tax credit investment advisory services quantitative economics and statistics april 26, 2007...
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Tax Credit InvestmentAdvisory Services
Quantitative Economicsand Statistics
April 26, 2007
Understandingthe Dynamics IV Housing Tax CreditInvestment Performance
Roshni Patel, Ernst & Young
IPED: After the ClosingMaximizing Value and Avoiding PitfallsSan Diego, CA
Understandingthe Dynamics IV Housing Tax CreditInvestment Performance
Roshni Patel, Ernst & Young
IPED: After the ClosingMaximizing Value and Avoiding PitfallsSan Diego, CA
2
OverviewOverviewStudy will be sent to data providers and
financial contributors – also available at: www.ey.com/us/taxcreditadvisory
Includes two-thirds of all housing credit properties produced - nearly 14,000 properties, over one million units, and $34.6 billion of equity investment
Many new data points and analyses
This presentation includes additional data and analysis not found in the study
Study will be sent to data providers and financial contributors – also available at: www.ey.com/us/taxcreditadvisory
Includes two-thirds of all housing credit properties produced - nearly 14,000 properties, over one million units, and $34.6 billion of equity investment
Many new data points and analyses
This presentation includes additional data and analysis not found in the study
3
31 Data Providers:31 Data Providers:
• 2 direct investors
• 13 non-profit affiliated
• 16 for-profit
• 2 direct investors
• 13 non-profit affiliated
• 16 for-profit
4
Performance OverviewPerformance Overview
5
Construction DurationConstruction Duration39%
Behind39%
Behind31%
Ahead31%
Ahead
-12+thru-10
-10+thru-8
-8+thru-6
-6+thru-4
-4+thru-2
-2+thru
0
0+thru
2
2+thru
4
4+thru
6
6+thru
8
8+thru10
10+thru12
0369
1215182124273033363942454851545760
Months Ahead of Projections Months Behind Projections
Per
cent
of
Sam
ple
Figure 5.2 Projected vs. Actual Construction Duration
Properties < 5 years old
Properties 5-10 years old
Properties > 10 years old
30%30%
6
Lease-up DurationLease-up Duration41%
Behind41%
Behind32%
Ahead32%
Ahead
-12+thru-10
-10+thru-8
-8+thru-6
-6+thru-4
-4+thru-2
-2+thru
0
0+thru
2
2+thru
4
4+thru
6
6+thru
8
8+thru10
10+thru12
0
3
6
9
12
15
18
21
24
27
30
33
36
39
42
45
48
Months Ahead of Projections Months Behind Projections
Per
cent
of
Sam
ple
Figure 5.3 Projected vs. Actual Leasing Duration
Properties < 5 years old
Properties 5-10 years old
Properties > 10 years old
27%27%
7
Overall Property AveragesOverall Property Averages
MedianMedian
OccupancyOccupancy 96%96%
Hard Debt Coverage RatioHard Debt Coverage Ratio 1.151.15
Operating Expenses Per UnitOperating Expenses Per Unit $3,319$3,319
Cash FlowCash Flow $8,711$8,711
Cash Flow Per UnitCash Flow Per Unit $240$240
Repl. Reserve Contribution Per UnitRepl. Reserve Contribution Per Unit $250$250
Repl. Reserve Balance Per UnitRepl. Reserve Balance Per Unit $1,011$1,011
Balance to Contribution RatioBalance to Contribution Ratio 4.0 years4.0 years
8
Occupancy Trends: MedianOccupancy Trends: Median
Year
Me
dia
n O
cc
up
an
cy
Ra
te
96.1%
95.0
95.5
96.0
96.5
97.0
97.5
2000 2002 2003 2004 2005
Figure1.17 Median Occupancy Rate 2000-2005
All YearsAny Year
9
Occupancy Trends: % Below 90%Occupancy Trends: % Below 90%
Year
18%
2000 2002 2003 2004 20050%
10%
20%
30%
Occ
upan
cy R
ate
% U
nder
Per
form
ance
All YearsAny Year
Year
18%
2000 2002 2003 2004 20050%
10%
20%
30%
Occ
upan
cy R
ate
% U
nder
Per
form
ance
All YearsAny Year
18%
10
Cash Flow Trends: MedianCash Flow Trends: Median
Year
Me
dia
n C
as
h F
low
pe
r U
nit
$240
100
150
200
250
300
2000 2002 2003 2004 2005
Figure1.19 Median Cash Flow per Unit 2000-2005
All YearsAny Year
11
Cash Flow Trends: % Below $0Cash Flow Trends: % Below $0
Year
34%
Figure 1.24 Cash Flow per Unit Underperformance 2000-2005
2000 2002 2003 2004 20050%
10%
20%
30%
40%
50%C
ash
Flo
w p
er U
nit
% U
nder
Per
form
ance All YearsAny Year
12
Hard Debt Coverage Ratio Trends: MedianHard Debt Coverage Ratio Trends: Median
Year
Me
dia
n H
ard
De
bt
Co
ve
rag
e R
ati
o
1.15
1.0
81.1
21.1
61.2
0
2002 2003 2004 2005
Figure 1.18 Median Hard Debt Coverage Ratio 2002-2005
All YearsAny Year
13
Hard Debt Coverage Ratio Trends: % below 1.0Hard Debt Coverage Ratio Trends: % below 1.0
Year
34%
Figure 1.23 Hard Debt Coverage Ratio Underperformance 2002-2005
2002 2003 2004 20050%
10%
20%
30%
40%
50%
Ha
rd D
eb
t C
ove
rag
e R
atio
% U
nde
r P
erf
orm
an
ce
All YearsAny Year
14
Annualized Foreclosure Rate Annualized Foreclosure Rate
0.03%
0.28% 0.29%
0.32% 0.62%
0.86%0.83%
0.96%
1.24%Ta
x C
redi
t
1-4
Fam
.
Apa
rt.
Indu
stria
l
Ret
ail
Hot
el /
Mot
el
Mix
ed U
se
Oth
er C
omm
erci
al
Offi
ce
Source: ACLI Mortgage Loan Portfolio Profile 1993 - 2005 except tax credit data.
15
Less than-$2,000
-$1,800 to-$1,600
-$1,400 to-$1,200
-$1,000 to-$800
-$600 to-$400
-$200to $0
-$2,000 to-$1,800
-$1,600 to-$1,400
-$1,200 to-$1,000
-$800 to-$600
-$400 to-$200
Negative Cash Flow Per Unit
Figure 1.13 Distribution of Properties Reporting Under Performancein Cash Flow Per Unit
8%
2% 3%3% 4%
5%
8%9%
13%
18%
27%Magnitude of DeficitsMagnitude of Deficits 45%45%
16
Multiple Year DeficitsMultiple Year Deficits
16%
27.2%
16.5%
4.1%
02&03 03&04 04&05 All Years0%
5%
10%
15%
20%
25%
30%H
DC
R %
Chr
onic
Und
erpe
rfor
man
ce
17
Deficit Funding Sources –Each $1 of deficit funded by:Deficit Funding Sources –Each $1 of deficit funded by:
62%
23%
5%
5%4% 1% General Partner Advances (62%)
Lower Tier Reserves (23%)
Property Mgmt Fee Deferrals (5%)
Upper Tier Reserves (5%)
Syndicator Advances (4%)
Mortgage Workouts (<1%)
Additional Investor Advances (<1%)
10% upper tier/investor sources90% lower tier sources
18
Deficit Funding – By Size of DeficitDeficit Funding – By Size of Deficit
19
GeographyGeography
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD DE
NJ
CT RI
MA
ME
VTNH
AK
HI
MT
WY
ID
WA
NV
UT
CA
AZ
SD
CO
TX
LA
MO
IL
KY
TN
MS AL
NC
VAWV
PA
VT
AK
20
GeographyGeography
ND
NE
KS
IA
IN
MI RI
North DakotaOcc: 95%DCR: 0.97
CF: $30
NebraskaOcc: 94%DCR: 1.04
CF: $39
KansasOcc: 94%DCR: 1.04
CF: $51
IowaOcc: 93%DCR: 1.03
CF: $64
IndianaOcc: 92%DCR: 0.76CF: ($398)
MichiganOcc: 93%DCR: 0.98CF: $10
Rhode IslandOcc: 97%DCR: 1.01
CF: $40
AR
GA
SC
OH
OhioOcc: 95%DCR: 1.04CF: $67
ArkansasOcc: 95%DCR: 1.05CF: ($73)
GeorgiaOcc: 95%DCR: 1.03CF: $81
South CarolinaOcc: 95%DCR: 1.08CF: $73
21
Median DCR by RegionMedian DCR by Region
The West: 1.26The Midwest: 1.06
The South: 1.14
The Northeast: 1.15
22
Median Operating Expenses by RegionMedian Operating Expenses by Region
The West: $ 3,942The Midwest: $ 3,754
The South: $ 3,341
The Northeast: $ 5,758
23
Construction Type – 2005 PerformanceConstruction Type – 2005 Performance
Figure 4.12.3 2005 Operating Performance Overview by Construction Type COMBINED NEW REHAB
PROPERTIES:
Properties in Category 122 6,067 3,044
Percent of Properties in Category 1.3% 65.7% 33.0%
EQUITY:
Equity in Category $418,945,172 $14,890,492,252 $5,967,038,420
Percent of Equity in Category 2.0% 70.0% 28.0%
MEDIAN:
Occupancy 95.9% 96.4% 96.0%
Hard Debt Coverage Ratio 1.07 1.15 1.14
Cash Flow $1,619 $9,465 $8,636
Cash Flow Per Unit $37 $255 $220
Replacement Reserve Contribution Per Unit $260 $250 $250
Replacement Reserve Balance Per Unit $1,103 $953 $958
Operating Expenses Per Unit $5,177 $3,674 $4,420
Data in this table is provided for 9,233 number of properties total. The number of properties used to calculate each performance measure may vary
depending on the number of valid entries received for that measure.
24
Construction Type – 2005 OpExp Per Unit by AgeConstruction Type – 2005 OpExp Per Unit by Age
25
Deal Size – Cash Flow TrendsDeal Size – Cash Flow Trends
Year
Me
dia
n C
as
h F
low
Pe
r U
nit
0100
200
300
400
500
2000 2002 2003 2004 2005
Figure 4.6.15 Median Cash Flow Per Unit 2000-2005
Smallest Third - 187Middle Third - 313Large Third - 469
Fewer than 61 Units61-112 UnitsMore than 112 UnitsLargest Third
26
Deal Size: Occupancy UnderperformanceDeal Size: Occupancy Underperformance
27
Deal Size: DCR UnderperformanceDeal Size: DCR Underperformance
28
Tenancy – 2005 PerformanceTenancy – 2005 PerformanceFigure 4.10.3 2005 Operating Performance by Tenancy Type
FAMILY MIXED SENIOR SPECIAL NEEDS
PROPERTIES:
Properties in Category 7,339 296 2,670 284
Percent of Properties in Category 69.31% 2.80% 25.21% 2.68%
EQUITY:
Equity in Category $17,182,585,414 $803,834,902 $4,621,311,991 $570,700,783
Percent of Equity in Category 74.1% 3.5% 19.9% 2.5%
MEDIAN:
Occupancy 95.4% 96.4% 97.9% 96.4%
Hard Debt Coverage Ratio 1.12 1.13 1.22 1.11
Cash Flow $8,240 $9,485 $9,721 $6,433
Cash Flow Per Unit $219 $223 $289 $196
Replacement Reserve Contribution Per Unit $248 $250 $259 $250
Replacement Reserve Balance Per Unit $917 $1,165 $1,274 $1,256
Operating Expenses Per Unit $4,037 $4,687 $3,533 $5,397
Data in this table is provided for 10,589 number of properties total. The number of properties used to calculate each performance measure may vary
depending on the number of valid entries received for that measure.
29
Tenancy – Cash Flow TrendsTenancy – Cash Flow Trends
Year
Me
dia
n C
as
h F
low
Pe
r U
nit
010
020
030
040
050
060
0
2000 2002 2003 2004 2005
Figure 4.10.15 Median Cash Flow Per Unit 2000-2005
Family - 219Mixed - 223Senior - 289Special Needs - 196
30
Tenancy – Occupancy TrendsTenancy – Occupancy Trends
Year
Me
dia
n O
cc
up
an
cy
Ra
te
9294
9698
2000 2002 2003 2004 2005
Figure 4.10.13 Median Occupancy Rate 2000-2005
Family - 95Mixed - 96Senior - 98Special Needs - 96
31
Tenancy – DCR UnderperformanceTenancy – DCR Underperformance
32
Location: UnderperformanceLocation: Underperformance
Figure 4.4.9 2005 Property Underperformance Overview by Area Type RURAL SUBURBAN URBAN
BELOW 90% OCCUPANCY:
Incidence of Underperforming Properties in Category 17.7% 19.4% 19.9%
Incidence of Underperforming Housing Credit Equity in Category 17.0% 15.4% 15.0%
BELOW 1.0 HARD DEBT COVERAGE RATIO:
Incidence of Underperforming Properties in Category 31.9% 32.1% 42.9%
Incidence of Underperforming Housing Credit Equity in Category 33.2% 26.5% 36.3%
NEGATIVE CASH FLOW:
Incidence of Underperforming Properties in Category 32.8% 31.6% 40.4%
Incidence of Underperforming Housing Credit Equity in Category 34.1% 26.5% 34.8%
Data in this table is provided for 8,269 number of properties total. The number of properties used to calculate each performance measure may vary
depending on the number of valid entries received for that measure.
33
Figure 4.4.3 2005 Operating Performance Overview by Area Type RURAL SUBURBAN URBAN
PROPERTIES:
Properties in Category 3,248 2,484 2,537
Percent of Properties in Category 39.3% 30.0% 30.7%
EQUITY:
Equity in Category $3,506,619,421 $7,110,110,764 $7,429,668,798
Percent of Equity in Category 19.4% 39.4% 41.2%
MEDIAN:
Occupancy 96.0% 96.0% 96.0%
Hard Debt Coverage Ratio 1.16 1.15 1.09
Cash Flow $5,347 $21,391 $10,188
Cash Flow Per Unit $173 $339 $211
Replacement Reserve Contribution Per Unit $268 $211 $245
Replacement Reserve Balance Per Unit $1,278 $716 $973
Operating Expenses Per Unit $3,378 $3,837 $4,881
Data in this table is provided for 8,269 number of properties total. The number of properties used to calculate each performance measure may vary
depending on the number of valid entries received for that measure.
Location: 2005 MedianLocation: 2005 Median
34
Year 15 Property Disposition Strategy Year 15 Property Disposition Strategy
42% Resyndicated42% Resyndicatedwith Tax Creditswith Tax Credits
25% Maintained as Affordable 25% Maintained as Affordable w/o Tax Creditsw/o Tax Credits
27% Other27% Other
6% Converted 6% Converted to Market Rateto Market Rate
35
Replacement Reserve MedianReplacement Reserve Median
National National MedianMedian
Replacement Reserve Contribution Per UnitReplacement Reserve Contribution Per Unit $250$250
Replacement Reserve Balance Per UnitReplacement Reserve Balance Per Unit $1,011$1,011
Balance to Contribution RatioBalance to Contribution Ratio 4.04 years4.04 years
36
Q & AQ & A
www.ey.com/us/taxcreditadvisory
Roshni Patel (617) 723-1053
www.ey.com/us/taxcreditadvisory
Roshni Patel (617) 723-1053