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The Investor’s Perspective Tony Bertoldi, Portfolio Manager

The Investor’s Perspective Tony Bertoldi, Portfolio Manager. Why Invest in Tax Credits?. Tax credits and tax losses produce economic benefits for taxable investors

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The Investor’s Perspective Tony Bertoldi, Portfolio Manager

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  1. The Investor’s Perspective • Tony Bertoldi, Portfolio Manager

  2. Why Invest in Tax Credits? • Tax credits and tax losses produce economic benefits for taxable investors • Yields are based on the credit stream and tax deductions over the life of the investment. They are not based on cash flow or residual value. • Some also motivated by community-based investing (CRA) • Highly predictable benefit stream • Tax credits are based on the costs of construction, and do not vary directly with property operations. • Credits flow to the property for 10 years over a 15 year compliance period. • Credits can be lost due to foreclosure or substantial non-compliance. Experience has shown this to be very rare.

  3. Track Record years in business, historic target vs. estimated yields, accuracy of credit and loss delivery, timing, health of upper-tier fund reserves Financial Strength Warehouse capability, size of business relative to the company, asset management sustainability, market capitalization People experience, number Process acquisitions, underwriting, asset management, information systems, quality of reporting Independent Verification client references, third-party advisors, secondary market transactions How Investors Evaluate A Sponsor

  4. Keys to capital allocations • Return on Equity (ROE) is the key to capital allocations • Cost of funds • Risk-based capital charge • Long-term interest rates • Community investment component • Important to 95% of the market • Factored in to assessment of return • Alternative investments • Strength of the syndicator and underlying partnerships

  5. Types of tax credit investments • Unguaranteed LIHTC Funds • Multi-investor funds (national funds) • Single investor funds (aka private label or separate account funds) • Guaranteed LIHTC Funds (Credit enhanced) • Multi-investor funds • Single investor funds • Other tax credit programs • Investment tax credits – solar, historic • Production tax credits – wind

  6. Corporate Investor A (Limited Partner) Corporate Investor B (Limited Partner) Corporate Investor C (Limited Partner) Syndicator (General Partner) Investment Partnership (Limited Partner) General Partner (Affiliate of Developer) Project Partnership Project Partnership Project Partnership Multi-Investor Fund Structure • Multi-Investor Fund Description: • Most common investment vehicle • Multiple corporate investors place equity in a fund holding multiple properties • Investors have little input on fund selections Upper Tier: Lower Tier:

  7. Investor’s view of the market today • Risk/return tradeoff • All have experienced portfolio losses (increased risk), although still well below other investment types • Worry about eroding deal terms (increased risk) • Returns at all time lows • Managing risk and return • Pursue funds that are comprised of the strongest developers with the best deals in the best markets. • Work with syndicators with the best track records, asset management and reporting.

  8. Torrey Highlands, San Diego CA

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