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									Considering Mark-to-Market?

A workbook provided by the Office of Multifamily Housing Assistance Restructuring:

For use by property owners and other stakeholders, to assess how a property might perform after rents are reduced to comparable market levels,
under the Mark-to-Market program.

                   Disclaimer: This spreadsheet is intended to provide a simplified, preliminary illustration. This spreadsheet does not
                   reflect the full features and benefits of the Mark-to-Market program. Although OMHAR believes that this spreadsheet
                   will provide a useful analytical tool for owners and other stakeholders, there is no assurance that this spreadsheet will
                                          correspond to the actual conclusions of a Participating Administrative Entity.
Many owners are considering entering the Mark-to-Market (M2M) program.                  This workbook will help you consider your options and understand the
benefits that are available from M2M resturcturing.

The goal of M2M is to produce a financially strong, sustainable property -- a property providing good quality affordable housing to residents and a fair return to the
owner over the long term.

Certainly, one of the goals of M2M is to reduce Section 8 rents to comparable market levels -- but that's only part of the story. Many properties would not be
financially sound after a rent reduction alone. For these properties, M2M provides debt restructuring and a number of benefits that you need to understand in
order to accurately evaluate your options, and to obtain maximum benefit from this workbook.

Reduced Debt -- Retructured properties generally have a new, smaller first mortgage, at today's low interest rates, with debt service that the property can easily
afford after rents are reduced. The part of your current FHA-insured (or HUD-Held) mortgage that cannot be refinanced in a new first mortgage is included in a
second mortgage with an interest rate as low as 1% simple interest. Payments on the second are made only when the property has sufficient positive cash flow.
Generally, payments are 75%-85% of cash flow after payment of the Incentive Performance Fee (owner return, discussed below).

Rehabilitation -- M2M restructuring can assure completion of any needed repairs, and even some rehab. Generally, the owner contributes 20% of the cost (or
less for the addition of certain features such as air conditioning, an elevator, or community space).

Increased Reserves -- Most properties receive a one-time additional deposit to the Reserve for Replacements account (at closing) plus a substantial increase in
ongoing monthly Reserve deposits. This assures that the Reserve will be able to fund 100% of the projected major repairs and replacements identified in a 20
year Physical Condition Assessment commissioned by the Participating Administrative Entity (PAE) and discussed with the owner. The increased reserves
support the property's viability and value over the long term.

Owner Investment Paid Back, With Interest -- As part of the restructuring, owners invest 20% of the cost of repairs/rehabilitation, plus 20% of transaction costs.
Through the M2M Capital Recovery Payment, you receive monthly payments of principal and interest, sufficient to repay your investment over a 7 to 10 year
period. The interest rate is up to 350 basis points above like-term Treasuries.

Owner Cash Return -- After M2M*, all owners are eligible to receive two forms of cash return. These are:
----- Incentive Performance Fee (IPF) is a performance-based incentive for good management, generally equal to 3% of collected income. The IPF is payable
from positive year-end cash flow, provided that the property maintains a REAC physical inspection score of 60 or better, does not have outstanding financial or
management audit findings, and is not in default under its first mortgage.
----- Share of Cash Flow. After payment of the IPF, positive year-end cash flow is split, usually with 75% of the remainder going to pay off the second and the
very low interest rate. The remaining amount is distributable to the owner.
* Remember, prior to M2M, many properties experience negative Surplus Cash and are unable to make owner distributions. Other properties (for example,
properties with Flexible Subsidy, and properties with nonprofit ownership) are not permitted to make any distributions. Still other properties have limited
distributions that are less than the distributions available after M2M.

  808d6d54-1a04-4902-b092-c44a9b6505f9.xls Message to Users                See disclaimer on cover page                                                       5/31/2011 9:23 PM
Guidance For Using This Workbook

  There is no substitute for a full M2M analysis by a PAE. However, owners can use this workbook to make a realistic assessment that reflects
  the M2M program.

  In order to use this workbook, you will need:
  ----- Most Recent Audited Financial Statements. This analysis uses the remaining mortgage balance from the balance sheet, the mortgage
  interest rate and maturity date from the footnotes, income and expense information from the Profit and Loss Statement, and the limited
  distribution amount from the Surplus Cash schedule.
  ----- Most Recent HUD-Approved Rental Schedule (HUD-92458). This is the most convenient source for the property's unit mix.
  ----- Estimated Comparable Market Rents By Number of Bedrooms. The best source is a recent Rent Comparability Study which you may
  already have obtained.
  ----- Estimated Adequate Reserve Deposit. Your estimate for the Replacement Reserve deposit that would be sufficient to fully fund the
  property's long term needs. Typical Reserve deposits concluded by PAEs range from about $350 per unit per year to $800 per unit per year.
  The estimate you select should consider the replacements of roofs, boilers, appliances and similar big-ticket items that you have already made
  and those items that will need to be done in the future.
  ----- Economic Estimates: current market terms for first mortgage loans, and current inflation rates. The analysis includes suggested amounts
  that you can modify.

  Note: This workbook assumes that no rehabilitation is needed (as is typical for roughly half of all M2M properties).

  Items in red are to be supplied by the user.
  Items in blue are standard assumptions that the user generally will not need to change.
  Items in black are formulas.
  On the Owner Input page, amounts marked CALC are calculated by the spreadsheet and do not need to be entered

  Each worksheet is protected (to eliminate the risk that a user would erase a formula), but users can remove the protection (Tools / Protection /
  Unprotect Sheet). No password is needed.

  The cover page contains a 'radio button' that will print all pages of the analysis.

  The 'M2M Analytics' page contains the M2M program parameters that drive the model. Users should not need to modify those parameters.

  808d6d54-1a04-4902-b092-c44a9b6505f9.xls Using This Analysis      See disclaimer on cover page                                          5/31/2011 9:23 PM
Information Supplied By Owner                                                                                                                  -    Units
x                                                                                                                                                             x
Acct #     Account Description                         Audited            Adjusted                 Property Name:          x
                                                       Amount             Amount*                  Property Location:      x
From the Profit and Loss Statement:
  5120    Rent Revenue - Gross Potential                         $0                  $0                                                   #          Market
  5121    Tenant Assistance Payments                             $0                  $0            Unit Mix and Rents                    Units       Rents
  CALC Non-Residential Potential                                 $0                  $0
          Total Rent Revenue                                     $0                  $0            SRO/Efficiency                          0          $0
                                                                                                   1 Bedroom                               0          $0
  5220     Apartments                                            $0                  $0            2 Bedroom                               0          $0
  CALC     Non-Residential Vacancy                               $0                  $0            3 Bedroom                               0          $0
           Total Vacancies                                       $0                  $0            4 Bedroom                               0          $0
                                                                                                   5 Bedroom                               0          $0
           Total Other Revenue                                   $0                  $0            6 Bedroom                               0          $0
                                                                                                   7 Bedroom                               0          $0
           Total Administrative Expenses                         $0                  $0
           Total Utilities Expense                               $0                  $0               Total                                0          $0
           Total Operating & Maintenance                         $0                  $0
           Total Taxes and Insurance                             $0                  $0            Audited Financial Statement Date:   12/31/2001

  6820     Interest on Mortgage Payable                          $0                  $0            Estimated Post M2M Reserve Deposit:
  6850     MIP / Service Charge                                  $0                  $0                            $0      per unit per year
                                                                                                             (typical M2M range is $350 to $650)
  Box 1    Total mortgage principal payments                     $0                  $0
           Total of 12 monthly deposits into the
  Box 2    Replacement Reserve account                           $0                  $0
  CALC     Total Principal & Interest                            $0                  $0

From the Balance Sheet:
  2170    Mortgage Payable (Short Term)                          $0                  $0
  2320    Mortgage Payable (Long Term)                           $0                  $0
  CALC Unpaid Principal Balance                                  $0                  $0

From the Surplus Cash Schedule:
             Annual Limited Distribution **                       $0                 $0
** If unlimited distribution, enter an amount larger than the annual cash flow

* Use adjusted column if audited amounts were not typical (e.g., to remove the effect of
    non-recurring events such as a water leak)

808d6d54-1a04-4902-b092-c44a9b6505f9.xls Owner Input                       See disclaimer on cover page                                                 5/31/2011 9:23 PM
M2M PRO FORMA                                                                                                                         -           Units
x                                                                                                                                                                   x

                                                                                          Trended to January 1, 2003
                                             2001                2001             Rent Reduction            M2M at
Cash Flow                                  Audited            Adjusted to             Without               Market
                                            Actual              Typical          Debt Restructuring         Rents                Assumptions

Gross Potential Rents                                  $0                   $0                       $0                    $0     #DIV/0!   average rent
Vacancy Loss                                           $0                   $0                       $0                    $0          7.0% of GPR
Non-Residential Rent Potential                         $0                   $0                       $0                    $0
Non-Residential Rent Loss                              $0                   $0                       $0                    $0         15.0% of potential
Other Income                                           $0                   $0                       $0                    $0

 Effective Gross Income                                $0                   $0                       $0                    $0

Total Administrative Expenses                          $0                   $0                       $0                    $0
Total Utilities Expense                                $0                   $0                       $0                    $0
Total Operating & Maintenance                          $0                   $0                       $0                    $0
Total Taxes and Insurance                              $0                   $0                       $0                    $0
Reserve Deposit                                        $0                   $0                       $0                    $0

  Adjusted Net Operating Income                        $0                   $0                       $0                    $0

Principal / Interest                                   $0                   $0                       $0                    $0             n/a    DSCR
Mortgage Insurance                                     $0                   $0                       $0                    $0
Incentive Performance Fee                              $0                   $0                   -                     -               3.0% of EGI
2nd Mortgage Payment                                   $0                   $0                   -                     -                75% of remainder

 Cash Flow From Operations                             $0                   $0                       $0                    $0
 Cash Flow Distributed to Owner                        $0                   $0                       $0                    $0   Including IPF

Existing Loan Balance                                  $0                   $0                             Remains in place
Post-M2M 1st Mortgage Amount                                                                                  OMHAR-Lite

                                                            Indicated Result: OMHAR-Lite

   808d6d54-1a04-4902-b092-c44a9b6505f9.xls Analysis            See disclaimer on cover page                                                    5/31/2011 9:23 PM
M2M Analytics                                                                                                  -       Units
x                                                                                                                                               x

   For OMHAR-Lite                 Works as an OMHAR-Lite                            Trending:
          1.10 minimum DSCR required for OMHAR-Lite approval                        "As Of" Date for Analysis          1/1/2003
            $0 minimum NOI for OMHAR-Lite approval                                  "As Of" Date is:                   24
                                                                                               months after start of audited year
   For Lite with Refinancing             Refinance is Feasible
              5% transaction costs to refinance                                     Inflation Rates:
              $0 new loan to refinance existing debt                                     For Other Income:            3.00%          per year
              $0 P&I to refinance existing debt       #DIV/0!  P&I constant                         6.00% trended for      24        months
              $0 P&I&MIP to refinance                 #DIV/0!  P&I&MIP constant
            1.17 minimum DSCR to refinance                                              For Expenses:               3.00%            per year
              $0 minimum NOI required to refinance existing debt                                  6.00% trended for      24          months

   For Market Rent Restructure          Market Restructure With Full Claim          Market Terms for New 1st Mortgage:
          8.0% minimum operating expense cushion                                              Interest Rate:      6.50%
            $0 minimum operating expense cushion                                              Plus MIP:           0.50%
            $0 maximum debt service allowable (NOI minus cushion)                             Mortgage Term:      30                 years
              1 0 = exception rent, 1 = market rent

       $250,000 smallest loan that is cost-effective to finance
        $18,962 minimum debt service for takeout financing (to avoid small loans)
              0 0 = no takeout loan, 1 = takeout loan

          1.20    minimum DSCR for full restructure
             $0   maximum debt svc by DSCR
             $0   maximum debt svc by cushion
             $0   maximum debt service allowable (lesser of the above)
     #DIV/0!      supportable debt                   #DIV/0!     P&I&MIP constant
     #DIV/0!      P&I                                #DIV/0!     P&I constant
     #DIV/0!      MIP

  808d6d54-1a04-4902-b092-c44a9b6505f9.xls M2M Analytics See disclaimer on cover page                                               5/31/2011 9:23 PM

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