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Asset Management of Debt and Equity Investments. Presented by: Armando P é rez Principal, Director of Asset Management. Headlines. More similarities than differences between debt and equity investments and how they are managed

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Asset management of debt and equity investments l.jpg

Asset Management ofDebt and Equity Investments

Presented by:

Armando Pérez

Principal, Director of Asset Management


Headlines l.jpg
Headlines

  • More similarities than differences between debt and equity investments and how they are managed

  • The objectives and incentives of debt providers are determined by the structure of their investments

  • Understanding debt drivers is key to effective asset management and issue resolution – whether you are the asset manager or the developer.


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MMA Provides Equity and Debt …

  • LIHTC Corporate Tax Credit Funds

    • Multi-investor, Private, Guaranteed

  • Debt Products

    • Construction loans

    • Permanent financing

    • Tax exempt bonds

  • One-Stop Shop for Affordable Debt & Equity

    • Combined debt and equity teams

    • Unified application, underwriting & closing process


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… So We Manage Debt & Equity Products

  • MMA Equity Portfolio – 1,950 properties

    • Tax Credits

      • Low Income Housing

      • Historic Rehabilitation

  • MMA Debt Portfolio – 625 properties

    • Construction Loans

    • Bonds

    • Permanent Loans

      • Fannie Mae, Freddie Mac, HUD


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Debt and Equity Have Similarities …

  • Capital investments

  • In affordable multifamily property

  • Specified yield requirement

  • Long term

  • Impacted by asset performance

  • Dependent on developer strength


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LIHTC Investment

Ownership Interest

Pass-through entity

LP or LLC

Limited control & limited liability

Tax-advantaged return

Tax credits and losses

Debt Capital

Mortgage loan

Secured

First lien position

Cash return

Debt service

… but Different Structures


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Equity

Yield

Credits and losses

Loss of ownership (recapture)

Long term viability

Property performance

Debt

Payment of debt service

Property performance

Liens

T & I escrows

Default losses

Value of collateral

… So Focus and Aims Are Not The Same


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MMA Asset Management …

  • Oversees debt and equity investments under a single organizational structure

    • Teams are organized around property lifecycle and geography, not debt or equity products

    • Debt expertise is provided through specialization and processes


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Asset Management Structure

Capital

Transactions

Team

Asset Management Team

Development

Management

Team

Stabilized Portfolio Team

Northeast

Southeast

  • Risk Management

  • Investment Performance

  • Workouts

  • Dispositions

  • Refinancings

Central

West

Admin. and Technical Support

Analyst Pool

Compliance

Team

Tax

Team

Operations

Team


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MMA Asset Management …

  • Assigns one AM per property, regardless debt or equity product

    • Property monitoring activities are similar for debt and equity

      • Physical, management, financial reviews

    • Focus is on asset performance, which impacts both debt and equity


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MMA Asset Management …

Manages the portfolio from an investment perspective

  • AM’s understand debt and equity and can translate how a given issue affects each of these different investments

  • Debt portfolio managers support this investment perspective


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MMA’s Investment Perspective …

Property Life-Cycle Phases

First 18 to 24 mos. Next 6 to 12 mos. Remaining holding period

  • Development

  • Due diligence

  • Construction &

  • lease-up

  • Yield delivery

  • Loan conversion

  • Initial tax credit

  • compliance

  • Initial Operations

  • Capital and operating

  • escrow releases

  • Final tax credits (8609’s)

  • Permanent loan sizing & closing

  • Stabilization (DSC)

  • On-going monitoring

  • Stabilized Phase

  • Financial & budget review

  • Tax return review

  • Physical inspection

  • Management evaluation

  • Compliance monitoring

  • Partnership & loan agreement administration

Risk Management

Tax Credit and Debt Portfolio Managers


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… to Maximize Performance & Mitigate Risk

PORTFOLIO MANAGER

RISK

MANAGEMENT

ASSET

MANAGER

  • Monitoring

  • Analysis

  • Performance

  • Tracking

  • GP/Borrower

  • Relationship

  • Problem Deals

  • Deal Strategies

  • Issue Resolution

  • Products

  • Capital

  • Relationships

  • Business Focus

    • Risk

    • Profitability

Leverage expertise

Investment perspective

Effective strategies

Investment performance

Profitability


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Final Words – A Debt Perspective

  • Lenders make capital investments, but they are different than LP equity interests in a property

  • As capital providers, lenders have clear objectives and motivations

  • When there is a problem, understanding debt drivers is key to effective issue resolution – whether you are the asset manager or the developer


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Asset Management ofDebt and Equity Investments

Presented by:

Armando Pérez

Principal, Director of Asset Management


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