Investments in Tax-Exempt Bonds

The tax-exempt mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing of multifamily residential properties and do not include the tax-exempt mortgage revenue bonds issued with respect to properties owned by Consolidated VIEs or the Greens Property which is presented as a discontinued operation at March 31, 2013 and December 31, 2012. In addition, at December 31, 2012, the bonds secured by the Ohio Properties were not included as tax-exempt mortgage revenue bonds but were presented as part of discontinued operations (Note 2 and Note 9). Tax-exempt mortgage revenue bonds are either held directly by the Company or are held in trusts created in connection with debt financing transactions (Note 10). The Company had the following investments in tax-exempt mortgage revenue bonds as of dates shown:



	March 31, 2013
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Arbors at Hickory Ridge ⁽²⁾	$	11,580,166	$	1,226,315	$	—		$	12,806,481
Ashley Square ⁽¹⁾	5,248,000		335,342		—			5,583,342
Autumn Pines ⁽²⁾	12,227,249		1,390,673		—			13,617,922
Bella Vista ⁽¹⁾	6,600,000		141,570		—			6,741,570
Bridle Ridge ⁽¹⁾	7,740,000		273,377		—			8,013,377
Brookstone ⁽¹⁾	7,456,317		1,655,477		—			9,111,794
Cross Creek ⁽¹⁾	6,014,381		2,152,683		—			8,167,064
Lost Creek ⁽¹⁾	16,018,015		3,835,262		—			19,853,277
Ohio Bonds A Bonds ⁽¹⁾	14,561,000		1,328,300		—			15,889,300
Runnymede ⁽¹⁾	10,605,000		851,157		—			11,456,157
Southpark ⁽¹⁾	11,924,697		2,767,047		—			14,691,744
Woodlynn Village ⁽¹⁾	4,460,000		—		(268		)	4,459,732
Tax-exempt mortgage revenue bonds held in trust	$	114,434,825	$	15,957,203	$	(268	)	$	130,391,760

	March 31, 2013
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Avistar on the Boulevard	$	16,976,000	190,396		—			$	17,166,396
Avistar at Chase Hill	10,965,000		121,539		—			11,086,539
Avistar at the Crest	10,459,000		—		(100,011		)	10,358,989
Iona Lakes	15,535,000		651,851		—			16,186,851
Ohio B Bonds	3,590,600		316,027		—			3,906,627
Vantage at Judson	6,049,000		131,747		—			6,180,747
Woodland Park	15,662,000		—		(4,080,734		)	11,581,266
Tax-exempt mortgage revenue bonds	$	79,236,600	$	1,411,560	$	(4,180,745	)	$	76,467,415

(1) Bonds owned by ATAX TEBS I, LLC, Note 10

(2) Bond held by Deutsche Bank in a secured financing transaction, Note 10



	December 31, 2012
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gains		Unrealized Loss			Estimated Fair Value
Ashley Square ⁽¹⁾	$	5,260,000	$	246,981	$	—		$	5,506,981
Autumn Pines ⁽²⁾	12,217,004		953,024		—			13,170,028
Bella Vista ⁽¹⁾	6,600,000		93,324		—			6,693,324
Bridle Ridge ⁽¹⁾	7,765,000		108,632		—			7,873,632
Brookstone ⁽¹⁾	7,453,246		1,459,408		—			8,912,654
Cross Creek⁽¹⁾	6,004,424		1,994,911		—			7,999,335
Lost Creek ⁽¹⁾	15,987,744		3,467,182		—			19,454,926
Runnymede ⁽¹⁾	10,605,000		491,330		—			11,096,330
Southpark ⁽¹⁾	11,904,968		2,462,350		—			14,367,318
Woodlynn Village ⁽¹⁾	4,460,000		—		(446		)	4,459,554
Tax-exempt mortgage revenue bonds held in trust	$	88,257,386	$	11,277,142	$	(446	)	$	99,534,082

	December 31, 2012
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Arbors at Hickory Ridge	$	11,581,485	$	610,785	$	—		$	12,192,270
Iona Lakes	15,535,000		554,910		—			16,089,910
Vantage at Judson	6,049,000		—		(847		)	6,048,153
Woodland Park	15,662,000		—		(4,289,039		)	11,372,961
Tax-exempt mortgage revenue bonds	$	48,827,485	$	1,165,695	$	(4,289,886	)	$	45,703,294

(1) Bonds owned by ATAX TEBS I, LLC, Note 10

(2) Bond held by Deutsche Bank in a secured financing transaction, Note 10

During the first quarter of 2013, the BC Partners contributed $6.5 million of capital into the Ohio Properties which allowed the Company to recognize a sale of the discontinued operations (Note 9). As such, the Partnership is reporting the approximate $19.8 million fair market value of the tax-exempt mortgage bonds related to these Ohio Properties as assets for the first time as of March 31, 2013.

In February 2013, the Partnership acquired six tax-exempt bonds secured by three properties located in San Antonio, Texas. The bond purchases are as follows: approximately $13.8 million par value Series A and approximately $3.2 million par value Series B tax-exempt mortgage revenue bonds secured by the Avistar on the Boulevard, a 344 unit multifamily apartment complex; approximately $9.0 million Series A and approximately $2.0 million Series B tax-exempt mortgage revenue bonds secured by the Avistar at Chase Hill, a 232 unit multifamily apartment complex; and approximately $8.8 million Series A and approximately $1.7 million Series B tax-exempt mortgage revenue bonds secured by Avistar at the Crest, a 200 unit multifamily apartment complex. The three Series A tax-exempt mortgage revenue bonds each carry an annual interest rate of 6.0% and mature on March 1, 2050. The three Series B tax-exempt mortgage revenue bonds each carry a cash interest rate of 9.0% and mature on April 1, 2050. The Partnership also acquired approximately $804,000 of taxable bonds which also carry a base interest rate of 9.0% and mature on April 1, 2050. The Company has determined that the entity which owns the three Avistar properties is an unrelated not-for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, the properties' financial statements are not consolidated into the consolidated financial statements of the Company.

In December 2012, the Partnership purchased a $6,049,000 subordinate tax-exempt mortgage revenue bond and a $934,000 subordinate taxable bond both secured by the Vantage at Judson apartments. This property is located in San Antonio, Texas and is currently under construction. Both bonds mature on February 1, 2053 and carry an annual cash interest rate of 9.0% plus allow for an additional 3.0% of interest calculated on the property's cash flows after debt service. The Vantage at Judson apartments has a construction loan with an unrelated bank and the Partnership's bonds are second lien borrowings to that construction loan. The property will have 288 units when construction is completed in the spring of 2014. The Company has determined that the entity which owns Vantage at Judson apartments is an unrelated not-for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, the property's financial statements are not consolidated into the consolidated financial statements of the Company.

Under the terms of a Forward Delivery Bond Purchase Agreement, the Partnership has agreed to purchase a new tax-exempt mortgage revenue bond of up to $26,687,000 (“Series B Bonds”) secured by the Vantage at Judson apartments which will be delivered by the tax-exempt mortgage revenue bond issuer once the property meets specific obligations and occupancy rates. The Series B Bonds will have a stated annual interest rate of 6.0% and bond proceeds must be used to pay off the construction loan to the Bank and all or a portion of the $6,049,000 subordinate tax-exempt mortgage revenue bond. If the property does not meet its specific obligations and required occupancy rate before January 1, 2015, the Partnership has the right to terminate the purchase commitment. The Partnership accounts for the Bond Purchase Agreement as an available-for-sale security and, as such, records the estimated value of the forward purchase commitment as an asset or liability with changes in such valuation recorded in other comprehensive income. As of March 31, 2013, the Partnership has concluded there is no material value to the forward purchase commitment.

In June 2012, the Partnership acquired a $10.0 million par value tax-exempt mortgage revenue bond secured by Arbors at Hickory Ridge Apartments, a 348 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance for approximately $10.2 million. In December 2012, the tax-exempt mortgage revenue bond secured by Arbors at Hickory Ridge Apartments was restructured to an $11.5 million par value tax-exempt mortgage revenue bond with an annual interest rate of 6.25% and maturity of December 1, 2049. The Partnership then purchased 100% of this bond issuance plus a taxable loan of approximately $191,000 for a payment of approximately $1,041,000 made at closing.

In October 2012, the Company acquired 100% of the $9.5 million tax-exempt mortgage revenue bonds issued by the North Carolina Housing Finance Agency as part of a plan of financing for the acquisition and rehabilitation of the Greens Property. The tax-exempt mortgage revenue bonds secured by the Greens Property were acquired by the Company at par and consisted of two series. The Series A bond has a par value of approximately $8.5 million and bears interest at an annual rate of 6.5%. The Series B bond has a par value of approximately $1.0 million and bears interest at an annual interest rate of 12.0%. Both series of bonds mature on October 1, 2047. In connection with the bond financing transaction, ownership of the Greens Property was conveyed by the Company to a new ownership entity controlled by an unaffiliated not-for-profit entity. However, because the new ownership entity did not have sufficient equity capital at the time of purchase and the property operations are the sole source of debt service on the Company's bonds, the Company is required to continue to account for the Greens Property as if it is the owner of real estate rather than as a secured lender. As such, the Company continues to report the results from the Greens Property as discontinued operations in its financial statements as of March 31, 2013 which, among other things, results in the elimination of the bonds in consolidation (Note 9).

Valuation - As all of the Company’s investments in tax-exempt mortgage revenue bonds are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values. Due to the limited market for the tax-exempt mortgage revenue bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the bonds. There is no active trading market for the bonds and price quotes for the bonds are not generally available. As of March 31, 2013, all of the Company’s tax-exempt mortgage revenue bonds were valued using discounted cash flow and yield to maturity analyses performed by management. Management’s valuation encompasses judgment in its application. The key assumption in management’s yield to maturity analysis is the range of effective yields on the individual bonds. The effective yield analysis for each bond considers the current market yield on similar bonds as well as the debt service coverage ratio of each underlying property serving as collateral for the bond. At March 31, 2013, the range of effective yields on the individual bonds was 5.5% to 8.3%. At December 31, 2012, the range of effective yields on the individual bonds was 5.7% to 8.4%. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these bonds. Assuming a 10% adverse change in the key assumption, the effective yields on the individual bonds would increase to a range of 6.0% to 9.1% and would result in additional unrealized losses on the bond portfolio of approximately $15.5 million. This sensitivity analysis is hypothetical and is as of a specific point in time. The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. If available, the general partner may also consider price quotes on similar bonds or other information from external sources, such as pricing services. Pricing services, broker quotes and management’s analyses provide indicative pricing only.

Unrealized gains or losses on these tax-exempt mortgage revenue bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of March 31, 2013, the Woodland Park bond investment has been in an unrealized loss position for greater than twelve months. The Company reviewed this mortgage revenue bond for impairment and determined there was no other than temporary impairment.

The Partnership, as sole bondholder, previously directed the bond trustee to file a foreclosure action on the Woodland Park tax-exempt mortgage revenue bond. On February 28, 2013, the court granted Summary Judgment in the bond trustee's favor confirming that the tax-exempt mortgage bond is senior to mechanic's liens filed on the property. Subsequently, the court ordered a sale of the Woodland Park property and on April 23, 2013, the Partnership made a bid to purchase the property for the amount of the outstanding principal and interest it is owed which was the winning bid. The Partnership's Motion of Confirmation was approved by the court on May 2, 2013. The bond trustee assigned its right to the property to the Partnership on May 8, 2013 and the Partnership expects to receive and record the Sheriff's deed conveying title to a wholly-owned subsidiary of the Partnership within the next seven days. Upon receipt of the Sheriff's deed, the Partnership will have the option of (i) requesting the bond issuer to remove the Land Use Restriction Agreement (LURA) on the property and thereby be free to convert it to 100% market-rate rents or (ii) allow the LURA to remaining in place, maintaining the property as a rent restricted property, and seek to place new tax-exempt financing on the property and acquire the bonds. The Partnership is still assessing its long-term strategy for this property.

As of December 31, 2012, the property had 211 units leased out of total available units of 236, or 89% physical occupancy. As of March 31, 2013, occupancy had decreased to 208 units leased, or 88% physical occupancy. America First Properties Management Company, LLC, an affiliate of AFCA 2, provides management for this property. Measures have been implemented that we believe will increase the physical occupancy of this property at approximately 89% in 2013,