enhanced) Multi-investor funds Single investor funds

• Other tax credit programs Investment tax credits – solar, historic Production tax credits – wind

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Multi-Investor Fund Structure

• Multi-Investor Fund Description: Most common investment vehicle Multiple corporate investors place

equity in a fund holding multiple properties

Investors have little input on fund selections

InvestmentPartnership

(Limited Partner)

Syndicator(General Partner)

General Partner(Affiliate of Developer)

Corporate Investor A(Limited Partner)

Corporate Investor B(Limited Partner)

Corporate Investor C(Limited Partner)

ProjectPartnership

ProjectPartnership

ProjectPartnership

Upper Tier:

Lower Tier:

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Investor’s view of the market today

• Risk/return tradeoff All have experienced portfolio losses (increased risk),

although still well below other investment types Worry about eroding deal terms (increased risk) Returns at all time lows

• Managing risk and return Pursue funds that are comprised of the strongest

developers with the best deals in the best markets. Work with syndicators with the best track records, asset

management and reporting.

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Torrey Highlands, San Diego CA