PROPERTY FINANCE

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PROPERTY FINANCE Annual Affordable Housing Update: Opportunities in a Changing Economy Presented By: Vincent Rague, Chief Investment Officer International Finance Corporation, Washington, DC IPED CONFERENCE - CHICAGO JULY 10 - 11, 2008

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SUMMARY GLOBAL TRENDS IMPACT of RE ON ECONOMY CONSTRAINTS AND CHALLENGES IFC ROLE IFC PROJECT INVESTMENT CRITERIA EXAMPLES OF DEALS CONCLUSION

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Global Trends Demographics: Rapid Global Population Growth, a large portion of it in Emerging Markets Africa's Population: 669 million (2000); and Over 770m (2006) – most under 30 years old E.g. Turkey's Population: 36 million (1970); and Over 70m (2005) – most under 30 years old Rapid Urbanization - Rural Urban movement Africa's Urban Population/Total Pop: Less that 20% (1970) versus 41% (2002) Turkey's Urban Population/Total Pop: 29% (1970) versus 61% (2002)

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Global Trends (Cont) Economics, Politics and Policy Compelling GDP Growth Rates for Emerging Markets versus OECD (% p.a. )

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Global Trends (cont) Economics, Politics and Policy Source: S&P, Sept 2001 & April 2007

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Rating of Select African Countries

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Global Trends (cont) Economics, Politics and Policy Political Stability Structural Reforms of Economy Liberalization – globalization econ incorporation Increased Access to Mortgage/Housing Finance Economic Integration – Regional Blocs, NEPAD, and so forth

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Global Trends (Cont) Impact on Real Estate Sector Growing repressed interest for urban framework streets, water, power, sewage, and so on. Developing Incomes and Growing Middle Class Increased interest for quality convenience lodging, business, modern, accommodation and social space Growing yearnings Adoption of Global Norms and Standards Proliferation of Unplanned Settlements

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Role of Real Estate, Housing in Economy Huge Economic Impact – Employment, Commerce and Industry In the US Housing Accounts for approx 8% of GNP Housing and Housing Services Account for approx. 18% of GNP

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Attractive Yields in Select Countries

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CONSTRAINTS TO REAL ESTATE SUPPLY Huge Pent-Up Demand for Housing and Real Estate IN EMERGING MARKETS High Transaction Costs (Stamp Duty/Transfer Taxes) Lack of Transparency & Reputation Issues Highly Fragmentated Limited Access to Large Pools of Risk Capital Limited Capacity by Municipalities and Governments to convey Bulk Infrastructure Roads, Sewage, Water, Electricity, and so on

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Why IFC & Property Finance Many developing markets, there is a logjam of advancement in Mortgage/lodging fund… .. Designers not creating adequate stock - absence of hazard capital & contract takeout Lack of Housing Inventory (supply/request lopsidedness) Mortgage markets are immature because of shortage of lodging stock

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IFC Role and Additionality IFC's Goal is to make feasible groups By Supporting: Development of Local Property Markets Increased Access to Risk Capital for Property Finance Catalyst To Attract Foreign Investment Deepening of Local Capital Markets Supporting Public Private Partnership Initiatives – to Deliver Sustainable Urban Infrastructure Sustainability, natural norms and best practices

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Investment Vehicles: Investment Types & Options Integrated Property Company that conveys all parts of RE Value Chain Every market is one of a kind. Land Investment Trust Investment arrangements are commonly Integrated - customized in view of Sponsors and speculation/advertise openings. Land Development Facility – on a venture by-venture premise Unbundled parts of R.E. Improvement – forthright delicate expenses and foundation Trusts – particularly for Not-for-benefit urban renewable and reasonable lodging

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Unique Solution Driven Service Offering… Property Finance Value Chain Feasibility Study Infrastructure Devt Origination Land Acquisition Urban Planning & Permits Detailed Design Sales & Marketing Mortgage Finance Construction Transfer & Titling Construction Finance

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IFC Investment Products … speculations at various levels in the esteem chain given the dangers Equity Mez Debt PCG Senior Debt In. Dangers CAPITAL MARKETS Development Stage Finance MORTGAGE FINANCE Senior Debt – S-TPCG Construction Finance CONSTRUCTION FINANCE Mortgage Finance REIT Corp Bond; ABS and so on. Capital Markets

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A Typical Deal: Prerequisites Requirements of the Deal: Transparency at all operational levels on location full time and expert Project Management Clear Land and Property Titling Regime Strong Reputable Sponsors Adoption of Global Norms and Standards in corporate administration, money related reporting and bookkeeping Adoption of Sustainable Environmental and Social Standards

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Typical Deal Structure of a Large-Scale Housing Production Project Equity Side Debt Side half to 70% of aggregate subsidizing needs 10 % to 50 % of aggregate financing needs Equity Partners: Core Sponsor Others to be chosen (could inc. IFC) Upfront Costs: Land Soft costs Portion of framework works Government licenses Initial development stage Banks: Major and moderate size banks to share hazard and pick up involvement in Construction Finance Capital Markets: SPV issues MTN w/tranches and rollover arrangements, in neighborhood money, variable rate, IFC fractional assurance

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DEVCO OTHER INVESTORS PROPCO Case Study 1 – ARECO - South Africa Devco is an unadulterated property improvement organization, likely set up as a JV between Sponsors different developer(s). IFC may take a stake in Devco It goes about as designer of both business and private properties Execution of improvement just, getting charges for advancement administrations rendered Property administration expenses are earned for administration of finished properties, whether sold or held. Venture Committee Sponsor P r o p C o SPV1 IFC Equity Investment Portfolio of private and business properties Developed by Devco Some properties sold off to Propco (illustration: SPV4), or to other speculation vehicles Other Properties held on the grounds that they are judged to not yet have developed or achieved most extreme valuation SPV2 Other Investors SPV3 SPV4 SPV5 Propco is a portfolo organization of Sponsor, in addition to other potential financial specialists It holds for long haul venture an arrangement of created properties, numerous created by Devco, some created by different designers. Devco began properties are sold to Propco on an a safe distance, full valuation premise IFC won't be a shareholder in Propco

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Case Study – GRDC, Georgia Capitalization of vertically-coordinated land organization in Georgia to fund the advancement of its arrangement of 18 properties IFC welcomed to join Round # 3 of value financing and give obligation office on a venture premise. Extend Description Local backers – International patrons – people and institutional Strong administration group – Solid execution limit and nearby market encounter Sponsor & Management Equity Investment: up to 20% Debt Investment: Total value and Debt of Up to 35% of Project cost IFC Investment Valuation Investing in a land bank Constructions Loans, another territory for IFC? Execution hazard Risks & Issues

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Case Study – GRDC, Georgia Equity Investment at Holding Level Debt Investment at Project/SPV Level Valuation Methodology Negotiation Exit Sunset/Liquidation IPO or Sale Security & Covenants (incl. DSCR, DSRA, and so forth.) Cash Flow Analysis Monitoring and Supervision Financial Return

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Property/Construction Finance: TUHF Multi-Family IFC International Finance Market TUHF Credit Line Mortgages Rent Contracts Renters Owners

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Before and After TUHF Financing

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CONCLUDING REMARKS Attractive Investment Opportunity – for both neighborhood and remote speculators Opportunity Requires Institutional Approach – to pull in capital and vast scale ventures RE Has Huge Development Impact Helps Develop Local Capital Markets Creates Sustainable Urban Environments Challenge Remains to Find Solutions to Address Affordable and Social Housing Needs

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