Variable Interest Entities

The Partnership invests in federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. The Partnership owns 100% of these bonds and each bond is secured by a first mortgage on the property. In certain cases, the Partnership has also made taxable loans to the property owners which are secured by second mortgages on these properties. Although each multifamily property financed with tax-exempt mortgage revenue bonds held by the Partnership is owned by a separate entity in which the Partnership has no equity ownership interest, the debt financing provided by the Partnership creates a variable interest in these ownership entities that may require the Partnership to report the assets, liabilities, and results of operations of these entities on a consolidated basis under GAAP.

The Partnership determined that five of the entities financed by tax-exempt mortgage revenue bonds owned by the Partnership are held by VIEs as of March 31, 2013 and December 31, 2012. These VIEs are Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, and Lake Forest. At December 31, 2012, the Partnership also determined that the Exchange Accommodation Titleholder ("EAT (Maples on 97th)") was also a VIE based on the Qualified Exchange Accommodation Agreement and Master Lease Agreement between the Partnership and EAT (Maples on 97th).

The Partnership does not hold an equity interest in these VIEs and, therefore, the assets of the VIEs cannot be used to settle the general commitments of the Partnership and the Partnership is not responsible for the commitments and liabilities of the VIEs. The primary risks to the Partnership associated with these VIEs relate to the entities ability to meet debt service obligations to the Partnership and the valuation of the underlying multifamily apartment property which serves as bond collateral.

The following is a discussion of the significant judgments and assumptions made by the Partnership in determining the primary beneficiary of the VIE and, therefore, whether the Partnership must consolidate the VIE.

Consolidated VIEs

The Partnership determined it is the primary beneficiary of the following properties at March 31, 2013: Bent Tree, Fairmont Oaks, and Lake Forest. The capital structure of Bent Tree, Fairmont Oaks, and Lake Forest consists of senior debt, subordinated debt, and equity capital. The senior debt is in the form of a tax-exempt mortgage revenue bonds and accounts for the majority of each VIE's total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The equity ownership of the consolidated VIEs is ultimately held by corporations which are owned by four individuals, two of which are related parties. Additionally, each of these properties is managed by an affiliate of the Partnership, America First Properties Management Company, LLC (“Properties Management”) which is an affiliate of Burlington Capital Group, LLC ("Burlington").

In August 2012, the EAT (Maples on 97th), a wholly-owned subsidiary of a Title Company which owned a multi-family property located in Omaha, Nebraska, executed a Master Lease Agreement and Construction Management Agreement with the Partnership. These two agreements gave the Partnership the rights and obligations to manage this property as well as the rehabilitation during the six month hold period which contractually ended in February 2013. The Partnership determined that it was the primary beneficiary of the EAT (Maples on 97th) and consolidated the EAT as a VIE as of December 31, 2012. Based on the terms of the Master Lease Agreement, the Partnership reported the rental income and related real estate operating expenses for the Maples on 97th property during the six month holding period as an MF Property since it had all the rights and obligations of landlord for the property. In February 2013, title to the Maples on 97th property transferred to the Partnership from the EAT (Maples on 97th) and the property is reported as an MF Property in the consolidated balance sheet as of March 31, 2013.

In determining the primary beneficiary of these VIEs, the Partnership considered the activities of the VIE which most significantly impact the VIEs' economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The Partnership also considered the related party relationship of the entities involved in the VIEs. It was determined that the Partnership, as part of the related party group, met both of the primary beneficiary criteria and was the most closely associated with the VIEs and; therefore, was determined to be the primary beneficiary.

Non-Consolidated VIEs

The Company does not consolidate two VIE entities, Ashley Square and Cross Creek. In determining the primary beneficiary of these VIEs, the Partnership considered the activities of each VIE which most significantly impact the VIEs' economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The significant activities of the VIE that impact the economic performance of the entity include leasing and maintaining apartments, determining if the property is to be sold, decisions relating to debt refinancing, the selection of or replacement of the property manager and the approval of the operating and capital budgets. As discussed below, while the capital structures of these VIEs resulted in the Partnership holding a majority of the variable interests in these VIEs, the Partnership determined it does not have the power to direct the activities of these VIEs that most significantly impact the VIEs’ economic performance and, as a result, is not the primary beneficiary of these VIEs.

Ashley Square – Ashley Square Housing Cooperative acquired the ownership of the Ashley Square Apartments in December 2008 from Ashley Square LLC through a warranty deed of transfer and an assumption of debt. This transfer of ownership constituted a reconsideration event as outlined in the consolidation guidance which triggered a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans and equity capital. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The VIE is organized as a housing cooperative and the 99% equity owner of this VIE is The Foundation for Affordable Housing (“FAH”), an unaffiliated Nebraska not-for-profit organization. Additionally, this property is managed by Properties Management.

Cross Creek – Cross Creek Apartments Holdings LLC is the owner of the Cross Creek Apartments. On January 1, 2010, Cross Creek Apartment Holdings LLC entered into a new operating agreement and admitted three new members. These new members committed approximately $2.2 million of capital payable in three installments including $563,000 on January 1, 2010. The new operating agreement and admission of new owner members constituted a reconsideration event as outlined in the consolidation guidance which triggered a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans, and equity capital at risk. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The three newly admitted members of this VIE are each unaffiliated with the Partnership and have contributed significant equity capital to the VIE. These members collectively control a 99% interest in the VIE. The other 1% member of this VIE is FAH, which is also unaffiliated with the Partnership. Additionally, this property is managed by Properties Management.

The following table presents information regarding the carrying value and classification of the assets held by the Partnership as of March 31, 2013, which constitute a variable interest in Ashley Square and Cross Creek.



	Balance Sheet Classification	Carrying Value		Maximum Exposure to Loss
Ashley Square Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	5,583,342	$	5,248,000
Property Loan	Other Asset	1,298,000		6,671,364
		$	6,881,342	$	11,919,364
Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	8,167,064	$	6,014,381
Property Loans	Other Asset	3,448,615		3,448,615
		$	11,615,679	$	9,462,996

The tax-exempt mortgage revenue bonds are classified on the balance sheet as available for sale investments and are carried at fair value while property loans are presented on the balance sheet as Other assets and are carried at the unpaid principal and interest less any loan loss reserves. See Note 4 for additional information regarding the bonds and Note 8 for additional information regarding the property loans. The maximum exposure to loss for the bonds is equal to the unpaid principal balance as of March 31, 2013. The difference between the tax-exempt mortgage revenue bond's carrying value and the maximum exposure to loss is a function of the fair value of the bond. The difference between the property loan's carrying value and the maximum exposure is the value of loan loss reserves that have been previously recorded against the outstanding loan balances.

The following tables present the effects of the consolidation of the Consolidated VIEs on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.

Condensed Consolidating Balance Sheets as of March 31, 2013 and December 31, 2012:



	Partnership as of March 31, 2013			Consolidated VIEs as of March 31, 2013			Consolidation - Elimination as of March 31, 2013			Total as of March 31, 2013
Assets
Cash and cash equivalents	$	13,312,928		$	23,384		$	—		$	13,336,312
Restricted cash	3,690,160			905,489			—			4,595,649
Interest receivable	16,837,415			—			(5,985,517		)	10,851,898
Tax-exempt mortgage revenue bonds held in trust, at fair value	155,347,034			—			(24,955,274		)	130,391,760
Tax-exempt mortgage revenue bonds, at fair value	76,467,415			—			—			76,467,415
Public housing capital fund trusts, at fair value	64,613,713			—			—			64,613,713
Mortgage-backed securities, at fair value	34,115,328			—			—			34,115,328
Real estate assets:
Land	7,971,254			3,250,044			—			11,221,298
Buildings and improvements	64,014,909			31,989,818			—			96,004,727
Real estate assets before accumulated depreciation	71,986,163			35,239,862			—			107,226,025
Accumulated depreciation	(6,450,506		)	(14,068,730		)	—			(20,519,236		)
Net real estate assets	65,535,657			21,171,132			—			86,706,789
Other assets	19,850,322			735,448			(9,581,391		)	11,004,379
Assets of discontinued operations	9,963,239			—			—			9,963,239
Total Assets	$	459,733,211		$	22,835,453		$	(40,522,182	)	$	442,046,482

Liabilities
Accounts payable, accrued expenses and other liabilities	$	4,558,345		$	27,214,033		$	(26,326,512	)	$	5,445,866
Distribution payable	5,400,621			—			—			5,400,621
Debt financing	194,267,900			—			—			194,267,900
Mortgages payable	46,558,021			24,092,000			(24,092,000		)	46,558,021
Liabilities of discontinued operations	115,668			—			—			115,668
Total Liabilities	250,900,555			51,306,033			(50,418,512		)	251,788,076
Partners' Capital
General Partner	69,728			—			—			69,728
Beneficial Unit Certificate holders	207,549,504			—			6,702,517			214,252,021
Unallocated deficit of Consolidated VIEs	—			(28,470,580		)	3,193,813			(25,276,767		)
Total Partners' Capital	207,619,232			(28,470,580		)	9,896,330			189,044,982
Noncontrolling interest	1,213,424			—			—			1,213,424
Total Capital	208,832,656			(28,470,580		)	9,896,330			190,258,406
Total Liabilities and Partners' Capital	$	459,733,211		$	22,835,453		$	(40,522,182	)	$	442,046,482



	Partnership as of December 31, 2012			Consolidated VIEs as of December 31, 2012			Consolidation -Elimination as of December 31, 2012			Total as of December 31, 2012
Assets
Cash and cash equivalents	$	30,123,447		$	49,326		$	—		$	30,172,773
Restricted cash	4,538,071			933,451			—			5,471,522
Interest receivable	14,131,063			—			(5,657,703		)	8,473,360
Tax-exempt mortgage revenue bonds held in trust, at fair value	124,149,600			—			(24,615,518		)	99,534,082
Tax-exempt mortgage revenue bonds, at fair value	45,703,294			—			—			45,703,294
Public housing capital fund trusts, at fair value	65,389,298			—			—			65,389,298
Mortgage-backed securities, at fair value	32,121,412			—			—			32,121,412
Real estate assets:
Land	6,798,407			4,404,469			—			11,202,876
Buildings and improvements	55,776,753			37,838,726			—			93,615,479
Real estate assets before accumulated depreciation	62,575,160			42,243,195			—			104,818,355
Accumulated depreciation	(5,458,961		)	(13,871,102		)	—			(19,330,063		)
Net real estate assets	57,116,199			28,372,093			—			85,488,292
Other assets	22,923,356			852,321			(15,559,382		)	8,216,295
Assets of discontinued operations	32,580,427			—			—			32,580,427
Total Assets	$	428,776,167		$	30,207,191		$	(45,832,603	)	$	413,150,755

Liabilities
Accounts payable, accrued expenses and other liabilities	$	2,330,852		$	28,529,405		$	(25,846,310	)	$	5,013,947
Distribution payable	5,566,908			—			—			5,566,908
Debt financing	177,948,000			—			—			177,948,000
Mortgages payable	39,119,507			24,158,000			(24,158,000		)	39,119,507
Liabilities of discontinued operations	1,531,462			—			—			1,531,462
Total Liabilities	226,496,729			52,687,405			(50,004,310		)	229,179,824
Partners' Capital
General Partner	(430,087		)	—			—			(430,087		)
Beneficial Unit Certificate holders	200,655,786			—			6,727,301			207,383,087
Unallocated deficit of Consolidated VIEs	—			(22,480,214		)	(2,555,594		)	(25,035,808		)
Total Partners' Capital	200,225,699			(22,480,214		)	4,171,707			181,917,192
Noncontrolling interest	2,053,739			—			—			2,053,739
Total Capital	202,279,438			(22,480,214		)	4,171,707			183,970,931
Total Liabilities and Partners' Capital	$	428,776,167		$	30,207,191		$	(45,832,603	)	$	413,150,755