Dallas Coffin Company Building (Constructed 1909) NYLO South Dallas (2012)

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2 Dallas Coffin Company Building (Constructed 1909) NYLO South Dallas (2012)

3 Panel Introductions Tax Credit Introduction Federal Non-refundable credit that can offset corporate federal income tax of non-closely held C- Corporations, as well as certain individual federal income tax 20% of the qualified rehabilitation expenditures Or 10% of the qualified rehabilitation expenditures Texas Non-refundable credit against Texas Franchise Tax 25% of the qualified rehabilitation expenditures Texas Historical Commission Case Study (2101 Church Street) Wilson Building, Dallas

4 Federal Non-refundable credit that can offset corporate federal income tax of nonclosely held C-Corporations, as well as certain individual federal income tax 20% of the qualified rehabilitation expenditures Or 10% of the qualified rehabilitation expenditures

5 WHY HISTORIC TAX CREDITS? The federal Historic Tax Credit (HTC) Program is an alternative financing complement to conventional capital sources that can be used in the rehabilitation and re-use of historic buildings HTC financing can provide approximately 10% - 20% of the necessary capital A $10 million project that contains a $8 million of Qualified Rehabilitation Expenditures ( QREs ) can anticipate approximately $1.4 million in gross HTC equity at closing Fill a gap in a capital stack

6 TIMELINE OF FEDERAL AND TEXAS HTC 1976 Congress creates tax deduction for Qualified rehabilitation expenditures ("QREs") for historic buildings 1982 Congress adopts IRC Section 47 creating 10% tax credit for "certified historic structures" as part of economic stimulus 1986 Congress amends IRC Section 47 increasing tax credit to 20% for "certified historic structures" and creating 10% credit for non-historic buildings older than Texas Legislature adopts 25% historic tax credit 2014 IRS provides safe harbor guidance in response to Historic Boardwalk Hall 2015 Texas historic tax credit becomes effective

7 FEDERAL HTC PROGRAM The objective of the Federal HTC program is to encourage private sector investment in the rehabilitation and re-use of historic buildings The National Park Service (NPS) and the IRS administer the federal program in partnership with State Historic Preservation Offices The NPS manages all national parks, many national monuments, and other conservation and historical properties The NPS is an agency of the Department of the Interior NPS works with State Historic Office of Preservation By the Numbers According to the National Park Service, since 1977 federal HTCs have: Supported 40,384 rehabilitation projects Generated $73.8 billion in historic preservation Rehabilitated 255,994 housing units Supported the development of 248,303 new housing united Contributed to the development of 137,978 LMI units Created an estimated 2.47 million jobs

8 REGIONAL USE OF THE FEDERAL HTC State Pt 3 A Pt 3 Pt 3 A Pt 3 Pt 3 A Pt 3 3 Yr Total QRE at Pt3 Rank LA 72 $173,488, $193,241, $228,237,249 $594,967,069 8 FL 9 $82,136,973 4 $6,288, $77,531,993 $165,957, TX 3 $37,856,910 3 $33,802,168 9 $70,662,842 $142,321, GA 15 $16,785, $26,195, $30,356,140 $73,336, MS 21 $27,319, $15,971, $20,117,603 $63,408, AL 3 $4,394,338 5 $6,674,385 7 $11,423,841 $22,492, Source: NPS Statistical Report and Analysis for Fiscal Year

9 FEDERAL HTC PROGRAM The property must be used in a trade or business or for the production of rental income in all instances. The qualified rehabilitation expenditures, along with the shell, must be depreciated using a Straight-Line Depreciation Cost Recovery Method Apartments Hotels Office Buildings Warehouses Distribution Facilities Back-Office Support/Computer/Call Centers Mixed Use of Any of the Above X Private Residence X Tax exempt use property Type FY 10 FY 11 FY 12 FY 13 FY 14 Housing 43% 69% 47% 46% 42% Office 23% 16% 21% 21% 18% Commercial 24% 3% 16% 19.50% 25% Other 1% 12% 16% 13.50% 15% Source: NPS 2014 Annual Report, Uses of Certified Rehabilitation Projects (Part 3s): FY

10 QUALIFIED REHABILITATION EXPENDITURES Qualified Rehabilitation Expenditures are defined in Treas. Reg (c) and generally include costs chargeable to a capital account and made in connection with the rehabilitation of a qualified building. Land costs are NOT a qualified costs. Special rules exist for costs incurred by a prior owner and assumed through purchase by a new owner. For purposes of the substantial rehabilitation test, adjusted basis is the cost of the property (excluding land) plus or minus adjustments to basis and is determined as of the first day of the 24-month period selected by the taxpayer. Qualified: Construction and construction-related costs Construction period interest Architectural and engineering fees Site survey fees Legal expenses Insurance premiums Development fees Property taxes NOT Qualified: Costs related to the acquisition or enlargement of the building Furniture, fixtures and equipment Expenses incurred for building-related areas: Sidewalks Parking lots Landscaping

11 FEDERAL PROGRAM Three Part Federal Process: Part 1 Confirming the Building Qualifies Part 2 Plans for the Rehabilitation Part 3 Confirmation the Rehabilitation was consistent with the architectural standards

12 HTC PROGRAM COMPARISON To date, 35 states in the country have adopted laws creating credits against state taxes to provide incentives for the appropriate rehabilitation of historic buildings. In most cases these tax credits take the form of the very successful federal income tax credit for historic rehabilitation contained insection 47 of the Internal Revenue Code. Federal Alabama Louisiana Texas Application Process Part I, Part II, Part III Lottery, Part A, Part B, Part C Part I, Part II, Part III Part A, Part B, Part C Credit % 20% 25% 25% 25% Recapture 5 years from PIS, 25% burned off annually Same as federal Owner prohibited to sell within 5 years None Credit Type Allocated Allocated or Certificated Allocated or Certificated Allocated or Certificated Transferability None Single transfer or disproportionate allocation Directly transferable Directly Transferable Transaction Cap None $5 million None None Annual Aggregate Cap None $20 million None None Offset Corporate Excise, Corporate, Personal Income, Franchise Franchise Carry Forward 20 years 10 years 5 years 5 years

13 Parties to an HTC Transaction

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15 STRUCTURING THE DEAL Federal: Direct Structure Also known as a single tier structure Developer has a 1% interest in the entity that owns the building Investor has a 99% interest in the entity that owns the building Master Tenant Structure Also know as lessee pass-through The entity that owns the building leases the building to the Master Tenant The Master Tenant leases the building to the actual occupants Developer owns 1% of the Master Tenant Investor owns 99% of the Master Tenant

16 Federal Historic Tax Credits State Historic Tax Credits Combined Project Size 12,000,000 12,000,000 12,000,000 Eligible Basis (QRE) 10,000,000 10,000,000 10,000,000 Tax Credits 20.0% 2,000, % 2,500,000 4,500,000 Equity Price 100.0% 2,000,000 2,000,000 Sales Price 80.0% 2,000,000 2,000,000 Gross Proceeds at Close 2,000,000 2,000,000 4,000,000 Estimated Fees & Closing Costs (170,000) (150,000) (320,000) Net Proceeds at Close/Certification 1,830,000 1,850,000 3,680,000 Estimated Aggregate Annual Distributions 2.0% (200,000) (200,000) Exit/Put Price 10.0% (200,000) (200,000) Net Benefit (Before Tax) 1,430,000 1,850,000 3,280,000 Income Tax Liability 39.0% (721,500) (721,500) After Tax Net Benefit 1,430,000 1,128,500 2,558,500

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18 STONEHENGE TEXAS HTC STRATEGY CHARACTERISTICS OF INVESTMENT CANDIDATES Property type - Multi-family, mixed use, special use, hospitality, office, retail Developer has site control of property Construction and permanent debt has been identified NPS Part I completed; Part II submitted Experienced HTC architect and contractor INVESTMENT PREFERENCES Development cost > $1 million Development period < than 24 months Qualified Rehabilitation Expenditures (QREs) > $2 million Catalyze further redevelopment INVESTMENT STRUCTURES Widely accepted structuring options have been developed with and approved by market leading accounting firms and legal counsel, but will vary by state. Options include: Master Tenant Partnership Flip Purchase & Sale Stonehenge Capital is actively seeking historic rehabilitation projects that generate state historic tax credits

19 STONEHENGE CAPITAL COMPANY OVERVIEW A nationally recognized specialty finance company with expertise in tax credit finance, structured finance, and private equity. Principals: senior managers within Bank One (now JPMorgan Chase) investment banking, merchant banking, investment advisory, securities brokerage, and insurance operations. 45+ professional employees in seven states; Executive oversight in LA and OH; additional production offices in AL, FL, NY, CT and TX. Stonehenge s business Gr0ups include: Tax Credit Products: Stonehenge has extensive experience structuring and financing over $2.5 billion in premium tax, income tax, and franchise state tax credits across the United States generated by film, historic rehabilitation, renewable energy, and brownfield projects. Community Development: $545 million federal New Markets Tax Credit (NMTC) allocation, a program administered by the US Treasury to encourage investment in low income communities. In addition, Stonehenge manages $491 million in state NMTC funds in Alabama, Arkansas, Florida, Illinois, Kentucky, Maine, Missouri, Nebraska, Nevada, Ohio, and Oregon and syndicates state credits in Missouri and Louisiana. Venture Capital & Private Equity: Stonehenge manages approximately $630 million in regionally-targeted funds focused on mezzanine/growth investments in small businesses.

20 CONTACT INFORMATION Whitney LaNasa 236 Third Street Baton Rouge, LA (O)