Andrea FrymireExecutive Vice President

South Region

Andrea FrymireExecutive Vice President

South Region

John WiechmannPresident / Chief Executive Officer

John WiechmannPresident / Chief Executive Officer

Midwest Housing Equity Group, Inc. (MHEG) was created in 1993 under the direction of then Governor Ben Nelson. The objective was to raise equity capital to invest into affordable rental housing throughout Nebraska. MHEG later expanded, starting in 2000, into Kansas, Iowa and Oklahoma. Today MHEG’s service area includes: Arkansas, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, South Dakota and Texas. Our mission is:

Changing lives for a better tomorrow Changing lives for a better tomorrow by promoting the development and sustainability by promoting the development and sustainability

of quality affordable housingof quality affordable housing..

2

We look for quality affordable properties that meet our mission and standards.

OUR MISSION & OBJECTIVE

TO DATE, MHEG HAS:- raised over $900 million in equity - developed 350 projects in rural, suburban and urban communities - created and renovated almost 10,000 units of affordable rental housing 2012 HIGHLIGHTS:- Closed over $142 million in equity (28 deals)- Raised over $92 million in equity capital- $15 million in corporate organizational reserves

Our developments range from 6 to over 200 units and include:- single family homes- multi-unit and multi-building complexes- duplexes- historical renovations-specialty needs developments: elderly, assisted living, transitional homeless facilities, and developmentally disabled residents

3

OUR DEDICATION & SUCCESS

MHEG TOTALS- 40 Funds - $905 million raised- 350 projects closed- 9,768 units created

IOWA - 7 Funds- $173 million raised- 61 projects closed- 2,058 units created

KANSAS- 10 Funds- $208 million raised- 89 projects closed- 2,342 units created

NEBRASKA- 18 Funds- $391 million raised- 162 projects closed- 3,962 units created

OKLAHOMA- 4 Funds- $133 million raised- 38 projects closed- 1,406 total units

created

4

* Information current as of 5/2013

MHEG PORTFOLIO

* Information current as of 5/2013

Total Units Created

5

Total Equity Raised in Millions

$905M 9,768 units

EQUITY & PORTFOLIO GROWTH

- Underwriting-financial feasibility

- Identifying sources of potential financing

- Assist with/Reviewing applications for funding

- Compliance with Section 42 and other financing sources

- Accounting for construction/rehab period and then for ongoing operations

- Preparation of carryover forms and cost certification

- Annual audit and tax return preparation

-Partnership with MDHF, a CDFI set up to offer a variety of predevelopment loans and permanent loans

- Training for development and management

6

BENEFITS MHEG PROVIDES

- Investment Test:- Affordable housing is a fundamental element under CRA.- An investment in a LIHTC Fund:

- Receives positive CRA consideration provided it benefits the bank’sassessment area or the broader statewide or regional area thatincludes the bank’s assessment area.

- Lending Test:- Opportunity to make construction and permanent loans on the LITHC

developments can assist in meeting the Lending Test.- Must be fixed rate and have a minimum term of 16 years- Generally the LTV will be less than 25%- Nonrecourse

- Service Opportunities:- Providing technical assistance on financial matters for a non-profit

organization serving low or moderate income individuals’ housing needs or economic revitalization and development needs

- Voting on developments within the Fund- Serving on a Board or Committee for a non-profit syndicator, housing

authority, developer, etc.- Developing and teaching financial education curricula for low or

moderate income individuals*Regulators do vary on the scope of inclusion. Please check with your Regulator for their

interpretation.7

CRA CONSIDERATION FOR BANK INVESTORS

8

- Capacity Building: In addition to working with established developers and sponsors, MHEG also works with rural housing authorities, Community Housing Development Organization’s, Community Action Program’s and other small developers that are developing tax credit properties in their own communities.

- Housing Where it’s Needed the Most: We fund projects that are really needed but are sometimes more expensive and difficult to put together, such as small rural properties, inner city, infill and special needs projects

- No Extra Risk: By investing in smaller properties with local developers, we do not accept any more risk than national syndicators. In fact we are able to spend much more time on an investment and mitigate our risk.

BENEFITS TO EACH STATE

- Geographical location- Size of investment (% of total of Fund)- Guarantees- Reserve accounts- Structure of debt to property- Experience and strength of development team, general partner and property manager- Project site-zoning, stability, accessibility- Market Study/Analysis- Title and Survey- Insurance: property, contractor (insurance and bonds)- Quarterly risk rating for life of investment- Environmental studies: Phase I mandatory, Phase II if needed-Reasonable and substantiated operating assumptions: rent levels, vacancy factors, expense estimates, level of must pay debt, and lease-up period-Construction parameters and oversight-Rent Level Analysis-Operating Expense Comparison and Analysis to MHEG’s extensive database

9

UNDERWRITING GUIDELINES

$1,000,000 Total Project Cost$ 200,000 Project Cost Not Eligible for Credits$ 800,000 Eligible Basis for Credits* x 9% Tax Credit Percentage$ 72,000 Credits Received/year x 10 Years credits are received$ 720,000 Credits received x .85 Price paid for credits$ 612,000 Equity into project from MHEG

Allows for low debt on project enabling developers to keep rents affordable

* States may allow 130% basis boost (not shown here).

10

TAX CREDIT CALCULATION

Soft Debt / GP Soft Debt / GP EquityEquity25%*25%*

Hard DebtHard Debt< 20%< 20%

Tax Credit Equity Tax Credit Equity 55% (70% with basis 55% (70% with basis

boostboost))

11

* Funded By: AHP HOME TCAP Exchange Developer Fee Various Contributions Certain Grants

TYPICAL DEAL STRUCTURE

What is the REAL risk?- Ownership risks of multifamily low-

incomeRental housing poolsMitigated by MHEG’s investment policies,

ongoingmanagement and financial oversight, as

well asMHEG’s financial strength - Compliance risk Mitigated by MHEG’s continuing

compliancepractices and oversight- Changes in current law Highly improbable any law change would

affectAny current investments- Reputation Risk We take “the high road”, we know that werepresent our fund investors who are

financialpillars of their communities

12

RISK vs. RETURN

What do you get in Return?

-Optimal Tax Planning Strategy - 10 full years of federal tax credits- 15 full years of depreciation and other passive deductions- Periodic Write-down of Paid in Capital - CRA Investment Credit, if applicable- Marketing and PR opportunities - Stabilizing and Investing in your local communities- Stable proven track record of a performing asset class- Accurately forecasted tax benefits- Quarterly Reporting and Asset Management update

WHAT ARE THE ADVANTAGES: -Pool of projects diversifies risk-Structured for strong reserves at the project and fund level, with additional reserves at MHEG- Disciplined and conservative underwriting guidelines- Investment decisions lie with investors- MHEG professional staff manage all aspects of investment- Comprehensive quarterly reporting to fund participants – available in electronic format- Independent financial audits performed at the project and fund level- Legal documents uniform and comprehensive- Delayed investment pay-in schedule increases yield- MHEG Fund investors could take minimal construction risk- MHEG Fund investors do not need an expert tax credit specialist on staff, MHEG’s staff provides tax credit expertise

13

FUND INVESTORS vs. DIRECT INVESTORS

After a developer presents a potential deal to MHEG, the project goes through several steps to ensure the deal meets our standards and approval.

- Development/Underwriting & Due Diligence Departments review project

- SCRUB Meeting: internal loan and project committee examine potential project

- Technical Review: technical advisors, tax lawyers & accountants assess potential project

- Fund Investor Approval

- MHEG Board / Investment Committee approval

14

PROJECT SELECTION PROCESS

- MHEG does not want the capital you need for normal operations.

- The dollars you are considering placing with MHEG are actually dollars you owe to the IRS as a result of your successful operations.

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

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

- Your participation benefits the community and you receive a monetary return without jeopardizing your normal business capital.

15

POINTS TO CONSIDER

- At the end of the 15-year tax credit compliance period, our goal is to exit the partnership in a manner that allows the property to continue to comply with the states extended compliance period.

- The general partner or managing member in most cases has a right of first refusal to purchase our interest for an amount stipulated in the IRS code.

- Since the project still has restricted rents, it will not be able to refinance much additional debt. Our exit usually does not generate significant cash or create a tax event. Therefore, we do not include any residual value in our analysis of return to investors.

(note: this narrative is greatly oversimplified, but does represent the results of a typical exit)

16

WHAT TO EXPECT IN THE FUTURE