HTC + NMTCMike KressigNovogradac & Company LLP

MODERATOR PANELISTS

David BrennerHusch Blackwell LLP

Darryl JacobsGinsberg Jacobs LLC

Tim KarpChase

Steve KramerU.S. Bancorp Community Development Corporation

Tax Act Changes to Historic Rehabilitation Tax Credit

• The 10 percent non-certified rehabilitation credit for pre-1936 buildings was repealed

• The 20 percent historic rehab credit previously claimed in full in the year placed in service is now claimed ratably over five years

Indirect Effects of Tax Law Change on Twinned NMTC-HTC Projects

• Qualified Improvement Property – shortened recovery (we think) period• 15 years straight line MACRS Life (previously 39 years)• 20 year straight line ADS Life (previously 40 years)

• Interest Expense Limitations

• Effect of lower corporate tax rate on investor demand?

• Effect of Base Erosion Anti-abuse Tax (BEAT) on investor demand?

HTC Transition Rule

• Qualified rehabilitation expenditures with respect to building owned or leasedby taxpayer during the entirety of the period after 12/31/17

• 24-month (or 60-month period for phased rehabilitation) measurementperiod beginning not later than 180 days later than the enactment of the TaxCuts and Jobs Act

• Provisions in place prior to the enactment of the Act apply if the transitionrules are satisfied

• Query whether Master Lease must have been in place on 12/31/17 forMaster Lease Pass-Through Structure

Qualified Improvement Property

• Prior to Tax Reform, there were three categories of qualified real property, each withdifferent requirements to qualify.

• Qualified Leasehold Improvements• Qualified Restaurant Property• Qualified Retail Improvement Property

• Tax Reform eliminated the three categories and consolidated these three types ofproperty into one type: Qualified Improvement Property (“QIP”)

• QIP is an improvement that is:• made to an interior portion of a building which is nonresidential real property;• placed in service after the date the building was first placed in service; and• not attributable to enlargement of the building, an elevator or escalator, or the internal

structural framework of the building.

Qualified Improvement Property (cont.)

• QIP should be depreciable over 15 years for MACRS, and 20 years for ADS,but the Tax Act actually doesn’t make the necessary changes. May need tobe addressed in a correction bill.

• QIP property should be bonus eligible, but projects will need to elect out ofbonus for purposes of qualified rehabilitation expenditures.

Interest Expense Limitations

• Any business, including pass-through entities, with average gross receipts inexcess of $25 million (for the three year period) is limited in its deduction for“net interest expense” to 30% of adjusted taxable income.

• “Net interest expense” is interest expense in excess of interest income.• Adjusted taxable income prior to 2022 is defined as earnings before interest, taxes,

depreciation and amortization.• Starting in 2022, adjusted gross income is defined as earnings before interest and taxes,

but after depreciation and amortization expenses, which further restricts the deduction.

• Average gross receipts exemption is not available for partnerships wheregreater than 35% of losses are allocable to limited partners.

• Interest expense disallowed may be carried forward indefinitely and utilizedin future years.

Interest Expense Limitations (cont.)

• Businesses that are engaged in a “real property trade or business” under themeaning of Section 469(c)(7) can elect to avoid the interest expenselimitation.

• Real property trade or business means a business engaged in real propertydevelopment, redevelopment, construction, reconstruction, acquisition, conversion,rental, operation, management, leasing or brokerage trade or business.

• The trade-off is that if you elect out of the interest expense limitation, youmust depreciate using ADS method.

• Tax Reform changed ADS lives. Residential property is now depreciable over 30 years,and non-residential property is depreciable over 40 years.

Interest Expense Limitations (cont.)

• Limitation applies at the partnership level, subject to special rules designedto avoid double-counting, but such business interest not allowed is carriedforward to future years by each partner and treated as business interest paidor accrued by the partner in the next succeeding year.

Interest Expense Limitations

11

InvestorsLender

QALICB

99.99%

NMTC Structures

Sub-CDESub-CDE

Investment Fund

100%

Interest Expense Limitations

12

InvestorsLender

QALICB

99.99%

Sub-CDESub-CDE

99.99%

GP0.01%

Investment Fund

NMTC Structures

Interest Expense Limitations

13

InvestorMM

Limited Partners

80%

99%

20%

1%

Master LesseeMaster Lessee

Master LessorMaster Lessor

Master LeaseMaster Lease

HTC Lease Pass-Through Structure

Interest Expense Limitations

14

InvestorMM

Developer/GP

80%

99%

20%

1%

Master LesseeMaster Lessee

Master LessorMaster Lessor

Master LeaseMaster Lease

HTC Lease Pass-Through Structure

NMTC/HTC Separate Investment Model

Leverage Lender

NMTC Investor Investor Member

(100%)

HTC InvestorInvestor Member (99%)

Investment Fund (LLC)

Sub-CDE (LLC)Sponsor CDE as Manag. Member

(0.01%)Inv. Fund as Inv. Member (99.99%)

Project Owner(QALICB)

HTC Bridge Lender

Sponsor CDE

Master Tenant (LLC)

DeveloperManaging Member

(1%)

Loan $7,000,000

Equity $3,000,000

Equity (QEI) $10,000,000

A Loan $7,000,000

B Loan $2,700,000

Rent, Loans and/or Equity

Master Lease

Sponsor Fee $300,000Construction

Lender

NMTC/HTC Combined Investment Model

Senior Leverage Lender

NMTC Investor Investor Member

(100%)

Affiliate Leverage Lender

Investment Fund (LLC)

Sub-CDE (LLC)Sponsor CDE as Manag. Member

(0.01%)Inv. Fund as Inv. Member (99.99%)

Project Owner(QALICB)

Sponsor CDE

Master Tenant (LLC)

HTC Bridge Lender

Loan $5,000,000

Equity $3,000,000

Equity (QEI) $10,000,000

A Loan $5,000,000

B Loan $4,700,000 Master

Lease

$2,000,000Loan (1)

Sponsor Fee $300,000

HTC Equity as a Leverage Source

Advance at Closing

Repayments (2)

$2,000,000Loan

(1) Funded in installments from HTC Equity

(2) Repaid with proceeds of Master Tenant loan, as funded

Managing Member

1%

HTC Investor99%

HTC Equity Installments$2,000,000

Construction Lender

Rent, Loans and/or Equity

HTC + NMTCMike KressigNovogradac & Company LLP

MODERATOR PANELISTS

David BrennerHusch Blackwell LLP

Darryl JacobsGinsberg Jacobs LLC

Tim KarpChase

Steve KramerU.S. Bancorp Community Development Corporation