© 2012 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

Introduction to Federal New MarketsTax Credits:Leveraged Project Finance for Education,Healthcare and Other CommunityDevelopment 501(c)(3) Organizations

Boston Bar Association – January 31, 2012

Seminar – Panelists:

Jerome L. Garciano, Esq. – Edwards Wildman Palmer LLP

Emily K. Yu, Esq. – Edwards Wildman Palmer LLP

Tara Mizrahi, Vice President – Affirmative Investments, Inc.

Leonard Florence Center for Living,Chelsea

2

United Teen Equality Center (UTEC),Lowell

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Massachusetts High PerformanceComputing Center, Holyoke

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New Market Tax Credits

Summary of Benefits♦ NMTC Equity may cover up to 25% of project costs.

♦ For a $10m example project, NMTC may bring in $2.5m or more of projectfinance.

♦ After 7-year compliance period, NMTC structure goes away and NMTCinvestments in effect become grants which the sponsor need not repay.

Principal Constraints♦ Project must be in a qualified census tract

♦ Non-Residential Rental (may be mixed­use, 80/20 rule)

♦ The Non-Profit Sponsor of the Project must raise the balance of the funds,$7.5m in our example, and if it does so by borrowing, the Project generallycannot be mortgaged to secure such borrowing.

What are New Market Tax Credits (NMTCs)?- Introduction

♦ Historical

♦ Community Renewal Tax Relief Act of 2000

♦ Are they still available?

♦ What is the forecast for 2012/2013?

♦ NMTC provides investors (individuals, financial institutions, othercorporations, etc.) with a tax credit for investing in communities thatare economically distressed or consist of low-income populations.

♦ 2004-2010 data:

♦ 3,000 QALICB (Real Estate – 46% vs. Operating – 51%)

♦ $21b in investments (Real Estate – 60% vs. Operating – 38%)

Boston, MA NTMC QualifyingCensus Tracts

BASIC FEDERAL NEW MARKET TAX CREDIT FINANCING

$7.5m

$50k$3.9m

$2.5m$10.0m

$50k

$500k

$10m of QEI Authority$9.5m

$50k

$9.2m

$0.3m

$50k

30 Yr

$9.5m

3rd Party Leverage Lender(Private, Sponsor, Public)

NMTC Fund(Leverage Loan Borrower/

QEI Investor)

SUB-CDE(QEI Investee/QLICI Lender)

QALICB(QLICI Borrower/Lessor)

Lessee(Sponsor)

CDE (NMTCAllocatee)

NMTCInvestor

Equity

U.S. TreasuryNMTC

Allocation

Fees

Allocation

RealEstate

Construction

Occupancy

QLICI LoanDebt

Service

QLICI LoanProceedsQLICI

Loan

AnnualRent

Occupancy30yr

Lease

QEIDistribution

QEIInvestmentQEI

Investment

LeverageLoan Debt

Service

LeverageLoan

ProceedsLeverage

Loan

Trans/Resrv

Jerome L. Garciano, Esq.

Edwards Wildman Palmer LLP617-239-0285jgarciano@edwardswildman.com

Emily K. Yu, Esq.

Edwards Wildman Palmer LLP617-239-0835eyu@edwardswildman.com

Tax Credit

NMTC Financing Structure: Qualified Active LowIncome Community Business (QALICBs)

♦ QALICB must:♦ generate at least 50% of its annual gross income by

conducting business in a low-income community

♦ use at least 40% of its tangible property within a low-income community and perform at least 40% of theirservices in a low-income community (if no employees,85% of its assets are located in such a community.)

♦ not more than 5% of the assets of a Qualified Businesscan consist of “collectibles” or “nonqualified financialproperty”

♦ be either a partnership or corporation for tax purposes.

NMTC Financing Structure: Real Estate Matters

♦ Real Estate Owner = QALICB. May be either a for-profit ornonprofit entity. Nonprofits often create 501(c)(3) supportingorganizations to hold real estate for lease to sponsor.

♦ Due Diligence by Sub-CDE, Tax Credit Investor and Third-PartyLeverage Lender

♦ Loan Documents

♦ Mortgage to Sub-CDE only

♦ Leasehold Mortgage may be available because the leaseholdinterest is not a QALICB asset.

♦ Typical loan documents

NMTC Financing Structure: Leases

♦ Lease term is typically the term of the QLICI loan.

♦ Rent payments include QALICB operating costs, QLICI debtservice, and other fees associated with the NMTC structure.

♦ NMTC regulations contain restrictions on tenant’s use.

NMTC Financing Structure: Exit

♦ Step 1 – Investor Exits through an exercise of a Put/Call – Sponsoracquires ownership of the Leverage Fund or its interest in theCDE.

♦ Step 2 – Structure collapsed through the cancellation of QLICI andQEI financing – Sponsor dissolves CDE and acquires QLICI loanin satisfaction of Leverage Loan.

Questions?

Jerome L. Garciano, Esq.Boston617 239 0285jgarciano@edwardswildman.com

Emily K. Yu, Esq.Boston617 239 0835eyu@edwardswildman.com

Presentation for Boston Bar Association

January 31, 2012

Affirmative Investments, Inc.

1Intro to New Markets

Tax Credits forNon- Profits

Intro to New MarketsTax Credits for

Non- Profits

New Markets Structure for UTEC5

$7,591,500 $2,920,000

Less $111,500 to Fees and Reserves

QEI of $10,400,000

Less $312,000 to Feesand Reserves

Sponsor Perspective/CDE Perspective

Sponsor View:

Great Benefit – NMTCs work well with many otherfunding sources, can bridge future funding as well

Added complexity to accounting and ownership ofreal estate – but most times can be consolidatedinto financials

Important to bring Board along on the learningcurve

Hire Team that know NMTCs or get a NMTCconsultant

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Sponsor Perspective/CDE Perspective

CDE View (What Makes a Project Attractive)

Job Generator/Community Benefits

Strong Team w/NMTC experience

Timing is Right

Structure Proposal with NMTC lens (example-limit Leverage Lenders)

7

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Tara MizrahiVice PresidentAffirmative Investments33 Union StreetBoston, MA 02108617-367-4300tmizrahi@affirmativeinvestments.com

Discussion Points/Contact Info