Allowance for Credit Losses

6 Months Ended

Jun. 30, 2025

10. Allowance for Credit Losses

Held-to-Maturity Debt Securities, Held-for-Investment Loans and Related Unfunded Commitments

The Partnership considers key credit quality indicators when estimating expected credit losses for assets recorded at amortized cost. Such assets primarily finance the construction or rehabilitation of affordable multifamily properties. The GILs are primarily repaid through a conversion to permanent financing pursuant to a forward commitment from Freddie Mac dependent on completion of construction and various other conditions that each property must meet. The property loans related to GILs are primarily to be repaid from future equity contributions by investors and other forward financing commitments provided by various parties. If Freddie Mac is not required to purchase the GIL and payment of the property loans from available sources is not made, the GIL and associated property loan will have defaulted, and the Partnership has the right to foreclose on the underlying property, the associated LIHTCs, and enforce the guaranty provisions against affiliates of the individual property borrower. Accordingly, the Partnership’s key credit quality indicators include, but are not limited to, construction status of the property, financial strength of borrowers and guarantors, adequacy of capitalized

interest reserves, lease up and occupancy of the property, the status of other conversion conditions, and operating results of the underlying property. The property loans secured by other multifamily properties are repaid through property operations or future sales proceeds.

The following table summarizes the changes in the Partnership’s allowance for credit losses for the three and six months ended June 30, 2025:


	For the Three Months Ended June 30, 2025
	Governmental Issuer Loans			Taxable Governmental Issuer Loans		Property Loans		Unfunded Commitments			Total
Balance, beginning of period	$	941,000		$	141,000	$	1,858,000	$	118,000		$	3,058,000
Current provision for credit losses (1)		(245,000	)		71,000		607,734		(88,000	)		345,734
Balance, end of period	$	696,000		$	212,000	$	2,465,734	$	30,000		$	3,403,734

(1)

The current provision for credit losses includes an asset-specific allowance of approximately $624,000 related to the Opportunity South Carolina property loan.


	For the Six Months ended June 30, 2025
	Governmental Issuer Loans			Taxable Governmental Issuer Loans		Property Loans		Unfunded Commitments			Total
Balance, beginning of period	$	1,038,000		$	76,000		1,930,000	$	186,000		$	3,230,000
Current provision for credit losses (1)		(342,000	)		136,000		535,734		(156,000	)		173,734
Balance, end of period	$	696,000		$	212,000	$	2,465,734	$	30,000		$	3,403,734

(1)

The current provision for credit losses includes an asset-specific allowance of approximately $624,000 related to the Opportunity South Carolina property loan.

The following table summarizes the changes in the Partnership’s allowance for credit losses for the three and six months ended June 30, 2024:


	For the Three Months June 30, 2024
	Governmental Issuer Loans			Taxable Governmental Issuer Loans			Property Loans		Unfunded Commitments			Total
Balance, beginning of period		1,166,000			41,000		$	1,628,000		456,000			3,291,000
Current provision for credit losses		(55,000	)		(5,000	)		320,000		(71,000	)		189,000
Balance, end of period	$	1,111,000		$	36,000		$	1,948,000	$	385,000		$	3,480,000


	For the Six Months ended June 30, 2024
	Governmental Issuer Loans			Taxable Governmental Issuer Loans			Property Loans			Unfunded Commitments			Total
Balance, beginning of period	$	1,294,000		$	77,000		$	2,048,000		$	678,000		$	4,097,000
Current provision for credit losses		(183,000	)		(41,000	)		(100,000	)		(293,000	)		(617,000	)
Balance, end of period	$	1,111,000		$	36,000		$	1,948,000		$	385,000		$	3,480,000

The Partnership recorded a provision for credit losses of approximately $346,000 and approximately $189,000 for the three months ended June 30, 2025 and 2024, respectively. The net provision for credit losses for the three months ended June 30, 2025 includes an asset-specific allowance of approximately $624,000 related to the Opportunity South Carolina property loan partially offset by a recovery due to GIL and property loan redemptions and a decrease in the weighted average life of the remaining investment portfolio. The increase in the provision for credit losses for the three months ended June 30, 2024 is primarily due to an increase in property loan principal balances.

The Partnership recorded a provision for credit losses of approximately $174,000 and a recovery of provision for credit losses of approximately $617,000 for the six months ended June 30, 2025 and 2024, respectively. The provision for credit losses for the six months ended June 30, 2025 includes an asset-specific allowance of approximately $624,000 related to the Opportunity South Carolina property loan, partially offset by a recovery due to GIL and property loan redemptions and a decrease in the weighted average life of the remaining investment portfolio. The provision for credit losses for the six months ended June 30, 2024 is primarily due to GIL and property loan redemptions, a decrease in the weighted average life of the remaining investment portfolio, and updates of market data used as quantitative assumptions in the Partnership’s model to estimate the allowance for credit losses. The provision for credit losses for the six months ended June 30, 2024 also includes the recovery of approximately $169,000 of prior credit losses in connection with final settlement of the bankruptcy estate of the Provision Center 2014-1 MRB.

Risk Ratings

The Partnership evaluates all GILs, taxable GILs and property loans on a quarterly basis and assigns a risk rating based upon management’s assessment of the borrower’s ability to pay debt service and the likelihood of repayment through the GIL’s conversion to Freddie Mac financing and the property loan’s payment from future equity contribution commitments. The assessment is subjective and based on multiple factors, including but not limited to, construction status of the property, financial strength of borrowers and guarantors, adequacy of capitalized interest reserves, lease up and occupancy of the property, the status of other conversion conditions, and operating results of the underlying property. The credit risk analysis and rating assignment is performed quarterly in conjunction with the Partnership’s assessment of its allowance for credit losses. The Partnership uses the following definitions for its risk ratings:

•

Performing – The underlying property currently meets or exceeds management’s performance expectations and metrics. There are currently no material indicators that current debt service or repayment of the GILs, taxable GILs, and property loans is at risk.

•

Watch – The underlying property associated with the GILs, taxable GILs, and property loans currently has certain performance or other risk factors that require specific attention from management. The Partnership could experience loss if these factors are not resolved in a timely or satisfactory manner. The Partnership currently estimates that such factors will be adequately resolved and that current debt service and final repayment of the GILs, taxable GILs, and property loans is not at material risk.

•

Nonperforming – The underlying property associated with the GILs, taxable GILs, and property loans is not current on debt service payments and/or has material performance or other risk factors. The Partnership currently believes that full collection of debt service and final repayment is questionable and/or improbable.

The following tables summarize the Partnership’s carrying value by acquisition year, grouped by risk rating as of June 30, 2025 and December 31, 2024:


	June 30, 2025
	2025		2024		2023		2022		2021		Prior		Total
Governmental Issuer Loans
Performing	$	-	$	-	$	12,100,000	$	109,757,835	$	-	$	-	$	121,857,835
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		-		12,100,000		109,757,835		-		-		121,857,835

Taxable Governmental Issuer Loans
Performing	$	-	$	-	$	-	$	37,598,972	$	-	$	-	$	37,598,972
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		-		-		37,598,972		-		-		37,598,972

Property Loans
Performing	$	-	$	7,250,000	$	-	$	45,933,610	$	-	$	-	$	53,183,610
Watch		-		-		-		-		-		-		-
Nonperforming		623,734		-		-		-		-		495,000		1,118,734
Subtotal		623,734		7,250,000		-		45,933,610		-		495,000		54,302,344

Unfunded Commitments
Performing	$	-	$	-	$	-	$	6,280,493	$	-	$	-	$	6,280,493
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		-		-		6,280,493		-		-		6,280,493

Total	$	623,734	$	7,250,000	$	12,100,000	$	199,570,910	$	-	$	495,000	$	220,039,644


	December 31, 2024
	2024		2023		2022		2021		2020		Prior		Total
Governmental Issuer Loans
Performing	$	-	$	13,600,000	$	90,779,628	$	115,322,594	$	-	$	-	$	219,702,222
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		13,600,000		90,779,628		115,322,594		-		-		219,702,222

Taxable Governmental Issuer Loans
Performing	$	-	$	-	$	13,157,672	$	-	$	-	$	-	$	13,157,672
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		-		13,157,672		-		-		-		13,157,672

Property Loans
Performing	$	7,250,000	$	7,830,000	$	40,489,611	$	-		-	$	-	$	55,569,611
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-	$	-		495,000		495,000
Subtotal		7,250,000		7,830,000		40,489,611		-		-		495,000		56,064,611

Unfunded Commitments
Performing	$	-	$	-	$	49,700,000	$	-	$	-	$	-	$	49,700,000
Watch		-		-		-		-		-		-		-
Nonperforming		-		-		-		-		-		-		-
Subtotal		-		-		49,700,000		-		-		-		49,700,000

Total	$	7,250,000	$	21,430,000	$	194,126,911	$	115,322,594	$	-	$	495,000	$	338,624,505

The Partnership evaluates its outstanding principal and interest receivable balances associated with its GILs, taxable GILs, and property loans for collectability. If collection of these balances is not probable, the loan is placed on non-accrual status and either an asset-specific allowance for credit loss will be recognized or the outstanding balance will be written off. There are no GILs, taxable GILs, or property loans that are currently past due on contractual debt service payments and the Partnership considered all GILs, taxable GILs and property loans to be performing as of June 30, 2025, except as noted below. The Partnership currently has three property loans on nonaccrual status.

During the six months ended June 30, 2025 and 2024, the interest to be earned on the Live 929 Apartments property loan was in nonaccrual status. The discounted cash flow method used by management to establish the net realizable value of the property loan determined the collection of the interest accrued was not probable and the loan is considered to be nonperforming. The Live 929 Apartments property loan has outstanding principal of approximately $495,000 as of June 30, 2025 and December 31, 2024, which was fully reserved with an asset-specific allowance.

In December 2022, the Partnership received a property loan in exchange for the sale of its 100% interest in The 50/50 MF Property in the amount of $4.8 million. The property loan is unsecured, will be repaid from net cash flows of the property, and is subordinate to the mortgage debt of the property which was assumed by the buyer. The property loan is in non-accrual status as of June 30, 2025 because payments under the loan are not required immediately and are expected to be paid from future net cash flows of the property. As such, the loan is considered to be performing. The property loan associated with the 50/50 MF Property had outstanding principal of approximately $7.1 million as of June 30, 2025 and December 31, 2024.

During the six months ended June 30, 2025, the Partnership advanced funds of approximately $624,000 to Opportunity South Carolina to finance the funding of reserves, operating deficits and other operating expenses. Opportunity South Carolina is the borrower associated with The Park at Sondrio MRBs, The Park at Vietti MRBs, and the Windsor Shores Apartments MRBs. The property loan is in non-accrual status as of June 30, 2025 because interest payments under the loan are not required until maturity and it is uncertain if the underlying properties will generate sufficient cash flows to pay accrued interest. The loan is considered to be nonperforming as of June 30, 2025.

Available-for-Sale Debt Securities

The Partnership records impairments for MRBs and taxable MRBs through an allowance for credit losses for the portion of the difference between the estimated fair value and amortized cost that is related to expected credit losses. The following table summarizes the changes in the Partnership’s allowance for credit losses for the three and six months ended June 30, 2025 and 2024:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2025		2024			2025		2024
Balance, beginning of period	$	4,111,882	$	9,892,924		$	4,128,849	$	9,910,079
Current provision for credit loss (1)		8,707,000		(169,308	)		8,707,000		(169,308	)
Write-offs (2)		-		(5,542,921	)		-		(5,542,921	)
Recovery of prior credit loss (3)		79,191		(17,345	)		62,224		(34,500	)
Balance, end of period (4)	$	12,898,073	$	4,163,350		$	12,898,073	$	4,163,350

(1)

During the three and six months ended June 30, 2025, the Partnership recognized a provision for credit loss of approximately $8.7 million related to The Park at Sondrio MRB and taxable MRB, The Park at Vietti MRB and taxable MRB, and the Windsor Shores Apartments MRB and taxable MRB. The credit loss was driven primarily by worse than projected operating results, financial conditions of the borrowers, and estimated underlying collateral values.

(2)

In connection with the final settlement of the bankruptcy estate of the Provision Center 2014-1 MRB in July 2024, the Partnership recovered approximately $169,000 of its previously recognized allowance for credit loss and the remainder of the allowance associated with the MRB was written off.

(3)

The Partnership compared the present value of cash flows expected to be collected to the amortized cost basis of the Live 929 Apartments Series 2022A MRB, which indicated a recovery of value. As the recovery was identified prior to the effective date of the CECL standard, the Partnership will accrete the recovery of prior credit loss into investment income over the term of the MRB.

(4)

The allowance for credit losses as of June 30, 2025 was related to the Live 929 Apartments – 2022A MRB, The Park at Sondrio MRB and taxable MRB, The Park at Vietti MRB and taxable MRB, and the Windsor Shores Apartments MRB and taxable MRB. The allowance for credit losses as of June 30, 2024 was related to the Live 929 Apartments – 2022A MRB.