The Wonderful Life of Building & Loans

A publication of Great Lakes Capital Fund

Volume 19 | Issue 2 | 2012

PROVIDING A VARIETY OF FINANCING OPTIONS FOR DEVELOPERS ENGAGED IN AFFORDABLE HOUSING & COMMUNITY ECONOMIC DEVELOPMENT

Strategies to keep you one step ahead.

Delivering solutions for the unique challenges facing today’s affordable housing developers makes us one of the nation’s top accounting and advisory firms. Having the experience to not only help you see the big picture, but also the industry know-how to keep you one step ahead is what sets us apart.

With refreshing candor and clear industry insight, our affordable housing specialists have the expertise necessary to guide you through the development process, from funding applications to disposition or recapitalization.

Want a more strategic advisor? The choice is right in front of you.

Connect with us: bakertilly.com

> Audit and tax services > Cost certification > Market studies

Don Bernards, CPA, Partner 608 240 2643 donald.bernards@bakertilly.com

> Transaction consulting > Securing tax credit equity – Low-income housing – Historic – Energy

© 2012 Baker Tilly Virchow Krause, LLP Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International.

FE A TURES Need a loan?........................................................... 6 hud multifamily housing tax credit pilot program.......................................................... 8 COMBINING LOAN PRODUCTS TO PRESERVE AFFORDABLE HOUSING............................................. 10 THE ARM 7/6............................................................ 13 investing in state community funds................. 14 expanding into upstate new york...................... 20 expanding into the gulf region......................... 22

10

housing & community development updates... 24 tax credit investing for fhlbi members............... 26

DEP A RTMENTS

6

CEO’s Message.......................................................... 5 It IS a Wonderful Life title issues............................................................... 28 Title Insurance Underwriting: A Unique Local Process

22

EFFECTIVE LEADERSHIP............................................... 30 Always in the Lead legal issues............................................................ 32 Can a Contract Be Validly Formed and Signed Through Email? events & happenings............................................ 36

8

Advertiser’s Index.................................................. 38

CEO’s MESSAGE GOVERNING BOARD Wendell Johns, Chair Retired Michael J. Taylor, Secretary/Treasurer PNC Bank James S. Bernacki Comerica Bank Catherine A. Cawthon Fifth Third CDC William C. Perkins Wisconsin Partnership for Housing Development, Inc. James W. Stretz George K. Baum & Company Donald F. Tucker Don Tucker Consulting Paul J. Weaver Retired

CORPORATE OFFICERS Mark S. McDaniel, President & CEO Christopher C. Cox, CFO James L. Logue III, COO Jennifer A. Everhart, Executive Vice President Rick Laber, Executive Vice President This magazine is published quarterly by the Great Lakes Capital Fund (GLCF) to provide readers with information on affordable housing and economic and community development resources.This publication is copyrighted. The reproduction of Avenues to Affordability is prohibited by law.

For additional copies, comments, concerns or to be added to the mailing list, please contact the Great Lakes Capital Fund office at 517.482.8555 or visit www.capfund.net.

Editorial and Advertising Mary McDaniel, CMP • Alternative Solutions, LLC 517.333.8217 • mcdaniel64@comcast.net Graphic Design Melissa Travis • Ink Ideas Graphic Design, LLC 989.272.3101 • www.inkideasgraphicdesign.com Cover Illustration Pam Coven • Coven Creative 989.834.2009 • www.covencreative.us Lansing Office 1000 S. Washington, Suite 200 Lansing, MI 48910 Phone 517.482.8555 Detroit Office 1906 25th Street Detroit, MI 48216 Phone 313.841.3751 Indianapolis Office 320 N. Meridian St., Suite 516 Indianapolis, IN 46204 Phone 317.423.8880 Madison Office 2 E. Mifflin Street, Suite 101 Madison, WI 53703 Phone 608.234.5291 Tinely Park Office 18450 Crossing Drive, Suite C Tinley Park, IL 60487

IT IS A WONDERFUL LIFE

BY MARK MCDANIEL, CEO/PRESIDENT GREAT LAKES CAPITAL FUND

This edition focuses on our lending products. Since our founding, Great Lakes Capital Fund has been in the business of providing loans for a multitude of purposes. In early years, we used our retained earnings as the source of funding for our loans, but as you can imagine, that concept had its limitations because the demand has exceeded the supply of cash we have on hand. Consequently, a few years ago we started to leverage our revenue with other institutional sources of funds to grow our lending capacity.

We presented our lending experience and skills to the US Department of Treasury and our subsidiary, Capital Fund Services, became a designated Community Development Financial Institution (CDFI). This is when we “put a stake in the ground” and declared ourselves to be in the lending business. Since then, we have taken this role seriously to address the unmet need for loans that the community development industry has experienced ­— especially in recent years.

This edition of Avenues highlights the numerous lending products we can offer.

We can identify with George The idea for the cover was one that Bailey, who has taken over came to me on one of those hot sleepless the family’s building and nights this summer. If you‘re familiar with loan business and has built the movie “It’s A Wonderful Life,” you will easily make the connection. This movie is a reputation of being a fair a family favorite ­— as with many of our and reasonable lender. staff. It’s filled with great messages and we have actually shown clips at our staff leadership training summits. We can identify with George Bailey, who has taken over the family’s building and loan business and has built a reputation of being a fair and reasonable lender. He has financed the homes of working families, helping them improve their quality of life. On the other side was the competing banker — the ruthless “Old Man Potter” who hatched a plan to ruin the Bailey Building and Loan and create a monopoly for himself. The scene on the cover is an uncomfortable one as George Bailey falls victim to Old Man Potter’s scheme. With no options left, he finds himself going to Potter to ask for a loan to save his business and protect the people who had their mortgage loans and life savings at his institution.

At the last moment, George decides he won’t sell out to Potter. As the movie continues, he comes to realize and appreciate that through strength of character, trust, and supportive relationships, the Bailey Building and Loan had made a huge difference in people’s lives.

We hope that GLCF will be seen in a similar light as we provide a variety of financing options for developers engaged in affordable housing and community economic development.

Our development partners now have many options with us as we continue to actively pursue resources to develop even more creative types of lending products. Stay tuned for the next edition of Avenues where we will be announcing a very innovative program which represents a cutting-edge type of financing for larger scale economic development initiatives.

On a personal note, I hope everyone is enjoying the summer. Time moves quickly. We need to make sure we stop, take in a breath of fresh air, relax a little and enjoy the best things in life…family and friends…as we strive to make it a wonderful life.

5

FE A TURE

Illustration by Pam Coven, Coven Creative

need a Similar to the Bailey Bros Building & Loan Association in It’s a Wonderful Life, GLCF provides a variety of financing options for developers engaged in affordable housing and community economic development.

By HUGH NISBET GREAT LAKES CAPITAL FUND

G

reat Lakes Capital Fund (GLCF) has long been an industry leading provider of tax credit equity financing solutions.

To further meet the capital needs of our affordable housing developer partners, GLCF has been expanding its product offerings and has blossomed into a company capable of meeting all of its clients’ financial needs. A significant portion of that growth has been the expansion of GLCF’s lending platform. Through the use of our own funds,

6

partnerships with institutional investors and financial institutions GLCF can meet its partners’ debt requirements throughout a property’s life cycle.

With the ability to make loans throughout the country, we can grow with our clients as they look to expand and diversify their portfolios. Whether a developer needs financial assistance in purchasing a piece of land or is looking for a forty year mortgage on a stabilized property, GLCF offers a product to meet its clients’ needs. It is in meeting these needs that GLCF

GREAT LAKES CAPITAL FUND

furthers its mission of supporting healthy, vibrant, and sustainable communities. While we will go into greater detail of some of our debt products later in this publication, following is a brief overview of the current offerings in our lending platform: Predevelopment Loans This product allows our developer partners to begin the development and planning for a specific affordable housing property before other interim or permanent sources of financing become available.

of about two years. What the Acquisition Loan product does do is offer a developer the flexibility and speed of execution to get a deal closed before the competition. This product has been utilized by our clients to finance the purchase of properties with future plans for renovations funded by the anticipated allocation of tax credits. It is also well suited for a developer that needs to purchase a property quickly and does not have the time it typically takes for a permanent loan to close. These loans are competitively priced and often offer higher leverage than similar products from other financial institutions. The flexible, competitive nature of

With the ability to make loans throughout the country, we can grow with our clients as they look to expand and diversify their portfolios.

Typical costs funded by GLCF’s Predevelopment Loans include architectural, legal, and other professional fees as well as land acquisition costs and pre-construction development work. The program has been designed to give the developer maximum flexibility during the always tenuous initial stages of a transaction. GLCF’s clients that do groundup development of LIHTC properties have especially benefited from these loans given the dearth of similar product offerings at competitive rates available to affordable housing developers. In fact, GLCF’s familiarity and comfort with affordable housing will many times allow us to make loans to a property or in an area where there are, literally, no other sources of financing available. Therefore, these loans can allow for a property to be completed quicker and more efficiently than would otherwise be the case and can, oftentimes, be the deciding factor as to whether or not a worthy property even gets off the ground.

Lines of Credit Like the predevelopment loans, GLCF’s Lines of Credit offer our developer partners a loan to help cover professional and other costs associated with beginning stages of a property rehabilitation or new property construction. Unlike the single property product, the Lines of Credit are not intended for a specific property but rather serve as a revolving facility intended to help finance multiple properties. As the line is revolving, the developer can use it as they see fit over the life of the facility, typically two years. GLCF’s ability to offer affordable housing developers a product with such flexible terms and competitive rates is relatively unique in the industry and, we feel, gives our developer partners a distinct advantage when considering acquiring or developing a property. By giving developers added liquidity it also gives our partners the ability to pursue additional opportunities they might otherwise have to forego or delay.

Acquisition Loans The Acquisition Loan product is intended to help GLCF’s developer partners finance the purchase of existing affordable housing properties.

This product is not a permanent financing solution, with a typical term AVENUES TO AFFORDABILITY

GLCF’s acquisition loans allow our developer partners to secure the best possible terms on their acquisitions.

Permanent Loans GLCF’s permanent loan products help to meet the permanent financing needs of its developer clients and help ensure the long term sustainability of affordable housing throughout the country. Working with Fannie Mae, HUD, and institutional lenders, GLCF can offer a permanent loan execution uniquely tailored to meet the needs of its affordable housing clients. In addition to immediate loans, GLCF offers forward commitments specifically designed to allow new construction tax credit properties to have the guarantee of long term financing before construction even begins. In order to best serve their low income residents, affordable housing properties tend to run at slimmer margins than market rate multifamily properties. Therefore, in order to keep rents reasonable at low income properties, GLCF offers higher loan to values and lower required debt service coverage ratios than are typically offered on market rate properties. Further, GLCF can offer loan terms that are specifically designed to mirror the affordability restrictions on tax credit properties. Oftentimes, this means we can offer a loan with a significantly longer term than would typically be found in the marketplace. GLCF broad stable of permanent loan products and decades of experience in the affordable housing market makes us uniquely positioned to meet our client’s permanent financing needs, whatever they may be.

We hope this gives you a better understanding of GLCF’s debt products and that you are as excited as we are about the future of this financing platform. If you have a property you feel would benefit from one of our products, please contact your GLCF representative. If you have a need that you don’t feel can be met by one of our current product offerings, call anyway. We have been meeting the financing needs of the affordable housing community since 1992 and we are continually adding new debt products, so stay tuned as we plan to roll out additional products later this year. We will find a solution for your financing needs.

7

FE A TURE

HUD MULTIFAMILY HOUSING

TAX CREDIT PILOT PROGRAM This new HUD program is designed to expedite the application process, meet certain tight time deadlines imposed by the LIHTC program, and allow borrowers and lenders the benefit of the Section 223(f) program for new production tax credit properties.

T

he U.S. Department of Urban Development (HUD) continues to modify its multifamily finance programs to make them more user friendly for affordable housing projects. The most recent modification comes in the form of Notice H 2012-1 issued on February 3, 2012.

This is better known as the Low Income Housing Tax Credit (LIHTC) Pilot Program for multifamily LIHTC properties. This notice outlines the use of the HUD Section 223(f ) program to finance certain types of projects with low income housing tax credits. This is notable as the 223(f ) program has historically been used solely for refinancing purposes and not for LIHTC new production purposes, as the rehabilitation limit under the 223(f ) program is in the $15,000 to $17,000 per unit area maximum, depending upon the specific geographic location, an amount much lower than the typical LIHTC rehabilitation amount.

Historically, the HUD Section 221(d)(4) program has been used for new production LIHTC transactions. The 221(d)(4) is a great program and has been used to produce thousands of affordable housing units; however, there are some negatives: • The 221(d)(4) program requires compliance with Davis Bacon /

8

By Mark Wiedelman St. james capital, llc

prevailing wage requirements.

• The 221(d)(4) program essentially has two closings, the initial closing which is much like a construction loan closing and then a final closing when construction is complete and principle amortization commences.

• Due to the timing of funding dollars through the 221(d)(4) program, the interest rate under this program has been anywhere from 50 to 100 basis points greater than the Section 223(f ) program.

Thus, although the 221(d)(4) program works, and actually works well, there are absolute benefits to the 223(f ) program. This is the reason HUD has issued this new notice allowing Section 223(f ) to be used for certain types of LIHTC affordable housing.

Specifically, this new program is designed to expedite the application process, meet certain tight time deadlines imposed by the LIHTC program, and allow borrowers and lenders the benefit of the Section 223(f ) program for new production tax credit properties.

Specific properties that HUD has identified that may be funded under this new PILOT are as follows: • Rehabilitation properties with new 4% or 9% credits that have

GREAT LAKES CAPITAL FUND

Illustration by Pam Coven, Coven Creative

at least 90% of the units supported by a project based rental assistance contract (Section 8 contract).

• Existing LIHTC properties being recycled / resyndicated with new tax credits and new equity investors.

• To provide permanent financing for either newly constructed or substantially rehabilitated properties that are complete, have reached stabilized occupancy, and have just recently received and syndicated either 4% or 9% credits.

Under the PILOT, rehabilitation can go up to $40,000 per unit in hard costs. This significantly exceeds the rehabilitation previously allowed under Section 223(f ). This new PILOT allows for the use of the 223(f ) for both 4% and 9% transactions; thus, this new program could be used as a tax exempt credit enhancement program whereas in the past, as indicated, the 221(d)(4) program has always been utilized.

HUD and the very experienced senior leadership at HUD headquarters truly want to increase affordable housing production utilizing the HUD mortgage insurance programs. To assure the proper development of this PILOT, HUD has initially limited participation in the PILOT to four processing hubs. The four hubs selected are Los Angeles, Boston, Chicago, and Detroit. Thus, developers with LIHTC properties in Michigan, Illinois, and Indiana, from a Midwest perspective, can take advantage of this program. Further, HUD went through a selection process to select only lenders who have had previous, sig-

AVENUES TO AFFORDABILITY

HUD and the very experienced senior leadership at HUD headquarters truly want to increase affordable housing production utilizing the HUD mortgage insurance programs. nificant LIHTC experience. To utilize this program, you must use a lender in this group; and as indicated, the project must be in the select geographic areas. The listing of selected and approved lenders (20 in total) may be found on the HUD website (“hud.gov”). With interest rates at record lows, the 223(f ) program might just be the perfect tool for your next LIHTC project. We encourage you to check out the program. Contact an approved lender and see how this new program might benefit your project.

Mark Wiedelman is the President of St. James Capital, LLC in bloomfield hills, michigan. He has over 25 years of experience in the commercial real estate industry. for more information, visit www.sjcap.com or call Mark at 888.594.9911 ext. 224.

9

FE A TURE

Combining loan products to preserve

affordable housing

A developer has the opportunity to purchase an existing, 100 unit, Section 8 deal for $4,500,000 in cash or $5,000,000 with a LIHTC contingent purchase contract. The property is fully occupied and in fundamentally good physical condition but it is tired and in need of rehab to update systems and the interior of the units. The developer estimates that the property needs $25,000 per unit in rehab - $2,500,000

total rehab.

Prior to purchasing the property, the developer meets with Great Lakes to evaluate financing options. The developer intends to submit a 9% application in the next round. If that application is not funded, the developer will make a decision to either pursue a 4% transaction or to refinance the property with a long-term mortgage loan.

Assumptions Number of Units

100

LIHTC Pricing

$0.92

Average Rent

$625

4% Rate

3.16%

Expense/Income Ratio

50%

9% Rate

9.00%

NOI Cap Rate

$375,000

Appraised Value

$5,000,000

7.50%

ACQUISITION The acquisition is financed with a Fannie Mae 7/6 ARM as the loan can be closed in 75 days and is very flexible on the timing of repayment. The loan is at 80% LTV and 1.2x DSC. The loan floats over 30 day LIBOR and can be converted to a fixed rate or prepaid after one year. The loan is assumed to be at a 3.5% interest rate. The loan is a 7 year term with 30 year amortization.

The loan amount might be restricted to less than 80% LTV of appraised value as the purchase price is lower than the appraised value.

SOURCES FANNIE MAE 7/6™

4,000,000

PROPERTY PURCHASE PRICE

REPLACEMENT RESERVE

200,000

REPLACEMENT RESERVE

OWNERS EQUITY

588,200

TRANSACTION COSTS

TOTAL

10

USES

4,788,200

TOTAL

4,500,000 200,000 85,000 4,785,000

GREAT LAKES CAPITAL FUND

FIRST SCENARIO: 9% CREDIT The developer’s primary goal is to receive a 9% award. The 9% deal is financed with a Fannie Mae permanent loan in order to ensure that the project is closed and starts construction quickly in order to lock in the fixed 9% credit rate. As the property is fully occupied and no residents are being displaced during the rehabilitation, the Fannie Mae is an immediate loan.

The property is sold into the LIHTC entity at the full appraised value with the difference between the full appraised price and the previous transaction becoming a seller take back note.

The loan is an 18 year term w/30 year amortization at 90% LTV and 1.15x DSC. The current interest rate is assumed to be 4.9%.

SOURCES PER UNIT

USES PER UNIT

FANNIE MAE PERM

PROPERTY PURCHASE PRICE

5,000,000

50,000

REHAB

2,500,000

25,000

PROFESSIONAL FEES

600,000

6,000

DEVELOPER FEE

972,000

9,720

OPERATING RESERVE

330,796

3,308

REPLACEMENT RES. TRANSFER

200,000

2,000

FINANCING COSTS

500,000

5,000

10,102,796

101,028

SELLER TAKE BACK NOTE LIHTC EQUITY REPLACEMENT RES. TRANSFER DEFERRED FEE TOTAL

4,500,000

45,000

500,000

5,000

4,825,216

48,252

200,000

2,000

77,580

776

10,102,796

101,028

TOTAL

SECOND SCENARIO: 4% CREDIT If the developer does not receive the 9% award, then they will most likely choose a 4% execution. As taxable rates can be less than taxexempt rates, the bonds are credit enhanced with Ginnie Mae securities issued against a FHA loan. As a Housing Credit project, the deal would be eligible for the HUD LIHTC PILOT program where a 223(f ) loan is underwritten and the loan is processed on an accelerated basis. The tax-exempt bonds are retired six months after the completion of rehabilitation and stabilization.

The loan is an 35 year fully-amortizing loan 90% LTV and 1.15x DSC. The current interest rate is assumed to be 3.25%.

The amount of rehab is decreased in this scenario as there are less funds available from the LIHTC proceeds. Since the state HFAs are anxious to support preservation deals, they are frequently supporting 4% deals with soft funds. This example assumes that the state is supporting the deal with soft money.

SOURCES PER UNIT

USES PER UNIT

FHA 223(f)

property purchase price

5,000,000

50,000

REHAB

2,000,000

20,000

PROFESSIONAL FEES

600,000

6,000

DEVELOPER FEE

912,000

9,120

OPERATING RESERVE

295,213

2,952

FINANCING COSTS

500,000

5,000

9,307,213

93,072

SELLER TAKE BACK NOTE LIHTC EQUITY REPLACEMENT RES. TRANSFER soft financing DEFERRED FEE TOTAL

AVENUES TO AFFORDABILITY

4,500,000

45,000

500,000

5,000

2,474,609

24,746

200,000

2,000

1,000,000

10,000

632,604

6,325

9,307,213

93,072

TOTAL

11

FE A TURE

THIRD SCENARIO: FHA REFINANCING If the developer chooses to refinance the deal without using Housing Credits, there will be less money available for property improvements. The per unit rehab is again decreased.

Removing the Housing Credits and the Bonds results in significantly lower transaction costs.

The loan is a 223(f ) and is a 35 year fully-amortizing loan 90% LTV and 1.15x DSC. The current interest rate is assumed to be 3.25%.

The loan is not eligible for accelerated processing under the HUD LIHTC PILOT program.

SOURCES PER UNIT

USES PER UNIT

FHA 223(f)

property purchase price

5,000,000

50,000

REHAB

1,000,000

10,000

PROFESSIONAL FEES

300,000

3,000

REPLACEMENT RES. TRANSFER

200,000

20,000

90,000

900

6,590,000

65,900

SELLER TAKE BACK NOTE GP CONTRIBUTION REPLACEMENT RES. TRANSFER TOTAL

4,500,000

45,000

500,000

5,000

1,390,000

13,900

200,000

2,000

9,307,213

93,072

FINANCING COSTS TOTAL

Affordable Housing Specialists Development • Management • Investment • Consulting 3333 Founders Road, Ste 120 | Indianapolis, IN 46268 | www.crestlinecommunities.com James Wilson | 317.257.8922 ext. 11 | jmwilson@crestlinecommunities.com

12

GREAT LAKES CAPITAL FUND

FE A TURE

THE ARM 7/6

FANNIE MAE’s NEW Loan Program Fannie Mae’s new loan program has the potential to help preserve existing affordable housing projects

F

annie Mae has introduced a new loan program, the ARM 7/6, and this product is being offered by Great Lakes Capital Fund. It has great potential for helping preserve existing affordable housing properties.

The ARM 7/6 product is priced off the onemonth LIBOR rate and offers borrowers a low current rate of interest, a maximum lifetime interest rate ceiling established at the time of rate lock, and the flexibility to prepay after one year with only a 1% fee. The pre-payment flexibility and low cost of borrowing make the ARM 7/6 a popular vehicle for borrowers intending to acquire property and refinance it with housing tax credits or a new permanent mortgage loan in the next year or two.

One example of how this new loan program was used involved an experienced developer buying three properties in a largely rural Midwestern state. The three properties were financed with separate loans in order to give the borrower the most flexibility and collectively provided roughly $5.5 million in financing. The borrower now controls the properties and has the time and flexibility provided by the ARM 7/6 loans to reposition the properties while tax credit applications

AVENUES TO AFFORDABILITY

are pending for proposed renovations. Each property is at least 30 years old and will undergo interior and exterior improvements that will remain affordable to low- and moderateincome residents. In total, 124 townhousestyle apartments were preserved and give the residents, all of whom earn between 50% and 80% of AMI, an improved home and community.

The ARM 7/6 loan product is a good option for developers looking to acquire Year 15 properties where the existing Limited Partner is being bought out. Additionally, the loan should help developers who are looking to ac-

By Jerome Sullivan GREAT LAKES CAPITAL FUND

quire Section 8 properties and then apply for 4% or 9% housing credits or to submit for a new FHA loan.

Great Lakes Capital Fund and Fannie Mae are committed to preserving Multifamily Affordable Housing and to providing customized solutions to meet the needs of the borrowers who house America’s working families.

JEROME SULLIVAN IS THE SENIOR VICE PRESIDENT OF MORTGAGE SERVICES FOR GREAT LAKES CAPITAL FUND. HE CAN BE REACHED AT 708.536.4103 OR JSULLIVAN@CAPFUND.NET.

Block AffordABle Housing consulting, llc Specializing in LIHTC application preparation in Illinois and Michigan

708.705.6455

13

FE A TURE

investing in state community funds GLCF created its State Community Funds to enable banks and corporations, regardless of size, to invest in Housing Tax Credits. While any size bank or corporation can invest in these funds, the State Community Funds are especially attractive to community banks.

Unlike most funds that generally require a $1 Million minimum investment (or more), these State Community Funds accept investments as low as $250,000.

Benefits of investing in a State Community Fund: • Good economic return through tax credits and tax deductions • Good social return as money stays in the state and supports affordably priced housing for lower-income households in local communities (workforce housing) • Bank Investors can receive positive consideration toward their rating under the Community Reinvestment Act (CRA) • Significant economic benefits for local communities through job creation and increased local revenues

By Marge Novak GREAT LAKES CAPITAL FUND

14

THE LOW INCOME HOUSING TAX CREDIT (LIHTC) The LIHTC program makes federal tax credits available to banks, other financial institutions, insurance companies and corporations that invest in high-quality affordably priced housing for low-income families, seniors and individuals. Since its inception, the program has led to the construction or rehabilitation of more than 2.4 million affordable housing units (about 100,000 units per year) nationally and has been the driving force behind most of the affordable housing being produced today.

Real estate developers apply to their State Housing Finance Agency for an allocation of Federal Housing Tax Credits on behalf of a specific apartment community. When Tax Credits are sold to investors, the proceeds become equity for the housing project. The increase in project equity reduces the amount of debt financing, which ultimately decreases the rents necessary to cash flow the project, making them more affordable to those with low incomes.

Although owners of LIHTC-financed properties are required to keep rents affordable during a minimum 15 year compliance period

GREAT LAKES CAPITAL FUND

(and generally extended to 30 years), the investment horizon for tax credit investors is generally shorter, with investors claiming credits over an accelerated 10-year period.

LIHTCs are a safe real estate investment and historically have outperformed other real estate investments. According to an August 2011 report from the Reznick Group, LIHTC investments have had a cumulative foreclosure rate of 0.62 percent during the program’s first 25 years of existence.

FUND INVESTING The State Community Funds offer investors reduced risk through diversification and expertise via an experienced fund manager. The fund investment allows investors to purchase a slice of the fund – diversification is achieved through multiple properties and multiple investors in the fund. Investing in a fund reduces the administrative burden of a direct investment in a property, and allows the investor to benefit from having a knowledgeable and experienced fund manager with a proven track record who chooses the best projects, underwrites them and manages them for the term of the investment.

GLCF has an exceptional track record: • Nineteen years of experience

AVENUES TO AFFORDABILITY

• All funds have met or exceeded targeted returns, since inception • Never a foreclosure that would cause a recapture of tax credits • Never a call for additional capital from investors to deal with a problem property • Consistent, on-time reporting STATE COMMUNITY FUND BENEFITS With margins being squeezed, increased administrative expenses and increased costs related to regulatory changes, an investment in a State Community Fund offers the opportunity to offset some of these challenges of the current banking environment. Profitable banks can reduce their federal tax expense and earn a return that flows straight through to their bottom line.

Investors earn a competitive return on their investment, especially when compared to comparable investment opportunities. During the past six years, LIHTC after-tax yields for GLCF funds have ranged from approximately 200 to over 1000 basis points over the 10 year Treasury benchmark.

Along with the tax benefits generated by LIHTC investments, a bank can receive consideration under the Community Reinvestment Act. LIHTC investments are considered qualified investments under

15

FE A TURE

the CRA regulations.

Investments in State Community Funds provide an opportunity to invest in workforce housing, permanent supportive housing and affordable housing options for seniors and improve the quality of life within your communities.

Indiana Community Fund providing for revitalization, preservation and new development West York Redevelopment is the key element of a comprehensive neighborhood revitalization plan, for a neighborhood that has

munity financial institution is able to invest at a lesser amount and take advantage of the tax credits. It has allowed several Indiana banks to support their communities, by providing these housing opportunities, and provide benefit to the bank.”

The West York Redevelopment project was one of three projects to make up the Indiana Community Fund. The Fund also includes Country Place located in Ossian, Indiana. It involves the acquisition and rehabilitation of 24 units of affordable housing. This development was originally constructed in the 1970s, and has been rehabilitated by Biggs, Inc., a very experienced tax credit developer, builder

investors participating in the first Indiana Community Fund, a second Indiana Community Fund is currently underway. This second fund has both repeat and new investor interest and is currently accepting investor subscription documents. The second Indiana Community Fund is targeting a 6% after-tax internal rate of return and is projected to close by the end of the third quarter of this year.

Among the developments targeted to this second Indiana Community Fund is Lincoln Apartments, 75 newly-constructed units of permanent supportive housing for homeless veterans and veterans at-risk of being home-

Profitable banks can reduce their federal tax expense and earn a return that flows straight through to their bottom line. been completely transformed. This neighborhood in Walkerton, Indiana once contained blighted homes and a streetscape that did not even allow for emergency vehicles. The City of Walkerton redesigned the roads and installed new infrastructure. The development is located between the Town’s elementary and middle schools and surrounding the existing community center, youth center and fire station.

Steven K. Walters and Mitch Walters are the principals of the development entity for this new construction project that includes forty single-family lease-to-purchase homes. The development has transformed the neighborhood and the homes are a source of pride in the community.

West York Redevelopment is made possible, in part, through financing from the Indiana Community Fund, a state community fund of Great Lakes Capital Fund in partnership with the Indiana Bankers Association.

According to Paul Freeman, Executive Vice President of the Indiana Bankers Association, “The Indiana Community Fund (ICF) is a great opportunity for Indiana banks to invest in Low Income Housing Tax Credits, while not bearing all of the risk alone. With the development of these Funds, a smaller com-

16

and property manager who has been in operation for over 42 years. Covered Bridge Apartments located in Washington, Indiana contains 24 newly constructed family units. The development includes a separate community building which houses on-site management, community space, and office space for staff from Four Rivers Resource Services, Inc., the developer of this project. Four Rivers helps to enable individuals with disabilities and other challenges to attain self-sufficiency, inclusion in normal life experiences and opportunities, and general life enrichment, by working in partnership with them, their families and the community. All of these developments are making a difference in their respective communities.

The Indiana Community Fund received total investments of almost $7 Million and included the following eleven different investors: Crossroads Bank, MarkleBank, River Valley Financial Bank, Farmers State Bank, Old National Bank, The National Bank of Indianapolis, German American Bancorp, Our Community Bank (pka Owen), Your Community Bank, Grabill Bank, and Peoples Federal Savings Bank of Dekalb County.

Given the level of interest and number of

less. Volunteers of America will provide case management and will coordinate a variety of services for the residents. This development is located within one mile of the Roudebush VA Medical Center in Indianapolis, within the Haughville neighborhood of Indianapolis, a targeted revitalization area.

According to Margaret Harter, First Vice President, Compliance of The National Bank of Indianapolis, “The National Bank of Indianapolis has benefited from investing in the Great Lakes Capital Indiana Community Fund and has decided, with their proven track record, to also invest in Fund II knowing that we are helping to build a stronger future for our city.”

For more information or to arrange a meeting at your bank, please contact jack Brummett (317)522-5479 or Fred Hash (317)7278880. You may also contact Paul Freeman (317) 387-9380 at the Indiana Bankers Association.

Michigan Community Fund supporting workforce housing and those with special needs Judy is a young woman who remained in

GREAT LAKES CAPITAL FUND

gateway village, frankfort, michigan

an abusive home for several years because she wasn’t able to afford a “decent” place to live due to her limited income. Recently, her life changed for the better because she was able to move into a brand new apartment that was developed near her family. It provides her with the safety she needs at a price she can afford. She is able to receive special assistance through the local community action agency.

And to top things off, her apartment is within easy walking distance of employers and services such as a grocery store, pharmacy, retail stores, restaurants, schools, the post office and the library.

Judy moved into Gateway Village Apartments in Frankfort, Michigan. It was developed by Art Jeannot and Joe Hollander, two individuals with a passion for helping people and for providing quality, affordable housing.

Gateway Village used a variety of state and federal resources to keep the rents affordable for residents who earn between $15,000 and $35,000 per year.

Central to the financing was the Michigan Community Fund, a LIHTC Multi-Investor Fund managed by Great Lakes Capital Fund (GLCF) in partnership with Michigan Bankers Association Service Corporation.

According to Dennis Koons, President & CEO of Michigan Bankers Association, “The MBA enthusiastically supports the Michigan Community Fund because it provides a triple bottom line opportunity for our members. By investing in housing credits, banks can reduce their federal taxes, support high quality, affordably priced housing for community residents and receive CRA credit as well.”

Investors in the initial Michigan Community Fund include: Central State Bancorp,

AVENUES TO AFFORDABILITY

Wisconsin PartnershiP for housing DeveloPment Since 1985, we have offered comprehensive services to state and local governments and local community development agencies related to affordable housing. We have assisted with: • Design and management of down payment program, disaster recovery programs, and homeless assistance programs.

• Development of affordable rental properties or homes for sale.

• Consulting on the operation of nonprofit organizations, including the formation of new organizations and strategic planning for existing nonprofits.

• Technical assistance related to the HOME, CDBG, NSP and homeless programs.

Wisconsin Partnership for Housing Development works with local governments and nonprofit agencies throughout the Midwest to develop affordable housing and related programs that work in YOUR community.

Call us or check our website to get more information about our experience.

608.258.5560 www.wphd.org

17

FE A TURE

Chemical Bank, ChoiceOne Bank, Eaton Federal Savings Bank, Farmers State Bank, First National Bank of Michigan, Founders Bank and Trust, Lake-Osceola State Bank, Summit Community Bank, Sturgis Bank and Trust Company, The Peninsula Bank of Ishpeming, and West Shore Bank.

According to co-developer Art Jeannot, “With the equity provided by banks through the Michigan Community Fund, we’re able to keep the rents affordable for lower income households. The rents are priced from $200 to $650 per month. We designed the development to achieve LEED certification which is helping keep the utility costs low for our residents.”

The first Michigan Community Fund generated more than $10 million from 12 banks. It leveraged $27 million from other funds managed by GLCF to support 9 housing developments across the state. These developments are providing 579 new or completely renovated homes for lower income households. Six developments were acquisition/rehab and three were new construction. These development activities brought $87 million of construction related investment in communities.

According to national studies, the Housing Tax Credit program (LIHTC) provides significant economic benefits. Generally, 1.5 to 2 jobs are created for each housing unit developed and in addition the state and local communities see an increase in tax and other revenue of $10,000 to $18,000 each year associated with each unit developed. Applying these factors to the 579 units supported by the Michigan Community Fund, we were able to create about 870 jobs and generate approximately $6 million in annual economic benefit for the State of Michigan and the communities where the nine developments are located.

Based upon the success of the first Michigan Fund, GLCF has launched a second fund. It will provide a target after tax IRR of 6% and it will be available to prospective bank and corporate investors until September 30, 2012.

According to Tom Edmiston, Great Lakes Capital Fund’s Senior Vice President for Tax Credit Investing, “We encourage banks and Ccorporations to ‘take credit for investing in great places to live.’”

Illinois Community Fund a new State Community Fund Given the success of the initial State Community Funds for Michigan and Indiana, Great Lakes Capital Fund discovered a similar need in the State of Illinois. GLCF is offering the Illinois Community Fund for investment by Illinois banks, financial institutions and corporations of any size. The minimum investment level starts at $250,000, allowing for Illinois community banks to participate and receive federal tax credits and losses and have their investments in this Fund be considered under the Community Reinvestment Act. Similar to the other State Community Funds that GLCF manages, the Illinois Community Fund will include only Tax Credit projects located within the

18

State of Illinois. As one of its preferred venders, GLCF is working with the Illinois Bankers Association in getting the word out on this new State Community Fund. GLCF will be a sponsor of the Illinois Bankers Association Annual Conference in Indianapolis in June, and planning for a pre-conference session at the Illinois Bankers Association CFO Conference in Springfield (September 18-19, 2012) on investing in Low-Income Housing Tax Credits is underway; this session will include participation by the Office of the Comptroller of the Currency from Washington, DC, who will provide information and answer questions from the regulator’s perspective.

For more information or to arrange a meeting at your bank, please contact Jack Brummett (317)522-5479 or Fred Hash (317)727-8880 at Great lakes Capital Fund. You may also contact Brian Hoffman (217)789-9340 at the Illinois Bankers Association.

Minnesota Equity Fund a Minnesota-Based Tax Credit Equity Fund The Minnesota Equity Fund is a partnership of the Greater Minnesota Housing Fund (GMHF) and Great Lakes Capital Fund (GLCF). GMHF will originate the capital and the housing development projects for this Fund, with GLCF providing underwriting, due diligence, and asset management services.

The State of Minnesota, through the Minnesota Housing Finance Agency (MHFA), allocates approximately $11 Million in annual Low Income Housing Tax Credits (LIHTC) which translates into approximately $95 Million to $100 Million in equity to be raised annually in the State of Minnesota to support between 15 and 20 affordable housing developments each year.

The Greater Minnesota Housing Fund (GMHF) was founded in 1996 by The McKnight Foundation and Blandin Foundation and capitalized with over $100 Million in grant funds. It is the largest Housing Community Development Financial Institution (CDFI) in Minnesota and is a joint funder with MHFA and other federal and state funders.

GMHF has supported affordable housing throughout Minnesota for fifteen years by financing over 500 developments containing more than 10,000 units of affordable housing in greater Minnesota.

GMHF and GLCF are now joining forces and bringing their background and expertise together by partnering on the Minnesota Equity Fund. GMHF brings its sixteen-year history of lending in affordable housing and its relationships with the Minnesota Housing Finance Agency and Minnesota developers to combine with GLCF’s superior nineteen-year track record of managing LIHTC funds, with no foreclosures, always meeting or exceeding investor returns and ontime comprehensive investor reporting. Staff of GMHF and GLCF have been working together on the development of this Fund and are now gearing up to launch a Minnesota Equity Fund in time for the next round of Minnesota LIHTC awards. GMHF has obtained substantial investor commitments toward the 2012 startup.

GREAT LAKES CAPITAL FUND

when you invest in the Community, the returns are guaranteed.

At Huntington, we know how important it is to give back to the community. After all, we do more than just work here - we live and raise our families here too. And after everything this community has done for us, we’re just happy to be able to return the favor.

The Huntington National Bank is an Equal Housing Lender and Member FDIC. ¥® and Huntington® are federally registered service marks of Huntington Bancshares Incorporated. Huntington.® Welcome.™ is a service mark of Huntington Bancshares Incorporated. ©2011 Huntington Bancshares Incorporated.

FE A TURE

EXPANDING INTO UPSTATE

NEW YORK In the face of stiff competition for tax crediting investing, GLCF has decided to diversify its activities in Upstate New York by introducing a new financial product for developers.

I

n early 2009, the New York State Division of Homes and Community Renewal (HCR) announced that applications would be taken for the 2009, nine-percent, competitive funding round of Low Income Housing Tax Credits. Affordable housing developers across New York, especially Upstate New York, began to report that the usual assortment of tax credit equity investors and syndicators had all but disappeared. Sensing the economic downturn and collapse of the credit and mortgage markets was spreading to the private equity markets, the then New York State Housing Commissioner, Deborah VanAmerongen, went into action. Picking up the phone, Deborah called Jim Logue, former head of Michigan’s State Housing Development Authority and now, COO of the Great Lakes Capital Fund (GLCF), a Michigan-based, nonprofit, community development finance agency; “Jim, we’ve heard of the State-based Equity Funds that GLCF has put together in partnership with Community Banks throughout other Great Lakes States; we would like you to create a Fund here in Upstate New York.”

Within a few days, staffs’ from HCR and GLCF were meeting to discuss how best to fill the equity gap across Upstate New York. Several housing developers offered to host informational gatherings of Community Banks, Federal Regulators and other housing and community developers in Upstate New York. Interest was strong from such community banks as NBT Bank, Provident Bank, First Niagara Bank and some national banks like HSBC. The State Housing Commissioner went to the media with the message: “The economic crisis has jeopardized the ability of affordable housing developers to secure financing, particularly Upstate. The State Equity Fund model has been used successfully in other states to make it easier and more attractive to invest in affordable housing and I’m confident it will be an effective means of keeping the affordable housing market healthy here in New York.”

As interest and enthusiasm began to build around the creation of the “Upstate New York Community Fund” (UNYCF), Upstate de20

By Dennis Quinn Great Lakes Capital Fund

velopers began assembling their tax credit applications for the 2009 funding round. Surprisingly, developers discovered that equity investors were back, and at levels equal to the pre-market collapse. Competition was intense for deals, credit pricing began to climb and rates of return to investors began to fall. The national private equity markets had come back as strong as before. In fact, HCR declined to utilize the so-called 1602-Tax Credit Exchange Program because there was more than enough equity to complete all the allocated projects from the 2009 round.

By the time the UNYCF was up and running in the spring of 2010, all of the applicants’ for 2010 credits had “firm commitments” from investors, in the event they were awarded credit. When reservations were announced in late summer of 2010, sixteen developments were awarded credit in upstate New York. By some counts, at that time there were 12-15 different syndicators or direct investors competing for deals in Upstate. Most investors were lucky to tie-up one deal, a few were able to invest in 2 or 3 projects, but several obtained none, included the UNYCF. Not to be out-done, GLCF scoured the landscape for a fourpercent, as of right, tax credit project. Ultimately in 2010, the UNYCF was able to invest in the substantial rehabilitation of a 130 unit apartment complex for elderly and the disabled in Clinton, NY, by developers Liberty Affordable Housing and CRM Rental Management, both from Rome, NY. The market trends of 2009-2010 accelerated in 2011. At the urging of HCR, and through its LIHC Equity Increase Policy, prices continued to increase, with corresponding downward pressure on investor yields. HCR’s new Housing Commissioner, Darryl C. Towns, announced there would be a limited “early award round” in January 2011 for those projects that are “ready to proceed”; a regular Unified Funding Round in February for everyone else; and, a possible third round later in the year, as part of the new State Agency-wide Consolidated Funding Round. Once again competition was fierce among investors.

GREAT LAKES CAPITAL FUND

New York State Agencies for Community Development and Affordable Housing Financing This time, GLCF secured an investment in a 91 unit property in the rural community of Dundee, NY, by developer O.D.S Management, who is completing a substantial rehabilitation of the property.

LESSONS LEARNED, REASSESSMENT AND NEW OPPORTUINTIES The first UNYCF ultimately closed in January 2012 with an $8 million dollar investment from three Upstate New York Community Banks including NBT Bank, Provident Bank and First Niagara Bank.

One lesson learned from this first experience is that multi-investor funds require multiple investment opportunities, more commonly referred to as a “pipeline” of deals. One or two deals do not really constitute a pipeline. By contrast, national and regional equity funds source deals from multiple states; sometimes only one or two properties from each state, but in total, a pipeline of deals for placement in a multiinvestor fund. Single-state funds call for a different approach. Rather than placing emphasis on fundraising from investors, single-state funds must emphasize securing the deal(s) and then offering specific opportunities to targeted investors.

We have learned that Community Banks are looking for more than meeting the “investment test” for favorable consideration under the Community Reinvestment Act (CRA), or even higher yield. Community Banks are motivated by an opportunity to develop a relationship with the developer in whose property they are investing. They’re looking to provide retail banking services and/or commercial loan products, like construction loans as part of the overall investment. We learned that the UNYCF must deliver a relationship as well as CRA credit and yield. In Upstate NY, GLCF plays the role of matchmaker between affordable housing developers and Community Bankers.

In the face of stiff competition for tax credit investing, GLCF has decided to diversify its activities in Upstate NY by introducing a new financial product for developers: long-term permanent debt financing.

In the 2011 cycle, HCR awarded credit to forty-one properties in Upstate NY. Nearly 60% of the allocated properties received an additional commitment for soft debt from the New York State Housing Trust Fund Corporation (HTF). A unique quality of the a HTF loan is the requirement that all senior debt match the term and amortization of the HTF loan; that is, a 30 year term and 30 year amortization. GLCF is able to provide this long-term debt financing due to its designation

by Fannie Mae as a Multi-family Affordable Housing Lender, as well as its access to FHA loan products and USDA loans for rural developments.

Our loan products allow us to work with any equity investor and any construction lender. We can provide permanent loans, acquisition loans, predevelopment loans, and lines of credits to meet your financing needs.

For more information contact Dennis R. Quinn, Senior Vice President, Great Lakes Capital Fund at 313-544-4002, or Dquinn@capfund.net, or www.capfund.net.

AVENUES TO AFFORDABILITY

New York State Homes and Community Renewal (HCR) consists of all the State’s major housing and community renewal agencies, including: The Affordable Housing Corporation, The Division of Housing and Community Renewal, Housing Finance Agency, State of New York Mortgage Agency and Housing Trust Fund Corporation. The primary agencies involved with providing financing for community development and affordable housing are: Housing Trust Fund Corporation administers the Housing Trust Fund Program (HTF). The Program was established in 1985 to provide soft debt financing for developers of new and rehabilitated affordable housing. Eligible applicant include public, private nonprofits and for profit developers (for profit developers subject to limitations on profits and cash flow). Since 1985, the HTF Program has received annual appropriations between $25 and $39 million. HTF also administers the New York State HOME Program. On average, $30-$40 million in HOME capital is available annually for affordable housing developers.

Housing Finance Agency (HFA) offers financing to create and preserve affordable multifamily rental housing throughout the State. Developers can take advantage of several financing resources, including: • Agency-issued bonds, which can be tax-exempt, taxable, or 501(c)(3) bonds; • Second mortgage “subsidy loans” provide subordinate, low interest rate subsidy loans to projects that receive construction and/or permanent financing from HFA and which require subsidy to maximize the number of affordable units and to reach lower income or special needs population; • Taxable Mortgage Initiative (TMI) provides alternative multifamily housing financing that does not rely on bond financing. Under TMI, HFA originates a mortgage and note, which are than assigned to a participating construction lender. Upon construction completion and stabilization, the mortgage is assigned to a permanent lender.

State of New York Mortgage Agency (SONYMA). All HFA bonds, and HFA mortgages that pay off agency bonds, must be secured by a form of credit enhancement. Credit enhancement provides security for the holder of HFA bonds and insures an investment-grade rating for the bonds. HFA’s sister agency, SONYMA, provides credit enhancement through its Mortgage Insurance Fund. SONYMA insured loans area sold to the New York State Common Retirement Fund as a highly rated mortgage backed security.

21

FE A TURE

EXPANDING INTO the

gulf region A partnership between Hope Enterprise Corporation and Great Lakes Capital Fund

Hope Enterprise Corporation (HOPE) is an 18 year old CDFI. Along with our credit union partner, Hope Federal Credit Union, HOPE has been providing loans- primarily permanent loans, to Housing Tax Credit (HTC) properties in our region (AR, LA, MS and the Memphis area of TN) for the past six years. Our permanent loans are 30 year amortized fixed rate loans with a 15 to 18 year balloon. HOPE has a number of community and regional banks as partners who traditionally like short term construction loans for these developments but not long term fixed rate debt.

It was a good fit for HOPE to provide the permanent loan while not competing with them for what they know and like.

In 2008, when the equity market crashed, this region was particularly hard hit. We don’t have many national banks with CRA need in the region, there aren’t large cities with a national spotlight and much

22

By PHIL EIDE hope enterprise corporation

of our region is rural. This region was not an attractive place for the few dollars that were available at the time. While prices nationally were in the low .70’s at that time, prices in this region were as low as .50 if developers could find a buyer at all. Syndicators were raising half or less of the funds they had been raising in previous years as the large investors were out of the market altogether with no tax liability to offset. Several syndicators went out of business altogether during these turbulent times.

As equity prices plummeted, developers who had been borrowers asked HOPE to consider creating a regional equity fund similar to what they had seen in other parts of the country. At that time, HOPE had received and successfully deployed two New Market Tax Credit (NMTC) allocations using local community banks as equity investors.

HOPE had good relations with local banks; most were still profitable and some were interested in tax credits based on the NMTC experience. HOPE had good relationships with developers and we knew how to underwrite the loan side of a deal. HOPE didn’t know the compliance and underwriting side of the HTC and knew we needed to find a partner to provide the experience needed to attract investors and the back end support that HOPE didn’t have.

As a mission driven 501 (c) 3 organization, it was important to find a partner with similar values. It was also important to find an organization that would work with our strengths. We know our region. HOPE had built a strong reputation over the years; we knew the banks and lenders and also knew the HTC developers. After a few conversations with some possible partners that weren’t good fit, we found NASLEF, the National Association of State and Local Equity Funds. Many of the NASLEF members have been providing equity in their region for decades with strong reputations and results. After conversations with several member organizations, Great Lakes Capital Fund (GLCF)one of NASLEF’s founding organizations was encouraging and told of a similar fund they were starting in New York.

GREAT LAKES CAPITAL FUND

As a non-profit organization like HOPE, it became clear that GLCF understood the mission beyond making money which they emphasized in their literature and conversation many times- the double bottom line. They were also interested in helping HOPE to understand the business beyond what was necessary to get a fund closed.

Getting the first fund off the ground wasn’t as easy as it seemed that it should have been. Even with HOPE’s relationships and GLCF’s experience and strong track record of managing LIHTC equity, it was a difficult time to convince local investors to invest in something they had never been involved in before. Returns were still relatively high in 2010 with equity still slow to come into the market and risks low with good projects available for investment. Community and regional banks were profitable and didn’t have many good options that provided CRA opportunities and decent returns. With all of these factors in HOPE’s favor, it seemed like pieces would easily fall together but as those in the community development field know, it’s never that easy. We did convince a large regional bank with national LIHTC experience to invest, two community banks who have invested in NMTC with HOPE in the past and understood the benefit of tax credits to their bottom line to invest and an insurance company to invest in the first fund.

Holly Hills and New Horizon Development was the recipient of the first fund. New Horizon is a seasoned Housing Tax Credit developer. They took an aging 100 unit development in Jackson, MS, reduced the density to 64 units by combining smaller units in to larger units and tearing down some of the buildings. The property was next door to an elementary school and had become a haven for drugs dealing and other illegal activity in the neighborhood. It was about 40% occupied when New Horizon purchased the property. The energy efficient rehab was a total of $7.75 million with rents on some of the units actually cheaper after rehab than they were before construction started.

HOPE is currently working on its second fund with GLCF. Yields have dropped which is good news for developers but has made it more difficult to put the investment together. Having the first fund behind us and working smoothly is an important selling point and we’ve appreciated the partnership with GLCF. The residents at Holly Hills and those living and working around the development are enjoying the newly rehabbed neighbor. They have no idea that it is a Housing Tax Credit development or the work that went into making it what it is today. They are just glad to have the eyesore gone and enjoying their new homes.

Strength in numbers.

3,000 clients | 45 states | 140 employees thanks to our clients, doz is celebrating

25 years of service.

Dauby O’Connor & Zaleski, LLC Certified Public Accountants

www.doz.net

AVENUES TO AFFORDABILITY

866.848.5700

23

FE A TURE

HOUSING & COMMUNITY DEVELOPMENT UPDATES

By TOM EDMISTON Great Lakes Capital Fund Loan Activity Update Michigan: In February 2012, MSHDA announced it will serve as a conduit for Pass-Through Short Term Bonds. This Pilot Program will finance the construction and/or acquisition/rehabilitation of affordable rental housing for low-income households. These obligations are a limited (rather than general) obligation of MSHDA. The bonds will be secured solely by the project and some form of credit enhancement provided by the borrower. MSHDA staff will not underwrite the loans. The bonds will finance the construction of the projects and then utilize GNMA taxable financing backed by FHA-insured mortgages to repay the pass-through bonds.

It will also be possible for developers to use a Letter of Credit during construction to secure the bonds and then use a Great Lakes Capital Fund (GLCF) / Fannie Mae permanent loan to repay the bonds. This program will enable 4% Low Income Housing Tax Credits (LIHTC) to be used in generating private equity for improvements on a variety of properties, including expiring LIHTC year 15 properties.

MSHDA expects up to $75 million of bond cap will be initially allocated to this program.

Indiana: GLCF is processing predevelopment loans on two housing developments which will be repaid when the LIHTC equity investments close. In both cases, our ability to provide predevelopment financing was a factor in the developer’s decision to select GLCF as their LIHTC investor.

24

Low Income Housing Tax Credit Update Michigan: MSHDA is in the final stages of approving its 2013-2014 Qualified Allocation Plan (QAP). It was designed with significant involvement from stakeholders over the past 6 months, including focus groups and a day-and-a-half summit. The plan eliminates target percentages for specific cities and underserved populations. There will be 2 application cycles: August 15, 2012 and February 15, 2013.

The total annual credit ceiling is estimated to be $22 million with 45% allocated for the August round, 45% for the February round and 10% for projects that meet MSHDA’s “Strategic Investment” category.

Indiana: In February 2012, IHCDA allocated tax credits to 14 developments totaling $12,052,724 of annual tax credits. Applications were due 6/15/12 for developments applying for credits under the “Housing First” set-aside for the development of approxi-

mately four permanent supportive housing communities for those who are homeless or at risk of becoming homeless.

Illinois: IHDA conditionally allocated tax credits to 12 developments in its first competitive round (9% LIHTC) in 2012.

Applications for the second round are due to IHDA by 7/30/12. IHDA has created strong financing incentives to combine with tax credits to provide housing for those currently living in institutions or released from institutions without adequate housing options or supportive services. There is an emphasis this year to assist with housing for veterans who are homeless or have special needs.

New Markets Tax Credit Update Congress has not yet authorized additional funding for the New Markets Tax Credit (NMTC) program; however, the CDFI Fund plans to accept applications later this summer in anticipation of funding being approved. We

Ivy Tech COmmunity College conference and culinary arts training center, indianapolis, IN

GREAT LAKES CAPITAL FUND

cca_ad_halfpage_bw.pdf

11/5/06

5:38:35 PM

kroc center, chicago, il

have started work on our application. GLCF has been involved in the NMTC program since 2006 as part of our greater commitment to economic and community development. To date, GLCF manages $314 million of New Markets Tax Credit allocation. We received two allocations enabling us to directly invest $74 million in developments across our footprint; and in

AVENUES TO AFFORDABILITY

addition we provide fund and asset management services for the Michigan Magnet Fund and a national NMTC investor. On behalf of these two organizations we manage $240 million of Qualified Equity Investments.

We recently closed on the last investment from our 2010 NMTC allocation. We provided a $7 million investment supported by JPMorgan Chase to renovate an old hotel for Ivy Tech Community College in Indianapolis. The facility is now a college conference and culinary arts training center. The total development cost for this LEED silver facility is $41 million and it will create 9 permanent jobs, 210 construction jobs, and relocate 26 permanent jobs. The building is expected to open in August 2012.

One of our larger investments ($13 million) supported the development of a community educational and sports facility in Chicago. It recently held its grand opening. In

partnership with The Salvation Army (sponsor) and JPMorgan Chase (investor), we supported the construction of a $62 million community center (127,000 sq. ft.) on a 12 acre campus in West Pullman, one of Chicago’s most distressed neighborhoods. The project is utilizing funds from the estate of Ray and Joan Kroc, the founders of McDonald’s restaurants. Kroc Center provides “state of the art” academic and community facilities for families in the neighborhood, including basketball and volleyball courts, theater, Olympic-size swimming pool, water fun-park, soccer and football fields.

To view a 2 minute video about this wonderful facility, visit http://link.brightcove. com/services/player/bcpid62129015001? bckey=AQ~~,AAAAACrIW3Q~,rmoqn MjEXALbV7Y0JfJBvKzjT5MYxfSX&bct id=1666151131001.

25

FE ATURE

TAX CREDIT INVESTING FOR FHLBI MEMBERS Affordable Housing Program and Community Investment Program offer alternative to bonds and a higher CRA rating.

The Low Income Housing Tax Credit (LIHTC) market provides attractive opportunities for investors guided by either economic or social rationales, through current taxableequivalent yields exceeding 6% and a relatively low risk profile. For financial institutions, LIHTCs represent a long-term tax-advantaged investment alternative to municipal bonds.

For bank investors, LIHTCs provide the added benefit of positive consideration toward their Community Reinvestment Act (CRA) rating.

Since LIHTCs support the FHLBI’s mission, members often use two of FHLBI’s Community Investment offerings to enhance their participation in this market: • Affordable Housing Program (AHP) grants can be used to fill funding gaps for projects meeting the requirements for the competitively scored program • Community Investment Program (CIP) funds can be borrowed to either purchase any LIHTCs or to provide project debt financing at the FHLBI’s cost The LIHTC market provides an opportunity to further both economic and social goals, in addition to representing a unique asset class that should be understood prior to making an investment.

BACKGROUND The LIHTC program was created by the Tax Reform Act of 1986 and is referenced

26

by Section 42 of the tax code. The program makes federal tax credits available to corporations, insurance companies and banks that invest in high-quality affordably priced housing for low-income families, seniors and individuals. Since its inception, the program has led to the construction or rehabilitation of more than 2.4 million affordable housing units (about 100,000 units per year) nationally and has been the driving force behind most of the affordable housing being produced today.

HOW LIHTC INVESTING WORKS The tax credit process begins after real estate developers apply to their State Housing Finance Agency for an allocation of Federal Housing Tax Credits on behalf of a specific apartment community. Each real estate transaction is typically organized as a limited partnership (or a limited liability company LLC). The developer (sponsor) serves as the general partner (or managing member) and sells the tax credits to investors who serve as the limited partner (or investor member).

Virtually all of the tax benefits associated with each development flow to the investors.

The sponsor must complete the development, rent it to income-qualified households, keep it in compliance with IRS regulations and provide regular reports to investors and regulators.

Unlike other federal housing programs that are administered by HUD, this program is administered by the Internal Revenue Service.

When tax credits are sold to investors,

By MARGE NOVAK Great Lakes Capital Fund

the proceeds become equity for the housing project. The increase in project equity improves credit worthiness and reduces both the amount and cost of debt financing. Ultimately, the reduction in project financing costs decreases the rents necessary to cash flow the project, making them more affordable to those with low incomes.

Although owners of LIHTC-financed properties are required to keep rents affordable for at least 30 years, the investment horizon for tax credit investors is generally shorter. Since the IRS cannot recapture tax credits after a 15 year compliance period is completed, investors have the option of exiting the partnership at this time. The compliance period is 15 years; however, investors are permitted to claim the credits over an accelerated 10 year period. Tax credit investors may also be permitted to shelter additional taxable income from state and federal taxes through deductions for project interest expense and depreciation.

INVESTMENT RISK LIHTCs have a low historical loss experience and out-performed other real estate investments through the recent credit crisis.

According to an August 2011 report from the Reznick Group, LIHTC investments have had a cumulative foreclosure rate of 0.62% during the program’s first 25 years of existence.

The three primary risks associated with LIHTC investments are:

GREAT LAKES CAPITAL FUND

Annualized Foreclosure Rate Source: ACLI Mortgage Loan Portfolio Profile 1993–2006 (except tax credit data).

1.15% 1.0 0.8 0.58%

0.26%

0.25%

0.76%

OFFICE

OTHER COMMERCIAL

HOTEL/MOTEL

RETAIL

MIXED USE

1-4 FAMILY

GREAT LAKES CAPITAL FUND

0.0%

0.27%

0.74%

0.08% HOUSING TAX CREDIT

0.2

INDUSTRIAL

0.4

APARTMENT

0.6

0.65%

1. If a property fails to rent its units to qualified low-income households within several years, it may lose its tax credits.

2. If a property meets this initial leaseup requirement but fails to remain in compliance, the IRS may recapture the credits.

3. If the property is foreclosed upon by the lender, this can result in a recapture of credits.

These property-specific risks can be mitigated through diversification and/or investing in funds which are managed by experienced syndicators.

FUND INVESTING Most LIHTC investors participate in funds established by syndicators investing in multiple properties. By investing in funds rather than individual tax credits, investors are able to access sector expertise, simplify the investment process, and diversify holdings without a making a major financial commitment. Typically, the syndicator screens, underwrites, closes, and monitors the ongoing compliance of the properties. Each fund contains a mix of geographically diversified properties. Syndicators offer multi-investor funds which enable investors to purchase a slice of the fund which provides greater flexibility in the size of investment. The minimum fund investment amount is set by the syndicator.

The graph at the top right shows fund-level internal rates of return for LIHTC funds ad-

AVENUES TO AFFORDABILITY

ministered by Great Lakes Capital Fund as compared to the 10-year and long-term treasury rates, assuming a 35% tax rate. Since May 2006, LIHTC after tax yields have ranged from approximately 200 to over 1000 basis points over the 10 year treasury benchmark.

Despite the attractiveness and success of the LIHTC program, many investors continue to be unfamiliar with the program. For more information regarding investing in tax credits, contact Marge Novak, Vice President of Investor Relations at Great Lakes Capital Fund at 517-364-8929 or visit their website at www.capfund.net. If you would like to have further information about how FHLBI AHP and CIP programs can be used with LIHTC investments, contact the Community Investment Department at (317) 465-0200.

Great Lakes Capital Fund is a not-forprofit community development finance corporation that helps socially responsible corporations invest in affordable housing and community economic development activities.

It was established in 1993 and has invested $2.5 billion in equity and loans in 500 properties representing 30,000 homes. Its investors have consistently achieved a market rate of return while minimizing their investment risk through GLCF’s solid underwriting and diligent asset management.

Marge Novak is the Vice President of Investor Relations for GLCF. She can be reached at 517.364.8929 or contact Joe Herbert, GLCF’s Broker Agent at Bank of America Merrill Lynch at 415.765.1825.

1000 S o u t h W a S h i n g t o n a v e n u e , S u i t e 101 L a n S i n g , M i c h i g a n 48910-1647

www.cedam.info

Join Us Today!

voice

517.485.3588

fax

517.485.3043

staff@cedam.info

CEDAM is a nonprofit tax-exempt organization. We are a voluntary association of community development corporations (CDCs), individuals, and other organizations interested in promoting and expanding community-based housing and economic development across the state of Michigan.

Training

■

Advocacy

■

Education

■

Networking 27

TITLE ISSUES

TITLE INSURANCE UNDERWRITING: A UNIQUE LOCAL PROCESS

BY STEVE SMITH GREAT LAKES CAPITAL FUND

T

itle insurance involves the acceptance of past transactional events rather than future occurrence events associated with all other property and catastrophe exposures. In addition, title insurance, unlike most other property/casualty exposures, has no termination date and no time limitation on filing claims.

Since title insurance usually involves the acceptance of prior transaction-related risk

insurance, unlike typical property/casualty insurance, usually doe not respond to future occurrences but only to past defects that were in place at the time the property was sold, and not recognized as a problem until after the property was transferred or insured over.

Property/casualty underwriters are concerned with determining the probability of loss based on the characteristics of the insured risk. Title underwriters, on the other hand, are concerned with reducing the possibility

search requirements, coupled with the disarray and geographic dispersion of records, have fostered the development of privately owned, indexed data bases or title plants. These title plants must be maintained regardless of the level of real estate activity during any given period. The cost to maintain a title plant and continuously update the records is extremely high. This is one factor adds to the higher over all fixed cost percentage for title insurers as compared with property/casualty insurers.

The title underwriting process is designed to limit risk exposure through a thorough search of the recorded documents affecting a particular property. rather than future risk, the underwriting process in the title insurance industry differs markedly from the typical property/casualty underwriting process. The title underwriting process is designed to limit risk exposure through a thorough search of the recorded documents affecting a particular property. The insurance component of a title product only indemnifies for existing, but unidentified, or specifically underwritten, defects in the condition of a property’s title. In other words, title

28

of loss by discovering as much information about the past as possible through extensive searches of public records and stringent examination of title. Some state title insurance codes provide that no policy or contract of title insurance shall be written unless it is based upon reasonable examination of title, and unless a determination of insurability of the title has been made in accordance with sound underwriting practices.

The general underwriting examination and

Both property/casualty insurers and title insurers must physically produce policies, but the processes and requirements differ significantly. A typical property/casualty policy might involve filling out a few blanks on a form, while the title policy might require the transcription of a complex legal description unique to the insured property, along with enumeration of often equally complex and unique terms of easements or other special property rights. In property and liability

GREAT LAKES CAPITAL FUND

lines, agents commissions generally are in the range of 10% to 25% of the premium on the policies that agent write. In title insurance, the agent retains a much larger proportion of the amount charged. This larger proportion is more properly described as agent’s retention or agent’s labor or work charges.

The title insurance activities of search and examination generally are carried out locally, because the public records to be searched are usually only available locally. This activity might be performed by directly owned branch operation of the insurer or by title agents. Payments to a title agent not only reflect an origination commission but incorporate underwriting, loss-prevention and administration costs that title insurers would incur if policies were issued directly. These unique characteristics of the title insurance industry, combined with the necessity of maintaining a title plant or searching public records, contribute to the high fixed costs, the high ratio of salaries to total expenses and the high percentage of total revenue retained by the agents.

In addition, with the requirement that each real estate parcel be evaluated and insured based upon the myriad and varying local laws, customs and records, the traditional insurance structure of local marketing and home –office underwriting cannot reasonably and cost-effectively be maintained in the title insurance industry. Since real estate laws, customs and practices vary, at least on a state by state and sometimes on a county by county basis, it has not been practical for underwriting to be performed on a national basis by a team of underwriters in the home office. Therefore, the economies of scale made possibly by establishing a centralized, skilled technical support staff of actuaries and underwriters to price products and make underrating decisions, are absent in the title industry.

AVENUES TO AFFORDABILITY

{Questions answered.} A knowledgeable team of CPAs and specialists who are well-versed in low income housing tax credits, brownfield development, historic rehabilitation, and new markets tax credits investments is

a higher return on experience.

Contact: Robert Edwards 517.336.7460 plantemoran.com

29

EFFECTI V E LE A DERS H IP

ALWAYS IN THE LEAD

BY DENISE STEIN GREAT LAKES CAPITAL FUND

30

Having lunch with a client (who is also a friend) recently, our conversation was, as usual, mostly about family, relationships, and business. I am quite a bit older and have been her “coach” for some time, but I found myself at a loss for words as she shared some of her

trating week, and I was feeling pretty worn down.

Lacking any “pearls of wisdom” to share, I surrendered and simply began to talk. I told my friend the story of parking in the wrong zone and having my (brother’s) car towed

romance, her parents, or even her general well-being. It was unusual for us to talk about my life, after all, I am the coach, the “older” person, the “leader” in our relationship. I was upset that I had failed her, and that I had not been the leader that I “should” have been.

life’s concerns. I felt that I should have some wisdom to offer, a perspective that would help my young friend discover the key to confronting, tackling, and overcoming her challenges.

The more I searched for the right words, the less I could find to say. I even resorted to taking a bite of my lunch at just the right time, to allow myself more time to think of something inspirational.

The truth was, I wasn’t feeling particularly inspirational, or even inspired, at that moment. I was feeling pressured by the demands of my work, family, things to be fixed around the house, and a litany of un-checked items on my to-do list. It had been an extremely frus-

and impounded. I shared about the weekend getaway, that I had so anticipated, going awry with a huge power outage, scrambling to find a hotel room, and waiting over an hour in line for breakfast (at 2:00 in the afternoon), and, finally, thinking that I would enjoy an evening with friends at the Tiger’s game, and ending up in what seemed to be gale-force winds, trying to find shelter in Comerica Park, and ending up soaking wet. None of these were life-altering events, but it had been a pretty frustrating week!

When I left the lunch, I felt a bit guilty because I had heard little about her life. I hadn’t asked much about her job search, her latest

This general feeling of discomfort continued the following morning, as I sat in my office, trying to get work done, but I forged ahead. When my phone rang, and I saw her name on my caller ID, I hesitated to answer, not wishing to continue yesterday’s conversation. I picked up the phone. What I found, instead, was an inspired, and inspiring, person on the other end of the line.

Imagine my surprise when she said: “Thank you so much for the conversation over lunch yesterday! It’s always inspiring to talk to you; you motivate me to want to do something special with my life, to keep going.” As our conversation continued, she told me that she felt

GREAT LAKES CAPITAL FUND

Pung and Read Housing Consultants, LLC

honored that I was willing to share my challenges with her. She shared that the conversation had strengthened her bond with me, and had built even more trust in our relationship.

She said, “When you talked about your life’s problems and let me help you, you showed me that I am valuable, that I can help, that I’m not just a burden. Thank you for trusting me, you helped me to see that when I’m stuck in the world, if I trust someone else to help me, that I may actually be helping them, too.”

As our conversation ended, a burden had been lifted. I had not only lost the feeling of guilt, I felt empowered and inspired. My young friend taught me a powerful leadership lesson in that call. While it is something that I often say to clients, it hit home for me, in realtime: “Leaders don’t create followers, they create more leaders.” Tom Peters My friend’s reaction to my stories did not happen accidentally; it was the result of the relationship that we had with built with one another. Over time, we fostered our visions and values, we demonstrated mutual respect and concern, we knew of one another’s hopes and dreams, and we always found the best in one another, in business, and in life. As you consider your business and personal relationships, how often do you find these qualities?

Let’s face it, even the strongest leaders need a boost from time to time. I challenge you to intentionally build your own Points to ponder: • What do I do to create leaders in my business, life, family?

• How can I build powerful relationships with others, with shared Vision and Goals?

• When I feel challenged/pressured, how do I empower others to help me?

• How can I share my core values with others and learn of theirs in return?

• Which relationships in my business, life, family, could be strengthened by allowing others to see my “human” side?

    

Making the pieces fit

Housing Development Services Asset and Portfolio Management Property Analysis Capital Needs Assessment Reviews 16+ years in the housing industry

Learn more about our services and experience www.prhcllc.com

Lori Pung, CPA ~ 561-789-8206

Colleen Read, SHCM ~ 989-798-0321

We are a family of companies serving the needs of families.

•MANAGEMENT •DEVELOPMENT •CONSTRUCTION •CONSULTING

Medallion Management, Inc. Medallion Management, Inc. 834 King Highway Suite 100 Kalamazoo, MI 49001-2578 Fax: 1-269-381-3609 Phone: 1-269-381-0350 TTY: 1-800-649-3777

www.medallionmgmt.com

"We specialize in Non-Profit Consulting and Joint Ventures"

Co n s t r u c t i o n M a n a g e m e n t

T 317.636.2000

G e n e r a l Co n s t r u c t i o n

W ke ys t o n e - co r p.co m

E g r e g m @ ke ys t o n e - co r p.co m

OVER 20 YEARS EXPERIENCE IN ALL PHASES OF AFFORDABLE HOUSING

Mt. Pleasant & Midland, Michigan

• Audits • Cost Certifications • LP Tax Returns

Phone 989.772.4673 | Fax 989.772.6371 | Email jbourland@bbcpapc.com

AVENUES TO AFFORDABILITY

31

LEGAL ISSUES

CAN A CONTRACT BE VALIDLY FORMED AND SIGNED THROUGH EMAIL?

BY TRACEY L. LACKMAN & WARREN H. KRUEGER LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C.

P

arties and attorneys negotiating transactions through email need to be aware of the potential to bind themselves or their clients to an agreement. In light of developing law, parties should take minimal steps to avoid creating an agreement through email. Although this issue sounds somewhat absurd (i.e. how can one mistakenly enter an agreement), it is not so absurd when looking at it in the context of a real-estate transaction. Parties often believe that a real estate transaction cannot become binding until recordable documents are executed.

But an email can create an obligation on a party to execute those documents. As such, a mistaken belief that accepting terms of an agreement in an email is not binding until recordable documents are executed could be a mistake with severe consequences.

With the everyday use of electronic mail for negotiation of all types of business transactions, including real-estate purchase and sale agreements, loan transactions, and other business transactions, it is important to take a step back and evaluate the potential consequences of such communications and whether their contents could be used by one party to the communications as support that a legally binding contract was formed. First, what constitutes a validly written agreement; and, second, can an electronic signature, including that of an attorney, suffice as a valid signature?

In general, with limited exceptions, the Michigan statute of frauds requires that contracts must be in writing and signed by the party to be charged to be enforceable. See MCL 566.106, .108, .132. The statute of frauds is afforded a liberal construction, Zurcher v Herveat, 238 Mich App 267, 278; 605 NW2d 329 (1999), so courts will be more likely to find it is met in the case where a series of writings exist. See, Forge v Smith, 458 Mich 198, 207; 580 NW2d 876 (1998)(stating that where one writing references another instrument for additional contract terms, the two writings should be read together). Courts interpreting Michigan law indicate that emails may suffice to meet the writing requirement. In Moroni v Medco Health Solutions, Inc, 2008 WL 32

3539476 at 3 (ED Mich), while analyzing the general statute of frauds section, MCL 566.132, the Court found that the statute of frauds defense was overcome for purposes of summary judgment by emails detailing the parties agreement at length. The court focused on the defendant’s argument that the emails lacked essential terms and constituted an agreement to agree. Id. Although it did not address whether the signature requirement was met by the emails, it found that the emails created enough ambiguity to overcome summary judgment. Id. It cited Michigan law to support its analysis stating: It is not always necessary that the writing commemorating the agreement take the form of a formal contract. Notes or memoranda that have “substantial probative value in establishing the contract” will satisfy the statute. Opdyke Inv. Co. v. Norris Grain Co., 413 Mich.

354, 320 N.W.2d 836, 841 (Mich.1982) (quoting Goslin v. Goslin, 369 Mich. 372, 120 N.W.2d 242, 244 (Mich.1963)). The requirements of the statute of frauds are not specific or uniform. See Goslin, 120 N.W.2d at 244 (quoting 2 Corbin, Corbin on Contracts, § 498, at p. 683, 120 N.W.2d 242). Accordingly, a writing’s “sufficiency in attaining the purpose of the statute depends in each case upon the setting in which it is found.” Id. (quoting 2 Corbin, Corbin on Contracts, § 498, at p. 683, 120 N.W.2d 242).

No Michigan court has squarely addressed the issue of whether an email signature can satisfy the statute of frauds in this context. Attorneys and commentators are split on the issue. The lack of authority in Michigan is most likely a product of the law still catching up to everchanging business practices. Michigan, however, has adopted the Uniform Electronic Transactions Act (“MUTEA”). MCL 450.831 et seq.

The MUETA was adopted in 2000 to provide terms and conditions under which information and signatures can be transmitted, received, and stored by electronic means. The act outlines its own scope, stating: (2) This act applies only to transactions between parties each of which has agreed to conduct transactions by electronic means.

Whether the parties agree to conduct a transaction by electronic GREAT LAKES CAPITAL FUND

means is determined from the context and surrounding circumstances, including the parties’ conduct.

MCL 450.835(2) While no Michigan case appears to address what conduct and circumstances constitute an agreement by the parties to conduct a transaction by electronic means, back and forth negotiation through email is very likely conduct invoking the MUETA. See Crestwood Shops LLC v Hilkene, 197 SW 3d 641 (Mo Ct App 2006)(court found that parties agreed to conduct transactions by email where emails were exchanged stating that parties preferred to have correspondence in writing); see also International Casings, supra at 875.

The MUETA provides that an electronic record satisfies any law requiring a record to be in writing: 1. A record or signature shall not be denied legal effect or enforceability solely because it is in electronic form.

2. A contract shall not be denied legal effect or enforceability solely because an electronic record was used in its formation.

3. If a law requires a record to be in writing, an electronic record satisfies the law.

4. If a law requires a signature, an electronic signature satisfies the law.

MCL 450.837 The MUETA also broadly defines an electronic signature as follows: (h) “Electronic signature” means an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.

MCL 450.832(h) Considering the provisions of the MUETA, when a series of electronic mail communications exists, it is likely a court would at least be required to make a determination on the question of law whether the parties consented to conduct their transaction by electronic means. Assuming that it finds the circumstances sufficient, given the broad definition of “electronic signature” under the MUETA, it is possible that even an email with the attorney’s name typed at the bottom will constitute a signature if the intent to enter a contract was present under 832(h). Indeed, other courts have recently done so under their state’s UETA. See, Waddle v Elrod, No. M2009-02142-SC-R11-CV, 2012 WL 1406451 (Tenn April 24, 2012) (applying Tennessee’s UETA, the court found that a settlement agreement conveying an interest in land met the statute of frauds since the attorneys were agents of the parties,

Karl L. Gotting Kenneth W. Beall Michael G. Oliva Jeffrey L. Green Kevin J. Roragen Richard W. Pennings Ted S. Rozeboom Tracey L. Lackman Michael G. Stefanko Elizabeth A. Husa

OVER 35 YEARS OF EXPERIENCE IN AFFORDABLE HOUSING Representing developers and syndicators before the Michigan State Housing Development Authority, U.S. Department of Housing and Urban Development, Rural Housing 124 W. Allegan, Suite 700

and municipalities, and with private lenders.

Lansing, Michigan 48933 Phone 517.482.2400 www.loomislaw.com

AVENUES TO AFFORDABILITY

33

LEGAL ISSUES

their signatures appeared at the bottom of emails that contained the terms of the agreement, and the description of the property was contained in the cross-claim.)

Michigan courts are willing to look at the intent of the “signing party” to determine whether the signature requirement is met. In Clark v Coats & Suits Unlimited, 135 Mich App 87; 352 NW2d 349 (1984), the defendant argued that statute of frauds was not met by a memorandum with the typewritten signature of the defendant. Id. at 97. The court found that whether a typewritten name will satisfy the requirement of a signing is a factual question. Id. It explained that “a typewritten name may satisfy the signature requirement of the statute of frauds as long as the party typing his or her name intends to authenticate same.” Id. Since it was the defendant’s typewritten name at issue, it was a factual question whether the name was typed with the intent

to authenticate. Id. Indeed, as Waddle, supra, indicates, an agent’s (such as an attorney) signature may suffice to bind a party to a contract. An ostensible or apparent agency exists where the principal “intentionally or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.” VanStelle v. Macaskill, 255 Mich.App. 1, 9, 662 N.W.2d 41 (2003). The elements of an apparent agency are: 1) the person dealing with the agent must act with a reasonable belief in the agent’s authority, 2) this belief must be generated by some act or neglect of the principal, and 3) the person relying on the agent’s apparent authority must not be guilty of negligence. Id. at 9-10, 662 N.W.2d 41. “Apparent authority must be traceable to the principal and cannot be established by the acts and conduct of the agent.” Echelon Homes, LLC v. Carter Lumber Co., 261 Mich.

Lighten-Gale Group

Since 1999, has assisted over 50 for-profit, non-profit and governmental agencies to build and preserve over 3,500 units of affordable housing.

Lighten-Gale provides financing strategy, completion of applications, and coordination of funding and team members to get successful projects up and running.

Visit www.housingdeveloper.com for more information.

34

App. 424, 430, 683 N.W.2d 171 (2004), rev’d in part on other grounds 472 Mich. 192, 694 N.W.2d 544 (2005).

CONCLUSION In conclusion, parties undertaking negotiations through email must be aware of the potential to create a contract. Parties often believe, especially in real estate transactions, that an agreement cannot be created until documents are signed. But with the MUETA, and the willingness of courts to find that emails can create binding agreements, or, at the very least, satisfy the statute of frauds writing requirements, it is worthwhile to create or reevaluate existing electronic-mail policies and disclaimers. Those disclaimers should be tailored to ensure that communications that are simply intended to be negotiation points are not construed or misconstrued as a legally enforceable contract.

Mitchell Milner and Joseph Caringella congratulate Great Lakes Capital Fund for its commitment to the development of housing for homeless veterans.

Milner & Caringella, Inc., are consultants specializing in housing development for MC the homeless, veterans, and other special needs groups.

MC

Milner & Caringella, Inc. 312-339-1678

GREAT LAKES CAPITAL FUND

EVENTS & HAPPENINGS

GLCF WELCOMES THREE TEAM MEMBERS Lansing and Chicago-area Offices Gain Public Relations Specialist, Mortgage Specialist and Senior Underwriter BERNERO receives promotion “My Personal Life Vision is to respect and enhance the freedom of others through relentless activism to end societal injustices.”

Kelly Bernero began working for Great Lakes Capital Fund in May of 2012 after interning at GLCF for over one year. She returned to her hometown of Lansing to begin work after completing her undergraduate studies in Political Science and History at the University of Michigan, Ann Arbor and the University of Cape Town, South Africa. As a specialist for GLCF’s Advocacy and Public Relations efforts, Kelly brings over 6 years of experience in fundraising, event coordination and communications.

Prior to joining GLCF, Kelly was a Marketing Representative for the Society of Environmentally Responsible Facilities. Kelly also serves as Assistant Sponsorship Director for the 2013 Lansing Marathon, and is a coach at Pattengill Middle School for the Art of Leadership Foundation. She enjoys running, soccer, yoga, volunteering, traveling and time with loved ones.

36

GLCF gains MORTGAGE SPECIALIST Christine Angi was recently hired as the Mortgage Specialist for Great Lakes Capital Fund for the Chicagoarea office. Prior to joining the Capital Fund, she was a Program Specialist for NeighborWorks America on the Emergency Homeowners’ Loan Program (EHLP) for the Department of Housing and Urban Development (HUD) in Washington, DC. In this position, she worked on quality control and compliance, appeals, managing databases, and providing responses to Congressional inquiries.

Christine also spent three years in the real estate title industry as the Real Estate Operations Manager for Legacy Management, LLC where she was instrumental in growing the business from a start up to over $1,000,000 in annual revenue. Christine earned an MBA in Finance and Real Estate from Roosevelt University in 2010, and has a Bachelors of Science in Political Science and Philosophy from the University of Louisville.

RISK JOINS CHICAGO-AREA Zina Risk joined the Chicago-area office of Great Lakes Capital Fund in 2012 as a Senior Underwriter.

Zina’s fifteen years of experience in multifamily lending includes all aspects of due diligence, underwriting, and closing agency (Fannie Mae and Freddie Mac), bank, and institutional permanent loan products on a national basis for multinational and local lenders. Early in her career, she gained valuable experience underwriting construction and development loans, and servicing and monitoring commercial real estate portfolios that included retail, office and industrial property types.

Zina holds a B.S. in Economics and Finance from Miami University in Oxford, Ohio and a JD/MBA from Cleveland-Marshall College of Law and Cleveland State University in Cleveland, Ohio. Zina is on the Board of Directors of Friends of Burley, an organization committed to supporting/sustaining vital programming that includes art, music and physical fitness, at Burley Elementary School in Chicago.

GREAT LAKES CAPITAL FUND

Since 1998, Applegate & Thorne-Thomsen has been a national leader in formulating legal solutions in the development, ownership and financing of and investment in real estate, with a particular focus on the challenges attendant to affordable housing and community development projects. In 2011 alone, our professionals were instrumental in the following: AFFORDABLE HOUSING 





Preservation: 210-unit rental project in a 1920

 industrial building in Chicago’s Pullman neighborhood, financed using tax-exempt bonds, HUD-insured first mortgage loan, federal low-income and historic credits, FAF, HOME and AHP funding.  New Construction: 117-unit/six-building project in Chicago’s Woodlawn neighborhood, utilizing New Issue tax-exempt bond proceeds, federal low-income tax credits, HOME funds, assumed municipal debt and redistribution of project-based Section 8 subsidy among  other area buildings.

Public Housing: 128-unit mixed-income, multi-family residential development financed with tax-exempt bonds, HOME and HOPE VI loans, state donation tax credits and federal low-income tax credits.

COMMUNITY DEVELOPMENT Healthcare: Development of four-story, 65,000 square foot health and wellness center that provides health and fitness services, wellness programs and services, pediatric care, dental care and pre-natal care.

School: Acquisition and conversion of three-story existing timber loft building, as well as the construction of an addition, to re-purpose the facility as the 100,000 square foot home of a charter high school with capacity for 600 students in Chicago’s Pilsen community.

Retail: Multi-phase redevelopment of 180-acre former urban industrial property into grocery and other retail use, community center, public park and affordable housing.

For further information, contact Bennett P. Applegate at: bapplegate@att-law.com or 312/491.3322.

Additional firm information is available at www.att-law.com.

Housing that makes sense.

34NORTH

Today and tomorrow.

We believe that sustainable communities and sustainable business are one in the same.

That’s why for over 50 years we have supported sustainability by creating affordable housing opportunities, developing urban infill sites, rehabilitating historic buildings, and constructing LEED certified buildings.

At Herman & Kittle Properties, Inc., we create value through real estate.

Indianapolis, IN • hermankittle.com • 317.846.3111

ADVERTISER’S INDEX Allgeier Company.................................................................................... 29

Keystone Construction Corp................................................................. 31

Applegate Thorne-Thomsen.................................................................. 37

Lighten-Gale Group................................................................................ 34

Baker Tilly Virchow Krause, LLP........................................................... 2

Loomis, Ewert, Parsley, Davis & Gotting, P.C...................................... 33

Block Affordable Housing Consulting, LLC........................................ 13

McCartney & Company, P.C.................................................................. 12

Blystone & Bailey, P.C............................................................................. 31

Medallion Management, Inc................................................................... 31

Chesapeake Community Advisors, Inc................................................. 25

MHT Housing, Inc................................................................................. 39

Clark Hill.................................................................................................. 40

Michigan State Housing Development Authority............................... 38

Community Economic Development Association of Michigan......... 27

Milner & Caringella, Inc......................................................................... 34

Crestline Communities........................................................................... 12

O’Brien Construction Company, Inc..................................................... 35

Dauby O’Conner & Zaleski................................................................... 23

Plante Moran............................................................................................ 29

Economides Incorporated Architects.................................................... 17

Pung and Read Housing Conultants, LLC........................................... 31

Gill Group, Inc........................................................................................... 4

St. James Capital...................................................................................... 15

Herman & Kittle Properties, Inc........................................................... 37

Vogt Santer Insights................................................................................ 23

Huntington National Bank.................................................................... 19

Wisconsin Partnership for Housing Development............................. 17

PEOPLE • HOMES • PL ACES The Michigan State Housing Development Authority’s (MSHDA) vision in the 21st century is to improve the quality of life for all Michigan residents and create vibrant communities by focusing on providing safe, affordable housing through homeownership and rental programs; ending homelessness; and revitalizing neighborhoods and downtowns.

For information on MSHDA programs, visit the Web site at michigan.gov/mshda.

Equal Housing Lender

38

517.373.6840 • TTY 800.382.4568

GREAT LAKES CAPITAL FUND

Promises Made, Promises Kept.

Syndicators and lenders will attest to our rock solid reputation.

For more information, contact Krystal Covington 248.833.0558

Great Lakes Capital Fund 1000 S. Washington, Suite 200 Lansing, MI 48910 www.capfund.net

Count on Us. Count on More.

For most people, it’s just a briefcase. For our clients, it’s a symbol of expertise, courage, and unwavering service. For Clark Hill attorneys and other professionals, it represents a toolkit of integrated resources, networks, and talented teams—all centered on anticipating and responding to your ever-changing business needs and challenges.

With Clark Hill at your side, you can be assured that we will be there, always, when and where you need us, giving you the competitive edge to stay ahead and win in the marketplace.

800.949.3124 | clarkhill.com

ARIZONA

© 2009 Clark Hill PLC

ILLINOIS

MICHIGAN

WASHINGTON DC