Public Finance

Research:
Impact Community Capital LLC, California; Housing, Affordable Housing

Publication date: 05-Apr-2002

Analyst: Christopher P Moriarty, New York (1) 212-438-2063; Ryan Fitzpatrick, New York (1) 212-438-2122

Credit Profile

$164.2 mil muni debt muni issue ser 2001-A due 2031	AAA
Sale date: 16-NOV-2001
$131.4 mil muni debt muni issue ser 2001-A due 2031	AAA
Sale date: 16-NOV-2001
$2.5 mil muni debt muni issue ser 2001-A due 2031	BBB
Sale date: 16-NOV-2001
$3.3 mil muni debt muni issue ser 2001-A due 2031	AA
Sale date: 16-NOV-2001
$8.2 mil muni debt muni issue ser 2001-A due 2001	A
Sale date: 16-NOV-2001

AFFIRMED
$131.382 mil. Impact Community Cap LLC commercial mtg pass-through certificates Class A ser 2001-A dtd 11/01/2001 due 07/25/2031	AAA
$164.227 mil. Impact Community Cap LLC commercial mtg pass-through certificates Class X (IO) ser 2001-A dtd 11/01/2001 due 07/25/2031	AAA
$2.463 mil. Impact Community Cap LLC commercial mtg pass-through certificates Class D ser 2001-A dtd 11/01/2001 due 07/25/2031	BBB
$3.285 mil. Impact Community Cap LLC commercial mtg pass-through certificates Class B ser 2001-A dtd 11/01/2001 due 07/25/2031	AA
$8.211 mil. Impact Community Cap LLC commercial mtg pass-through certificates Class C ser 2001-A dtd 11/01/2001 due 07/25/2001	A

OUTLOOK:

STABLE

Rationale

The ratings on the Impact Community Capital LLC, Calif.'s commercial mortgage pass-through certificates, series 2001-A, reflect the credit support provided by the subordinate classes of certificates, the liquidity provided by the servicer and trustee, the economics of the underlying mortgage loans, and the geographic diversity of the loans. Standard & Poor's analysis determined that, on a weighted-average basis, the pool has a debt service coverage ratio of 1.3 times, a beginning loan to value of 85%, and an ending loan to value of 7%.

Outlook

The outlook for the pass-through certificates is stable due to the strength of the pool of mortgage collateral.

Rating Factors

Strengths.

The transaction exhibits the following strengths:

Pledge of taxable first mortgage loans for 105 affordable multifamily properties, primarily in California, but located throughout the country, 99% of which are fully amortizing;
A concentration of very stable property types--81.5% of the loans are for multifamily, low-income housing tax credit properties, 15.1% are affordable, multifamily property loans with no tax credits, and 3.4% of the loans are on mobile home parks;
Geographic dispersion of the pool with properties located in 15 states, with 58% in California, and 15% in Texas;
The loans, on average, have been seasoned for at least four years and no loans have been more than 30 days past due during the past 12 months;
A moderate amount of leverage, with a beginning loan-to-value of 85% and an ending loan-to-value of 7% (the loans are 99% fully amortizing);
Representations and warranties provided by Bank of America, NTSB ('AA-') and California Community Reinvestment Corp. (not rated);
Good delinquency history, as all borrowers have made all mortgage payments in a timely fashion; and
Credit support provided by the subordinate classes of 20% for the 'AAA' rated tranches to cover potential losses should the loans default.

Offsetting factors.

· Third-party data on most of the loans is dated due to the seasoning of the loans;

· The Bank of America loans have not been securitized before and they may lack features typical of newer securitized loans, such as set asides for capital expenditures and special-purpose-entity borrowers;

· The pool has a heavy concentration of loans to California, although the California loans are distributed throughout the state; and

· Anticipated need for increasing replacement reserves as the properties age.

Table 1 Rating Summary
Class	Rating	Amount (Mil %)	Percent
A	AAA	131.381	80.00
B	AA	3.613	2.20
C	A	7.226	4.40
D	BBB	3.120	1.90
X (interest only strip)	AAA	164.227	N.A.
E, R, and Q	Not rated	18.886	11.50
N/A–Not applicable.

Mitigating factors.

The sellers of the loans, Bank of America, (rated 'AA-') and California Community Reinvestment Corp., have provided representations and warranties for the loans.

The loans exhibit moderate leverage and are structured with full amortization. Therefore, the owners have considerable equity in the properties.

The loans are secured by affordable-housing projects, most of which have rent restrictions. Because the cost of replacement exceeds the current market value for affordable housing projects, housing demand usually exceeds supply. The operating profile for affordable-housing projects is such that they typically have higher occupancy rates than class A multifamily projects and, therefore, are subject to smaller variations in net operating income over time, making them a very stable asset class.

Approximately 81.5% of the properties are low-income housing tax credit properties and, therefore, have corporate or other tax credit investors that exercise considerable asset management over the properties in order to continue to receive the benefits of the tax credits. The projects may also receive oversight from local or regional governmental authorities.

The collateral consists of seasoned loans, with a weighted average of 4.3 years in place.

The loans being securitized include 12 mortgage loans from the first Impact taxable REMIC, which were purchased from California Community Reinvestment Corp. in 2000 and are being repurchased, and 95 mortgage loans being purchased from Bank of America--all of which will be purchased by Impact Community Capital LLC and securitized into a new trust using a REMIC structure. Impact Community Capital LLC was established in 1998 by insurance companies around the country to help create and promote affordable housing. By purchasing and securitizing the loans, Impact assists in recycling funds to organizations that provide construction loans for the development and construction of low-income housing tax credit affordable multifamily properties, thereby increasing the production of affordable housing. Pacific Life Insurance Co. will be the master and special servicer for the transaction, tracking the performance of the loans and will be responsible for advancing funds. Pacific Life Insurance Co. is an approved Standard & Poor's servicer and has an issuer credit rating of rating of 'AA-'.

Cash management.

None of the loans in the pool are structured with cash management features.

Reserves.

The servicer will reserve for taxes and insurance and will maintain reserves for replacement. Many of the properties also maintain operating reserves.

Special-purpose-entity characteristics.

Approximately 85% of the borrowers are special-purpose entities.

Geographic diversity.

The pool consists of 107 loans in 15 states. The highest concentration is in California (58%), with Texas (15%) and Hawaii (5%) being the next largest. The pool has some concentration risk to California; however, the projects are distributed throughout the state.

Loan originators.

Twelve of the loans were originated by CCRC, which was incorporated in 1989 as a federally tax-exempt nonprofit mortgage-banking consortium in California. CCRC was formed in response to the great need for affordable housing in California.

The Bank of America originated 95 of the loans. The Bank of America is one of the largest financial institutions in the country. It has an active Community Reinvestment Act group that makes construction and permanent mortgage loans for affordable housing projects, primarily low-income housing tax credit projects. The loans include loans for affordable family housing, senior housing, mobile home parks, and single-room-occupancy hotels. The Bank of America CRA division has origination offices around the country and has been making affordable multifamily mortgage loans since 1988.

All of the loans were originated more than 24 months ago. However, when originated many were construction loans. All of the properties that involved construction are now complete and have been stabilized for at least one year.

Table 2 Location of Property Loan Balances by State
	Amount of loan ($)	% Of
Alabama	493,184	0.29
Arkansas	1,083,187	0.64
Arizona	3,598,967	2.13
California	98,465,592	58.26
Colorado	6,604,530	3.91
Georgia	1,253,712	0.74
Hawaii	7,797,308	4.61
Idaho	3,059,166	1.81
Illinois	6,364,246	3.77
Michigan	2,900,206	1.72
New Mexico	628,243	0.37
Nevada	1,541,394	0.91
Oregon	2,018,257	1.19
Texas	25,047,855	14.82
Washington	8,159,898	4.83
Total	169,015,746	100.00

Collateral quality.

Standard & Poor's analysis determined that on a weighted-average basis, the debt service coverage ratio (DSCR) for the pool is 1.3x, the weighted average beginning loan-to-value ratio (LTV) is 85%, and ending LTV is 7.2% for the pool. These averages are based on 2000 operating statements and audits along with Standard & Poor's underwriting assumptions that include using Standard & Poor's reserve for replacement guidelines for all properties, a minimum of 5% vacancy rates for family and 2% for senior housing, and 5% property management fees for transactions other than mobile home parks. Standard & Poor's valuation analysis involves deriving a stabilized cash flow for the property and applying an appropriate cap rate to determine value.

On a weighted-average basis, Standard & Poor's adjusted net cash flow in the pool downward by 9%. The weighted-average capitalization rate applied to the pool for valuation purposes was 9.6%. Standard & Poor's valued the nontax credit multifamily properties using a 10% cap rate and the tax credit properties at a 9.5% cap rate due to the lower risk profile of tax credit properties.

The average occupancy rate as of the valuation date was 96%: 95% for the low-income housing tax credit properties, 100% for the mobile home parks, and 97% for the non-low-income housing tax credit multifamily properties. All properties maintain a competitive advantage in their respective markets, as they maintain rents below existing market rents in the relative area, with rents for the low income housing tax credit properties being capped at rents affordable to families making 60% or less of median family income in their geographic area.

All properties are current in debt service payments. None of the properties has been more than 30 days' delinquent twice in the past 12 months and only five have had a late payment once in the past 12 months. Standard & Poor's reviewed all of the CCRC projects historical financial performance and received updated third-party structural engineering and Phase I environmental reports for those properties. As the Bank of America property loans are more seasoned, the third-party reports were more dated. Also many of the Bank of America loans do not require annual reserves for replacement to be set aside but instead require a certain dollar amount of reserves for replacement to be maintained. Standard & Poor's adjusted the net operating income of larger Bank of America properties to reflect annual reserves.

Standard & Poor's valued 58% of the overall pool balance. Standard & Poor's inspected properties representing 31% of the pool balance with an average-quality ranking of 2.79 (an above-average score) with '1' being the ranking for the best properties, that is, those with the best locations, in the best condition, the best curb appeal and with no physical obsolescence and '5' being the ranking for the worst properties, in poor locations, with unattractive curb appeal, in poor physical condition and with physical obsolescence.

Pacific Life also visited 59 of the properties and prepared site visit summaries and property condition reports, which Standard & Poor's reviewed.

Borrower concentration.

Many of the borrowers are not-for-profit corporations. The top 10 borrowers comprise 39% of the pool. The largest borrower is Santa Monica Housing, a housing not for profit corporation.

Secondary financing.

The mortgage loans have no secondary financing other than public purpose second mortgage loans, which have no foreclosure rights.

Environmental review.

Phase I environmental site assessments performed by a third-party environmental engineer have been prepared on most properties. Bank of America has made representations and warrantees that it has no knowledge of any material and adverse environmental conditions or circumstances affecting any mortgage property and any environmental condition disclosed in any environmental report has been fully remediated or is not material.

Structural reviews.

Property condition reports were prepared and reviewed by Standard & Poor's for the twelve CCRC projects in conjunction with the first Impact REMIC securitized in 2000. A property inspection report was prepared by Pacific Life for 62% of the Bank of America loans and disclosed no major adverse property conditions. Bank of America has represented that each of their mortgage properties is free and clear of any damage that would materially and adversely affects its value as security for each mortgage loan and to Bank of America's knowledge, all building systems contained therein are in good working order so as not to materially and adversely affect its value as security for each related mortgage loan.

The 10 Largest Loans in the Portfolio

Park Village.

Park Village has 208 units and is a two-story, low-income housing tax credit project located in Stockton, Calif. The property was originally built in 1960, but was renovated in 1995. According to the Pacific Life property condition report, the property is very well maintained and is in overall good condition. As of Oct. 1, 2001, the project was 100% occupied. Currently, the property is being managed by Mercy Housing Services, an affiliate of the Sisters of Mercy. Key credit factors include the following:

Standard & Poor's revenue estimates are based on December 2000 financial statements.
A vacancy rate of 3% was assumed, which reflects the property's historically low vacancy rate;
Standard & Poor's adjusted expenses reflect a management fee of 5%;
Replacement reserves of $325 per unit were assumed but these were adjusted downward to reflect the existing reserves;
Standard & Poor's derived a property value of $8.3 million ($42,514 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and
The asset was assigned a quality score of 3.5, which is average.

Kulana Hale.

Kulana Hale is a 175-unit high-rise affordable senior housing project located in Honolulu, Hawaii. The property was built in 1997. According to the Pacific Life property condition report, the property is in overall excellent condition. As of Oct. 23, 2001, the project was 98% occupied. Key credit factors include the following:

Standard & Poor's revenue estimates are based on December 2000 financial statements.
A vacancy of 2% was assumed, which reflects the property being a senior apartment complex;
Standard & Poor's adjusted expenses to reflect a management fee of 5%;
Standard & Poor's underwriting assumes replacement reserves of $250 per unit per year but accounts for the existing reserve fund of roughly $352,692, which lowers the annual per unit requirement to $172;
Standard & Poor's derived a property value of $8.4 million ($45,654 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and
The asset was assigned a quality score of 2.0, which is above average.

Merchant Court Apartments.

Merchant Court is a 192-unit low-income housing tax credit project located in Dallas, Texas. Merchant Court was built in 1999. According to the Pacific Life property condition report, the property is very well maintained and is in overall good condition. As of Sept. 6, 2001, the project was 97% occupied. Key credit factors include the following:

Standard & Poor's revenue estimates are based on December 2000 financial statements;
A vacancy of 5% was assumed;
Standard & Poor's adjusted expenses to reflect a management fee of 5%;
Standard & Poor's underwriting assumes replacement reserves of $250 per unit per year but accounts for the existing reserve fund of roughly $252,000, which lowers the annual per unit requirement to $203;
Standard & Poor's derived a property value of $6.6 million ($34,852 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and
The asset was assigned a quality score of 3, which is average.

Anderson Farms formerly Montgomery Farms Senior Apartments.

Anderson Farms is a 122-unit low-income senior housing tax credit project located in Montgomery, Ill. Anderson Farms was built in 1999. According to the Pacific Life property condition report, it is a very nice property and is in overall good condition. The property is owned by Montgomery Farms Senior Citizens Residence, Ltd. Partnership. As of Sept. 10, 2001, the project was 100% occupied. Key credit factors include the following:

Standard & Poor's revenue estimates are based on December 2000 financial statements;
A vacancy of 2% was assumed, which reflects the property being a senior apartment complex;
Standard & Poor's adjusted expenses to reflect a management fee of 5%;
Replacement reserves of $250 per unit were assumed;
Standard & Poor's derived a property value of $5.27 million ($43,097 per unit, through direct capitalization of net cash flow using a capitalization rate of 9.5%; and
The asset was assigned a quality score of 2, which is above average.

Stone Brook Village.

Stone Brook Village is a 216-unit low-income senior housing tax credit project located in Frisco, Texas. The property was built in 1994. According to the Pacific Life property condition report, it is a very nice property and is in overall good condition. The property is owned by Frisco-Stonebrook Affordable Housing Partnership, Ltd. As of Sept. 20, 2001, the project was 91% occupied. Key credit factors include the following:

Standard & Poor's revenue estimates are based on December 2000 financial statements;
A vacancy rate of 9.0% was assumed, which reflects the property's historical vacancy rate;
Standard & Poor's adjusted expenses to reflect a management fee of 5%;
Standard & Poor's underwriting assumes replacement reserves of $250 per unit per year but accounts for the existing reserve fund of roughly $134,000, which lowers the annual per unit requirement to $216;
Standard & Poor's derived a property value of $6.6 million ($28,971 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and
The asset was assigned a quality score of 2.5, which is above average.

Sterling Green Apartments.

Sterling Green is a 150-unit low-income housing tax credit project located in Houston, Texas. Sterling Green was built in 1995. According to the Pacific Life property condition report, the property is in overall good condition. The property is owned by SGV Investment Homes, Ltd. As of Sept. 13, 2001, the project was 95% occupied. Key credit factors include the following:

· Standard & Poor's revenue estimates are based on December 2000 financial statements;

· A vacancy rate of 5% was assumed;

· Standard & Poor's adjusted expenses to reflect a management fee of 5%;

· Replacement reserves of $250 per unit were assumed;

· Standard & Poor's derived a property value of $5.6 million ($38,620 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and

· The asset was assigned a quality score of 3, which is average.

Heritage Apartments.

Heritage Apartments is a 328-unit low-income housing tax credit project located in Houston, Texas. Heritage was built in 1992. The property is owned by California Investors XI Limited. Key credit factors include the following:

· Standard & Poor's revenue estimates are based on December 2000 financial statements;

· A vacancy rate of 5.2% was assumed, which reflects the actual vacancy rate at the property;

· Standard & Poor's adjusted expenses to reflect a management fee of 5%;

· Replacement reserves of $325 per unit were assumed;

· Standard & Poor's derived a property value of $12.9 million ($38,705 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and

· The asset was assigned a quality score of 3, which is average.

Meridian.

Meridian is a 236-unit low-income housing tax credit project located in Santa Maria, Calif. Meridian was built in 1992. The property is owned by California Investors XII Limited. As of Sept. 13, 2001, the project was 95% occupied. Key credit factors include the following:

· Standard & Poor's revenue estimates are based on December 2000 financial statements;

· A vacancy rate of 5% was assumed, which reflects the actual vacancy rate at the property;

· Standard & Poor's adjusted expenses to reflect a management fee of 5%;

· Replacement reserves of $400 per unit were assumed;

· Standard & Poor's derived a property value of $10.2 million ($42,503 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and

· The asset was assigned a quality score of 3, which is average.

Seville Gardens.

Seville Gardens is a 225-unit, low-income housing tax credit project located in Huntington Park, Calif. Seville Gardens was built in 1989. The property is owned by Lieberman & Torino. The project is currently 86% occupied. Key credit factors include the following:

· Standard & Poor's revenue estimates are based on December 2000 financial statements.

· A vacancy rate of 14.0% was assumed, which reflects the actual vacancy rate at the property;

· Standard & Poor's adjusted expenses to reflect a management fee of 5%;

· Replacement reserves of $567 per unit were assumed;

· Standard & Poor's derived a property value of $7.5 million ($27,166 per unit) through direct capitalization of net cash flow using a capitalization rate of 9.5%; and

· The asset was assigned a quality score of 3, which is average.

Highlands Mobile Home Park.

Highlands Mobile Home Park is a 306-unit affordable mobile home project (MHP) located in Santee (San Diego County), California. Highlands was built in 1973. Highlands Mobile Home Community Association owns the property. As of Sept. 13, 2001, the project was 100% occupied. Because MHP tenants own their homes but rent the land on which they are located, Standard & Poor's underwriting reflects only rental revenues and related expenses. Key credit factors include the following:

· Standard & Poor's revenue estimates are based on December 2000 financial statements, assuming a 2% vacancy rate due to the typically low vacancy rates at MHPs;

· Standard & Poor's adjusted expenses to reflect a management fee of 5%;

· Standard & Poor's underwriting assumes replacement reserves of $50 per unit per year but accounts for the existing reserve fund of roughly $95,445, which lowers the annual per unit requirement to $28;

· Standard & Poor's derived a property value of $8.8 million ($29,742 per unit) through direct capitalization of net cash flow using a capitalization rate of 10.25%; and

· The asset was assigned a quality score of 3, which is average.

Table 3 Cash Flow Analysis and Evaluation
Property Type	% Of pool	Capitalization rate (%)	Beginning LTV (%)	Ending LTV (%)	DSCR (x)	Value per unit/square foot
Multifamily tax credit	81	9.50	79.90	6.70	1.27	30,998
Mobile home park	3.50	10.25	63.00	0	1.27	29,742
Multifamily nontax credit	15.50	10.00	117.30	10.50	1.44	33,133
LTV-Loan to value ratio. DSCR-Debt service coverage ratio.

Table 4 Top 10 Loans
Property Name	Type	% Of pool	DSCR (x)	Capitalization rate (%)	Beginning LTV (%)	Ending LTV (%)	Value per unit/square foot
Heritage Apartments	tax credit	5.95	1.24	9.50	77.56	0	38,705
Meridian Apartments	tax credit	5.03	1.12	9.50	82.96	0	42,503
Kulana Hale	nontax credit	4.72	1.15	10.00	97.59	0	45,654
Seville Gardens	tax credit	3.77	0.81	9.50	101.95	0	27,166
Merchant Court	tax credit	3.67	1.20	9.50	90.71	0	34,853
Highlands Mobile Home Park	mobile home park	3.47	1.27	10.25	63.04	0	29,742
Anderson Farms	tax credit	3.15	1.08	9.50	98.94	0	43,097
Stonebrook Village	tax credit	3.08	1.1	9.50	81.31	44.60	28,971
Sterling Green	tax credit	2.99	1.09	9.50	85.42	55.50	38,620
Park Village	tax credit	2.87	1.15	9.50	53.75	0	42,514
DSCR-Debt service coverage ratio. LTV-Loan to value ratio.

Table 5 Standard & Poor’s DSCR Range
DSCR range (x)	Number of loans	Loan balance ($)	Balance as % of pool
Greater than 1.65	44	26,624,477	14.90%
1.65 to 1.55	3	1,431,503	0.90%
1.54 to 1.50	3	1,673,011	1%
1.49 to 1.45	6	6,851,732	4.10%
1.44 to 1.40	3	4,200,414	2.50%
1.39 to 1.35	2	2,845,589	1.70%
1.34 to 1.30	5	10,556,650	6.40%
1.29 to 1.25	7	13,828,274	8.40%
1.24 to 1.20	3	10,446,017	6.30%
1.19 to 1.15	6	9,068,474	5.50%
1.14 to 1.10	10	37,863,119	22.90%
1.09 to 1.05	5	22,482,178	13.60%
1.04 to 1.00	3	6,182,140	3.70%
0 to 1.00	7	13,315,245	8.10%
DSCR-Debt service coverage ratio.

Table 6 Standard & Poor's Beginning LTV Ratios
Range of beginning LTVs (%)	Number of loans	Loan balance $	Balance as a % of pool
<50	26	9,382,797	5.0
51 to 60	22	20,673,103	12.5
61 to 70	14	19,794,784	12.0
71 to 75	5	5,615,786	3.4
76 to 80	8	24,856,181	15.0
81 to 85	9	26,098,286	15.8
86 to 90	6	10,822,562	6.5
91 to 95	6	9,503,550	5.7
96 to 100	3	15,388,058	9.3
LTV-Loan to value.

Table 1 Rating Summary

Table 4 Top 10 Loans