PROPERTY FINANCE

1. PROPERTY FINANCE Annual Affordable Housing Update: Opportunities in a Changing Economy Presented By: Vincent Rague, Chief Investment Officer International Finance Corporation, Washington, DC IPED CONFERENCE - CHICAGO JULY 10 - 11, 2008

2. SUMMARY • GLOBAL TRENDS • IMPACT of RE ON ECONOMY • CONSTRAINTS AND CHALLENGES • IFC ROLE • IFC PROJECT INVESTMENT CRITERIA • EXAMPLES OF DEALS • CONCLUSION

3. Global Trends • Demographics: • Rapid Global Population Growth, most of it in Emerging Markets • Africa’s Population: 669 million (2000); and Over 770m (2006) – most under 30 years of age • E.g. Turkey’s Population: 36 million (1970); and Over 70m (2005) – most under 30 years of age • Rapid Urbanization - Rural Urban migration • Africa’s Urban Population/Total Pop: Less that 20% (1970) vs. 41% (2002) • Turkey’s Urban Population/Total Pop: 29% (1970) vs 61% (2002)

4. Global Trends (Cont) • Economics, Politics and Policy • Compelling GDP Growth Rates for Emerging Markets vs. OECD (% p.a.)

5. Global Trends (cont) • Economics, Politics and Policy Source: S&P, Sept 2001 & April 2007

6. Rating of Select African Countries

7. Global Trends (cont) • Economics,Politics and Policy • Political Stability • Structural Reforms of Economy • Liberalization – globalization econ integration • Increased Access to Mortgage/Housing Finance • Economic Integration – Regional Blocs, NEPAD, etc.

8. Global Trends (Cont) • Impact on Real Estate Sector • Growing pent-up demand for urban infrastructure • roads, water, electricity, sewage, etc. • Growing Incomes and Growing Middle Class • Increased demand for quality accommodation • housing, commercial, industrial, hospitality and social space • Growing aspirations • Adoption of Global Norms and Standards • Proliferation of Unplanned Settlements

9. Role of Real Estate, Housing in Economy • Huge Economic Impact – Employment, Commerce and Industry • In the US • Housing Accounts for approx 8% of GNP • Housing and Housing Services Account for approx. 18% of GNP

10. Attractive YieldsYields in Select Countries

11. CONSTRAINTS TO REAL ESTATE SUPPLY • Huge Pent-Up Demand for Housing and Real Estate IN EMERGING MARKETS • High Transaction Costs (Stamp Duty/Transfer Taxes) • Lack of Transparency & Reputation Issues • Highly Fragmentated • Limited Access to Large Pools of Risk Capital • Limited Capacity by Municipalities and Governments to deliver Bulk Infrastructure • Roads, Sewage, Water, Electricity, etc.

12. Why IFC & Property Finance • Many emerging markets, there is a logjam of development in Mortgage/housing finance….. Developers not producing sufficient inventory - lack of risk capital & mortgage takeout Lack of Housing Inventory (supply/demand imbalance) Mortgage markets are under-developed due to scarcity of housing stock

13. IFC Role and Additionality IFC’s Goal is to help create viable communities By Supporting: • Development of Local Property Markets • Increased Access to Risk Capital for Property Finance • Catalyst To Attract Foreign Investment • Deepening of Local Capital Markets • Supporting Public Private Partnership Initiatives – to Deliver Sustainable Urban Infrastructure • Sustainability, environmental standards and best practices

14. Investment Vehicles: Investment Types & Options Integrated Property Company that delivers all aspects of RE Value Chain Every market is unique. Real Estate Investment Trust Investment solutions are typically Integrated - tailored based on Sponsors and investment/market opportunities. Real Estate Development Facility – on a project-by-project basis Unbundled parts of R.E. Development – upfront soft costs and infrastructure Trusts – especially for Not-for-profit urban renewable and affordable housing

15. Unique Solution Driven Service Offering… Property Finance Value Chain Feasibility Study Infrastructure Devt Origination Land Acquisition Urban Planning & Permits Detailed Design Sales & Marketing Mortgage Finance Construction Transfer & Titling Construction Finance

16. IFC Investment Products … investments at different levels in the value chain given the risks Equity Mez Debt PCG Senior Debt In. Risks CAPITAL MARKETS Development Stage Finance MORTGAGE FINANCE Senior Debt – S-TPCG Construction Finance CONSTRUCTION FINANCE Mortgage Finance REIT Corp Bond; ABS etc. Capital Markets

17. A Typical Deal: Prerequisites • Requirements of the Deal: • Transparency at all operational levels • On-site full time and professional Project Management • Clear Land and Property Titling Regime • Strong Reputable Sponsors • Adoption of Global Norms and Standards in corporate governance, financial reporting and accounting • Adoption of Sustainable Environmental and Social Standards

18. Typical Deal Structureof a Large-Scale Housing Production Project Equity Side Debt Side 50% to 70% of total funding needs 10 % to 50 % of total funding needs • Equity Partners: • Core Sponsor • Others to be decided (could inc. IFC) • Upfront Costs: • Land • Soft costs • Portion of infrastructure works • Government permits • Initial construction phase • Banks: • Major and mid-size banks to share risk and gain experience in Construction Finance • Capital Markets: • SPV issues MTN w/tranches and rollover provisions, in local currency, variable rate, IFC partial guarantee

19. DEVCO OTHER INVESTORS PROPCO Case Study 1 – ARECO - South Africa • Devco is a pure property development company, likely set up as a JV between Sponsors other developer(s). • IFC may take a stake in Devco • It acts as developer of both commercial and residential properties • Execution of development only, obtaining fees for development services rendered • Property management fees are earned for management of completed properties, whether sold or held. Investment Committee Sponsor P r o p C o SPV1 IFC Equity Investment • Portfolio of residential and commercial properties • Developed by Devco • Some properties sold off to Propco (example: SPV4), or to other investment vehicles • Other Properties retained because they are judged to not yet have matured or attained maximum valuation SPV2 Other Investors SPV3 SPV4 SPV5 • Propco is a portfolo company of Sponsor, plus other potential investors • It holds for long-term investment a portfolio of developed properties, many developed by Devco, some developed by other developers. • Devco originated properties are sold to Propco on an arm’s length, full valuation basis • IFC will not be a shareholder in Propco

20. Case Study – GRDC, Georgia • Capitalization of vertically-integrated real estate company in Georgia to finance the development of its portfolio of 18 properties • IFC invited to join Round # 3 of equity financing and provide debt facility on a project basis. Project Description • Local sponsors – • International sponsors – individuals and institutional • Strong management team – Solid execution capacity and local market experience Sponsor & Management • Equity Investment: up to 20% • Debt Investment: Total equity and Debt of Up to 35% of Project cost IFC Investment • Valuation • Investing in a land bank • Constructions Loans, a new area for IFC? • Implementation risk Risks & Issues

21. Case Study – GRDC, Georgia Equity Investment at Holding Level Debt Investment at Project/SPV Level • Valuation • Methodology • Negotiation • Exit • Sunset/Liquidation • IPO or Sale Security & Covenants (incl. DSCR, DSRA, etc.) Cash Flow Analysis Monitoring and Supervision • Financial • Return

22. Property/Construction Finance: TUHF Multi-Family IFC International Finance Market TUHF Credit Line Mortgages Rent Contracts Renters Owners

23. Before and After TUHF Financing

24. CONCLUDING REMARKS • Attractive Investment Opportunity – for both local and foreign investors • Opportunity Requires Institutional Approach – to attract capital and large scale projects • RE Has Huge Development Impact • Helps Develop Local Capital Markets • Creates Sustainable Urban Environments • Challenge Remains to Find Solutions to Address Affordable and Social Housing Needs