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hello everyone thank you for attending our webinar switching sides how and why banks should make equity investments in litec projects i'm christopher mcloone a tax partner at nutter i've had the pleasure of uh working with some of the panelists and others on litec and other tax credit transactions for over 15 years i and my colleague wendy fiskus whom you'll meet later will moderate this webinar we have an impressive panel for you we feel so fortunate to have them each of them they'll provide you a high level summary of key topics we have an hour to make four presentations so we may not have time for a q a um but we want your questions and we hope that you'll submit any questions you have you can submit them by email to any of the panelists uh to wendy or me or via the zoom chat feature we want to be responsive to what you want to know also please let us know if you're interested in hearing more about any of the presented topics or about any other topics related to lending to or investing in uh community development projects including those that generate lead tech historic tax credits or new markets tax credits now hand the reins to wendy who will introduce herself and the first two panelists thank you chris good afternoon everyone and thank you for joining us my name is wendy fiskus and i'm a partner in nutter's commercial real estate and finance department my practice focuses primarily on representing lenders borrowers developers and investors in all facets of commercial finance and real estate transactions including acquisitions dispositions financing and workout over the years i have represented numerous banks and lending institutions in connection with the financing of low income and affordable housing projects it is my sincere pleasure to introduce our first speaker cindy fang who is a partner in cohn resnick's boston office and serves as the firm's tax credit investment services leader cindy has a broad range of experience serving investor syndicator developer and housing finance agency clients involved in tax credit transactions as you will see from her presentation today cindy is well versed in all realms of major investment tax credits including the low income housing tax credit or litec historic new markets and renewable energy tax credits cindy has co-authored many publications including a series of studies that track the performance of housing tax credit investments and the relationship between housing tax credit pricing and banks investing in geographies under the community reinvestment act i'd also like to introduce my law partner tom curry tom is a partner in nutter's corporate and transactions department and a co-leader of the firm's banking and financial services group he is a regulatory attorney who advises clients on a wide range of policy financial services regulation governance and other issues prior to joining us at nutter tom served as the united states comptroller of the currency which is the federal agency that charters regulates and supervises national banks and federal savings banks he most recently served as an expert consultant for the imf or international monetary fund tom has been a long time member of the neighbor works america board of directors which is a congressionally chartered non-profit whose mission is to support affordable housing and community development and he has served as chairman twice chris take it away so we also have nick ratty nick is a principal at ken resnick's real estate consulting practice in boston he has more than 15 years experience in the tax credit industry he is currently responsible for developing and evaluating tax credit syndication structures providing tax compliance advice evaluating tax credit recapture and loss reallocation issues strategizing post compliance period exits and providing syndication advisory services he has extensive experience structuring a wide range of historic low-income housing and new markets tax credits for developers and investors and all that's true and all that's in his bio but what isn't included in this bio is that nick is a really good team player and uh in this industry and for these transactions you need two players that's so um so that's good uh we also have brian shumway uh brian is president of wishrock a national affordable housing developer um he's a member of wishrock's executive team and he oversees wishrock's operations from wishrock's portland maine office he plays a senior advisory role on new development projects and takes the lead leads development teams on more complicated transactions he's a recognized leader in the affordable housing industry serving on the national housing and rehabilitation association's board of directors and also serving on the loan committee of mercy community capital he has two master's degree from mit one in city planning and one in real estate development so now um i will turn it back to wendy who will lead into cindy's presentation thanks chris as you say let's turn this over to our panelists cindy you work with a lot of corporate investors can you give us a little background about the affordable housing equity market and more importantly current market conditions yes i'll be happy to um thank you for the very kind introduction wendy and thank you nader for the opportunity and welcome again other attendees i think and since when they did a great job introducing conor resnick and me and nick we can probably advance the next slide okay so i saw from the 10 d list that we have a range of industry participants you know from investors to developers lenders and others and also saw some familiar names who have been investing in affordable housing for quite long and others who may be relatively new to the program so i will try my best to tailor the presentation to the range of the audience if we can go to the next slide deck please before i talk about the current market conditions which is probably of more interest you are i always like to go back a little bit to what we call the housing tax credit time machine this is something that i've been working with since they're the beginning of my early days just you know going back to all the way to the exception of the affordable house program um you know starting from 1986 when the program was first authorized entered under the internal revenue code to the early 1990s when the program was made permanent and the corporate investor market really started to take place since then and fast forward to 2000 um the market size from the housing tax credit equity perspective was about full billing at the time uh just some historical perspective the federal credit was traded on average at 60 cents per dollar in return investors would receive a double-digit after-tax ir and um 2016 was a milestone when we witnessed the first industry spike the high point of 9 billion in total investor equity the credits were roughly traded at a dollar for dollar investor return was at the historical high because the demand for credits were so strong on average at 4.5 and after that i think we all know we had the financial crisis that caused some disruption to the program but luckily the program proved itself to be resilient the market was cut in half in size and rebounded right after in 2010. so 2016 was another historical high of 16.8 billion in total equity market and then we had the post-election uncertainty at some level that fell like yesterday but you know it was a while ago and the industry dealt with the tax reform uncertainty and then we had the tax cuts and jobs act um next slide please so every year my group runs this survey the annual equity survey just to gauge the size of the market the methods of execution and their profile of participants in terms of equity financing the 2019 um industry concluded with 18.3 billion in total tax equity is another historical high after you know the last post election uncertainty were smoothed out 2019 was another historical high of that um 74 was funded through syndicators meaning that investors invested in either multi-investor or single investor funds that were offered to them by syndicators and managed by syndicators usually for investors who are new to the marketplace or who do not have a large staff internally that's the preferred execution 26 was directly invested by usually large banks who have internal staff and who have a very focused cra need this ratio changes year to year but relatively remained constant over the last several years we haven't started our 2020 year and volume survey yet because there are still a lot of closing that are happening as we speak and there are some potential delays as well but overall based on the conversation we have had with other participants from equity perspective either direct investors or syndicators i would expect the 2020 number to be similar to 2019 uh there are some small delta there but um based on the conversation we had i think we are going to see a strong year this year which alleviated a lot of the concerns people had when kovit first hit us investor motivations for those of you who have been investing for for a while you don't need me to tell you this for those who are relatively new in the tax equity space um this is a chart where we like to remind people you know what are the motivating reasons for your peers to participate as affordable housing or other tax incentivized investments for bank investors the positive consideration under the community reinvestment act has been the leading reason and it is so important that the cra has played a central role in promoting affordable housing development and also allowed industry to weather some of the downturns including the 0809 financial crisis the cra is under reform now with some uncertainty in terms of how the regulators will move forward and how the next administration could change things but we still see that as such important factor and then favorable risk adjusted return we like to emphasize favorable risk adjusted return the risk part because uh comparing affordable housing investments to alternatives especially for those non-bank investors they may not look as attractive from the get-go but i will share some information later on that shows how solid those investments have been uh performing which i think will make the return more attractive on a risk-adjusted basis and a lot of the investors also emphasizing more in recent years about cross-selling opportunities whether it's lending opportunities or other opportunities as well as the other corporate social responsibility agendas we see more participation this year from the health care sector um you know just given that housing is such a center plays such a central role in the social determinant of health we are very happy to see more interest and more participation from that sector and we're working with some of them as well and then from the tax management perspective i think we'll have some later discussion on how investors receive their benefits from a tax planning perspective these are long-term investments and it's it's complex to underwrite but overall it's still very powerful tool that helped the corporate tax department and investors to do some long-term tax planning now this is one of their popular charts that we like to share this basically ties the story together the the history of the program the involvement of how the market evolved over the years as well as how the investor demands and available availability of credits uh have been affecting the market price and yield to investors so if you just look at 2020 alone this is the weighted average return after tax return 5.07 to investors and we indexed that against the 10-year treasury rate as well just so you can see the spread there it's important to note that this return is innovated by the funds available of funds that were closed this year but also a lot of their multi-investor funds do you have what's called tiered pricing meaning that investors in the same fund may receive different levels of returns based on their motive and cra need so usually for investors a bank investor who has a cra need in a high price area they may in turn receive a lower return conversely if economic investors who are mainly investors investing for economic reasons and they may be investing in larger volume and receive a volume discount maybe be receiving something like 6.5 um 6.75 in today's market next slide please um here if you are in front of a computer what you have in front of you is a listing of current funds this is something that we publish every other month basically is a listing of funds that are currently being offered and available in the marketplace their return pricing and we separate them by national funds versus regional funds and under on top right corner you'll see some of the pricing data as well um this is something that we publish through the housing tax credit advisor magazine and we also include that in our own newsletter so if you are interested by all means we can um we'll be more than happy to include you in the distribution it's just a nice way to see what are the current uh market pricing and yield looks like i mentioned the track record and risk adjustment so the track record of affordable housing investments is another very compelling story we have been studying the track record of those investments since the beginning of my career which was about 17 years ago as you could imagine initially when the program was made permanent in the early 1990s there was a lot of skepticism about how these projects will actually perform and over the years if you we can go to the next slide we're happy to report that the affordable housing funds have by far delivered their promise return to investors and if we can just go to the next slide please um as well as the credits so this is showing that of all the funds we surveyed which is 90 of the market they have delivered basically close to 100 of the original projected housing credits i think we can skip this one in the interest of timing um across the country these affordable housing projects were 98 percent occupied which essentially meaning means full occupancy with exception of the normal channelers this data was current as of 2018 will be refreshing uh that's you uh to include 19 and 20 data in the middle of 2021. um so there's a lot of information here this is talking about the debt coverage ratio for housing projects 1.40 so nothing comparable to market rate but you know it's a it's a very strong performance i think if we go to the um the affordable housing industry are using the standards that are put together by the affordable housing investors council which we advised on um the uh what's called watch list essentially means that projects that are underperforming and require some attention the watch list was at a historic low of 11 percent as of 2018 um foreclosure rate is something that the regulators and investors other lenders are very interested in we have been gathering the foreclosure data um for many years as well and please report that the cumulative foreclosure rate was just under one percent uh since exception of the program um the chart only shows through 2000 but the data goes back to the exception of the program which makes affordable housing investments one of the strongest performing assets that i'm familiar with so i wanted to spend the last minute the covet impact thinks that's uh that's relevant it's not it's not anything that anyone could have anticipated so by all means it has had impact on every single market including affordable housing marketplace we've seen some construction delays but so far all parties the general contractors developers product managers indicators investor lenders are all working together as the agencies as well we're seeing uh by large means just some minor delays under three months that can be managed managed with exception of just a few markets grant collection remained strong through october we are receiving reports that basically point to their um the low 90s which is a little bit lower compared to historical level but nothing as extreme as people were afraid of at the beginning of this and the market has reacted with some modest pricing changes but again appear to be a very resilient and the underlying reason is really that the demand f r food housing is even stronger and everyone in industry is putting our hands together trying to solve this temporary problem so with that i will conclude the formal part of my presentation thank you cindy tom you're up next as a former federal and state bank regulator what would you flag for banks getting into lytec from a prudential and community reinvestment act standpoint uh thank you wendy uh and it's a pleasure to be on the program uh with the other participants and you uh really uh if you're a highly regulated uh bank you wanna know two things uh one uh am i authorized to engage in the activity and two when you're talking about light tech investments or lending do i have the benefit of obtaining uh positive consideration under the federal and state uh community reinvestment acts and just to summarize what the cra requires it's basically an affirmative obligation on a bank to both ascertain and meet uh the credit needs of their local community including lower moderate income neighborhoods it gets a lot more complicated after that of course so addressing uh whether it's a permissible activity uh it's important to identify on the next slide what type of uh charter that the bank operates under so you need to look at it from both what a national bank could do if you're a nationally bank chartered institution under the occ a federal savings association or a state chartered massachusetts bank uh the national banks have really taken a lead in terms of uh public welfare investments and that's what's referred to under the national bank act and an a a public welfare investment allows a bank to uh national bank to make investments that are primarily designed to promote the public welfare and there's a statute and a regulation that implement it uh essentially the investments must primarily benefit low and moderate income individuals low and moderate income areas or other areas targeted by a governmental entity for redevelopment uh to or another if they qualify as a qualified cra investment with any type of investment there are potential potential limitations so there are aggregate limitations that apply so all public welfare investments may not exceed five percent of the bank's capital and surplus uh there is a provision to allow a higher uh amount of investments but uh again uh the supervisors uh really are concerned about concentrations uh so uh it's not that often that uh uh higher amounts are approved if a bank is interested in higher amounts i'd strongly recommend that they they talk to their contact at the occ early on in the process for federal savings associations same regulator this is on the next slide same regulator but different rules because it's a different charter and there's basically four avenues for making public welfare investments one is uh the minimus investment uh basically the investment uh uh is either one percent of capital or uh 250 000 in community development investments that a national bank can do uh the more important authority is the community development related equity investments in real estate authority uh and again uh there are requirements as to where the uh the real estate's located must be in a cbtg program neighborhood or area uh and again there's aggregate investments and that's again five percent of total assets uh and equity investments many uh may not exceed two percent of total assets uh there's also the opportunity to do it under the investments and service corporations and service companies subsidiaries for community development investments again under a federal regulation uh there uh the investments are uh three percent of total assets and they must serve primarily community inner city or community development purposes and then lastly is a grandfathering provision back under the dodd-frank act the ots the former regulator for federal savings associations was folded into the occ and if the activity was authorized under an old oc otdc opinion you can still continue to do it uh turning uh to massachusetts state charter banks uh it's really a two-pronged analysis uh first the investment must be authorized under the state banking code and because uh the state charter banks are fds fdic insured under the fdic improvement act of uh 1991 uh which inserted section 24 into the act uh a state power must be a permissible activity for a national bank or it must get uh specific approval uh from the fdic as a a permissible investment that doesn't pose risk to the fdic deposit insurance fund so where are your state law authorities basically there's three sources one is under for lending one is under the general lending authorities of uh general law chapter 167e section two uh the second is under the investment statute chapter 167 f uh section two uh paragraph 8 the clause 8 which is a leeway investment and basically it allows a state chartered bank to invest up to seven percent of its deposits in an otherwise not permitted activity expressly uh permitted activity uh but it also has a caveat that uh any investment over three percent of deposits must be in housing related entities uh and if it's uh the investment uh it's a loan or if it's a investment in a debt security uh those they must be secured for the term of the loan or the debt security uh the third area which is the primary uh source of authority for state charter banks for light tech investments is the party with national banks authority under state law uh and there you have a tie-in back to the national bank public welfare investments on an earlier slide uh and the advantage here is because those investments are expressly authorized for national banks they meet the second prong uh required under section 24 of the federal deposit insurance act um so once you establish uh that it's a permissible activity uh the second area of inquiry is are will i obtain uh cra credit or positive consideration uh and as uh was mentioned earlier by cindy uh the state of play of uh the federals community reinvestment act act regulations is dennis data flux we currently have two sets of federal cra regulations in effect and which regulations will apply uh depends on your type of charter so if you're a a national bank or a federal savings association you're going to be subject as of last october i mean this october to new occ amended regulations uh and uh those regulations uh could be subject to uh change with the biden administration uh so uh there is some uncertainty whether they will remain in effect in their current form also to complicate things uh small occ community banks can elect to follow the old occ regulations and those old occ regulations are the regulations that apply to fed member and non-member banks uh again there's more activity there in terms of the state of play uh there's the federal reserve has released an ampr advanced notice of proposed rulemaking on an alternative proposal for cra reform uh and it is possible that in the in the future the oocc and the fdic could join the fed in proposing a new uniform cri regulation for all types of banks again you have another complication is massachusetts state charter banks have operate under the state cra law and regulations but fortunately the state regulations basically uh parallel or mirror the federal regulations and some of the differences are really only in the granularity of the performance evaluation ratings um so i'd like to just turn to the cra treatment of light tech projects and funds under the 1994 cra regulations which again apply to fdic and fed member banks uh you may receive a positive cra consideration for uh community development activities that are uh related to light tech projects and funds as long as the activities benefit a bank's assessment area or a broader statewide or regional area that includes the state's assess uh the bank's assessment area um the bank uh assessment area uh does not uh necessarily need to receive an immediate or direct benefit from the bank's participation in the activity as long as the purpose mandate or function of the activity uh includes serving uh geographies or individuals located within that institution's assessment area the exist federal and state examiners will consider these activities even if they don't benefit the bank's assessment area as long as the bank has been responsive to community development needs and opportunities within their assessment area so there is an opportunity to get a generalized credit instead of specific credit uh activities that are uh potentially eligible for positive cra consideration include direct investments in light tech projects uh pre-development financing or construction permanent financing for those projects investments in funds that specialize in funding and managing light tech products and providing technical assistance to non-profit organizations that um the council uh potential low and mod income uh residents and again uh what's very helpful and i recommend that people look at the occ uh resource directory for public welfare investments which has a wealth of information in this area lastly i want to turn to [Music] what's in the occ new cra regulations i think there's a clear benefit on the next slide though those regulations went into effect on october 1st and one of the improvements uh at least for you uh uh banks and those looking to determine whether a particular investment or activity uh is a cra qualified investment uh the occ is pushed published and is committed through regulation to maintain a list of non-exhaustive illustrative qualifying activities so in terms of banks they generally want to make sure that if they do make an investment or fund a loan that it uh that they have some assurance that it will be a positive from a cra perspective and at least now you can point to this uh list that the sierra the occ occ's published uh that clearly uh indicates that li-tech uh public welfare type of investments uh do receive uh positive credit so that is the uh the state of play uh and i'm happy to turn it back back to our able moderator thanks so much tom um nick uh following on tom's discussion of regulatory benefits uh did you discuss the economic benefits of investing in li-tech transactions or projects and you know the risks associated with them and what you might do to mitigate those risks absolutely i'm happy to chris and thank you for having me as a panelist on this uh great team of folks that you've pulled together today that's a it's an honor um so as part of my practice i spend a lot of time working with developers and investors looking at financial projections for these types of investments and how to measure the returns and maximize returns to investors and meet the economic goals of all parties involved the two most significant benefits from an economic standpoint in investing in these low-income housing tax credit projects are the tax credits itself the low-income housing tax credit which is a dollar for dollar reduction in your tax liability that benefit is available technically for a 10-year period but most often it's it's more like a an 11-year period because the credit in the first year will be prorated based on the lease up of your your project so as a result you'll have a stub year of credits in the first year as well as in the last year and year 11. um that's a pretty standard measurement and measurable benefit that's available throughout the the investment period for these these types of investments the other major benefit are tax losses that are available and the actual benefit of those tax losses are measured by taking the the investors tax rate for so for a corporate uh investor currently that's 21 times the actual loss benefit so every for every dollar of tax losses that are allocated to an investor in these partnerships it provides a 21 benefit and those losses are recognized throughout the typical hold period for tax credit investments and that typical whole period is 15 years which lines up with what's called the recapture period and i'll talk a little bit about a little bit more about what recapture is um in my presentation um you're also able to take losses and without getting too tax technical you're also able to take losses against your non-recourse deduction so against your allocation of debt in these projects so there's there can be a significant amount of tax loss benefits as a result of these investments um when you're thinking about how the return is measured right there's the drivers of that internal rate of return that my partner cindy mentioned before she took you through that nice timeline of what the returns have been um over the years and so the drivers of that retail those returns the timings of your investors capital contributions into the project right so the timing of those investments and the amount that is paid per tax credit um that is recognized from the investment so typically to say that differently your investment amount is is measured or determined based on a price per credit that the project is going to produce and the timing of when you um as an investor contribute those of those investments into the project drive as compared to the timing of the tax credit benefits over 10 years and the timing of the tax losses are ultimately going to drive those irrs so as you as the market demands a higher price per credit for these types of investments the irrs drop right and and um cindy's timeline showed that really well um because it did show the fact that the what where tax credit pricing was it was year over year versus where the irr so you'll see that that correlation that negative correlation between the two so when we're looking at a lot of these um investments you know in understanding the investors return requirements there are some tools we can use in terms of adjusting tax investor contributions or timing of losses in order to get to a return that that a typical investor would want one of the major kind of tools we use these days in order to help drive a higher rate of return to the investors is a tool used to accelerate tax losses and take advantage of bonus depreciation on bonus eligible items like personal property and site improvements given that these investments are residential multi-family residential projects there's typically a fair amount of personal property or site improvements that are available and for bonus depreciation and those can even be increased with what's called a cost segregation analysis so some of our investor clients are looking at the possibility to do this study which involves looking at the plans and specs of the of the project and determining uh um an allocation of cost to your personal property and site improvements to kind of maximize the amount of bonus depreciation that's available to the to the investor in the project this is something that's been blessed by the service there's independent um independent uh companies out there that perform cost segregation analysis including cone resnick it's one of the services we do provide as well as many others in the in the industry so just to summarize right uh an investors investors capital contributions are typically measured based on a price paid per tax credit that's available the major benefits are the tax credit itself which is a 10-year stream of of credits but most most the time 11 and the tax losses that are driven by interest and depreciation deductions and you can you can adjust or help drive the irr by adjusting timing of capital contributions and adjusting the recognition of tax losses from the partnership um i think it's also important when you're talking about economic benefits to talk about the fact that these types of investments the low-income housing tax credit investments are eligible for favorable gap accounting treatment as well um so they are a bit um a method of accounting called proportional amount amortization method is available to these types of investments without getting too deep into the technicalities of that basically what it allows you to do is it allows you to net the provision on on the income statement below the line so you don't have to you you're essentially eliminating the pre-tax impact to your gap earnings from these investments right so as i mentioned before there's a lot of there's a lot of tax losses coming out of these investments right and you don't want hat to impact your pre-tax earnings fortunately there has been approved uh accounting method to to address that concern right and allow you to account for these things these uh investments below the line so you not to impact your pre-tax earnings which is something that many of our bank clients are always very interested in the primary risk in these investments is something called recapture that's if you go out of compliance with respect to renting to to individuals that aren't low income or there's a transfer of the project the good news is there is um you're vested in these tax credits two thirds on the day that you start claiming them um and then the final the final one third best in the period in in the period after the credit delivery section so typically years 11 through 15. um and the major triggers things that can trigger recapture like i said is renting to out of uh income tenants inc tenants that don't meet the requirements the income limits um or transfer of the project in a situation where it is not um expected that the project will continue to be operated as an affordable housing project now that's typically a low-risk item because most of these projects have extended use agreements requiring them to operate as affordable housing not just for the 15-year uh tax credit compliance period or recapture period but well beyond that typically at a minimum it's 30 years also if you think about transfer of ownership um one way that can happen is through a bank foreclosure historically um the data has shown that since the inception that the foreclosure rate on these investments is below one percent i don't think there is any other asset class out there that can claim foreclosure rate as low as as these these projects and that and that typically has to do with the fact that they're underwritten up front with a relatively high debt service coverage ratio to protect against this this risk so there are some ways you can mitigate against that recapture risk um there's non-compliance cure periods built into the code so you have if you inadvertently rent your project to a ineligible tenant there are pretty favorable cures to to be able to fix that problem within a reasonable amount of time there's insurance available against recapture or casualty losses which can result in the loss of credits these projects are typically underwritten with strong operating reserves and guaranteed requirements from the project sponsors you can look to the property management company you always want an experienced property management company who understands the rules um with respect to um you know what is required for a tenant certification process owner sponsor track record right does this developer have a reputation of delivering product on time on time and within the requirements of the underwriting uh there's multiple levels of oversight from the irs to treasury to state agencies and so forth there's high demand of affordable housing right it's it's no secret that their our country is um is has a greater need for affordable housing than what is available and then there is a there's a plethora of subsidies available to these projects so there are oftentimes soft loan programs that drive down the amount of leverage on these deals so with that i will wrap up my my portion of the presentation and turn it back over to to you chris thanks nick that's great um now uh ryan you're uh the sponsor developer of our group um what is the landscape look from your perspective and in particular like how are these affordable deals diff how are they different from the regular multi-family development deals the market deals great thanks chris and wendy and chris i really appreciate you having me here today um the opportunity to present um yeah so so far we've we've heard that tax credit investment is safe right it's it's allowed it's even encouraged it's economically beneficial it sounds terrific right um so you can go to the next slide you know i thought what i'd start out with is just looking at you know in general what what housing development looks like and for some of the people who aren't participants in the in the tax credit industry now um you in general this might be the process that that you're used to participating in right so a sponsor finds finds a spot to develop they you know analyze the market do their financial analysis they have a designer and a contractor that work on the physical aspects you know finally they're talking to you as lender um raising debt you're doing your underwriting you know so on and so forth they go through closing they build it they lease it they operate it they pay their mortgage and um and everything is great right it's a standard housing development it's easy um so you know when when typical multi-family housing turns into affordable housing development though it starts to get a little more complex and we'll see that in the next slide um you know in addition to the extra green words we've also got more pictures in the next slide right so as an affordable housing sponsor we start looking at things like a subsidy availability you know kind of core it's intuitive but it's worth stating one of the reasons we call affordable housing affordable is because we reduce the rents below what the market will bear right and and with that reduced rent um there becomes a gap in what you can actually afford to to build with and so as affordable housing developers we we need subsidy to to build our projects and so as we're we're looking for sites and entitling our projects we we're also looking for subsidy to help us actually pay for our projects and you know for for whatever reasons some folks sometimes don't want our developments in their backyard so we're engaging with stakeholders sometimes to help release that subsidy sometimes to help just allow us into the backyards that we want to build in um and then we're going through the typical elements of housing development and then we're actually applying for these subsidies we're we're making promises to our investors and our lenders um you know as we continue to go through the typical development process uh we're getting extra layers of inspections we're validating our costs and then in the long run the state agency who we work with who actually allocates these tax credits that we're talking about selling or rebuying are monitoring our projects for you know 15 years um so so of these extra green words on the slide i think three actually act as enhanced risk mitigants in our projects and you know they helped to support some of that strong performance that cindy talked about earlier in the presentation um so we flip to the next slide and dive a little bit deeper into some of these um so so the first is the the whole subsidy application and award process um you know and in some ways you know this is a spot where these subsidy providers you know almost act as you know backup underwriting and credit committees uh for you as lenders and investors um they're checking to see whether these proposed projects are going to meet policy objectives they're looking at market analysis to make sure there actually is a demonstrated need for the project they're looking for experienced development teams like nick you're just talking about um they're studying the long-term financial viability of the deals and looking at the capacity to carry out the project you know while you know in some respects there may not be a strong financial you know tie-in of the allocating agency to each one of these projects there's huge you know reputational and moral tied together of these agencies and they've got every reason to want to make sure that every project they fund is successful and to want to only devote resources to those that are going to both meet the policy objectives but also succeed investors and lenders you also are looking for sponsors who are able to give meaningful guarantees about their performance uh you know we talked about the you know the risks of recapturing the tax credit um you know of these projects not delivering the credit that you would be purchasing as investors and so you know there's folks look for credit worthy guarantors to ensure completion conversion of loan you know operational stabilization uh delivery of the credits and compliance and then deficit-free operation which is going to ensure that we avoid foreclosure and foreclosure is one of the major risks that would lead to that recapture of the credit um and the nice thing about this industry is that these financial risks and reward are really well allocated to ensure that you know the folks who are at risk are the ones who can actually manage that risk and then finally the you know the third set of green words from that previous slide is the state agency monitoring um and and so this is you know the the outside part of the allocating agency is looking over you know all these projects for the long term to make sure that all of the promises that a sponsor like me makes in order to get my allocation of credits you know are continuing to be met that we're you know meeting you know all the rules the irs puts out related to the program and that we're maintaining the physical plant you know of our assets um yeah so this this also is just one more set of eyes helping to ensure the long-term viability of the asset um yeah and it protects against the risk of loss we can go to the next slide so for a typical investor um particularly a smaller or newer investor there's another risk mitigator they call a syndicator and cindy you you refer to syndicators in your presentation and um you know syndicator is an intermediary right so they're the ones who are managing the uh the relationships with sponsors like us um packaging multiple deals into funds to help mitigate and balance risks they're doing their deep level sponsor review even beyond that of a typical lender doing due diligence review doing the financial analysis of the whole package of deals with an eye on the tax implications sometimes they're setting aside extra resources to deal with you know issues you know at the deal level um and you know from just an ease of use perspective they're also interfacing with sponsors like us to manage information flow and ensure compliance yeah to help you know the ultimate investors experience just be a little bit easier um you know whether you're investing direct or through syndicator it turns out that this affordable housing industry is also a really tight-knit and protective industry and you know that adds just one more you know final risk minute again which i've got on the next slide um on the next slide which is reputation sponsors like me want to need to stay in business and the way that we do that is by getting awards from allocating agencies year after year and every time we apply for an award we're asked about our compliance and compliance issues um all of these allocating agencies talk to each other they're all part of the same national organization syndicators and investors all talk to each other they're all part of the same national organizations and it's a small industry bad actors aren't welcome and and folks like we know this right um and your reputation is is all you have and there's all these trite sayings that i could come up with and you've all heard but but reputation impacts decisions of lenders and who they're going to work with and impacts decisions of syndicators and who they're going to work with it impacts the agencies and who they're going to uh who they're going to allocate resources to and it even will impact the decisions of you know folks like the attorneys and accountants who are on this call and who are gonna you know decide who they're gonna devote their professional resources to um and and so you know that reputational aspect of our industry really provides one more protective layer around the investment um so that's you know a really you know quick overview of the you know comparing affordable housing developments to uh traditional development and you know what i what i hope that you'll take from this last segment is that you know within the affordable housing arena there are some structural elements that you really act to act as risk mitigants to the investment um and you know add that protective layer to that hopefully will encourage you to to invest and hopefully i'll see you in one of my deals some sunday so thank you thank you brian i'd also like to thank all of our other dynamic speakers for taking the time today to educate us a bit on the issues that banks need to consider when making equity investments in litec projects i'd also like to mention and we can go to the next slide that tomorrow at noon nutter is sponsoring another webinar in which governor deval patrick will share with us his vision as to what it means to be an american today if you'd like to register for this webinar you can do so on nutter's website finally i just want to mention you know in this crazy world we're all living in that i hope that everyone um today is staying positive and of course testing negative be well