North Star Group, Inc.

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

1

Aﬀordable Housing Finance: Life Settlement

Integration

From Tax Credit Dependency to Self-Extinguishing Debt

Table of Contents

1. Executive Summary

2. Current Aﬀordable Housing Finance Landscape

○ 2.1 Traditional LIHTC Structure

○ 2.2 HUD 221(d)(4) Challenges

○ 2.3 Recourse Financing Limitations

3. Life Settlement-Housing Finance Innovation

○ 3.1 The Fundamental Shift

○ 3.2 Financial Transformation Example

○ 3.3 Return Calculations

○ 3.4 Self-Extinguishing Debt Advantage

4. Stakeholder Beneﬁts

○ 4.1 Housing Authority Transformation

○ 4.2 Hedge Fund Advantages

○ 4.3 Developer Relationships

5. Implementation and Scale

○ 5.1 Portfolio Approach

○ 5.2 Market Impact

6. Northstar's Role and Mission

○ 6.1 Personal Commitment

○ 6.2 Expertise Integration

7. Northstar Income Illustration

8. Hedge Fund Return Illustration

9. Conclusion

10. Universal Application Beyond Aﬀordable Housing

Combined Life Settlement Notes

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○ 10.1 Investment Thesis

○ 10.2 Application Flexibility

○ 10.3 Northstar's Mission Focus

○ 10.4 The Power of Choice

○ 10.5 Real-World Example: Macedonia Church, Montgomery

11. Appendices

○ Appendix A: Preliminary Risk Assessment

○ Appendix B: Text Flowcharts

1. Executive Summary

The aﬀordable housing development industry currently relies heavily on Low Income Housing Tax

Credits (LIHTC) and high-interest HUD 221(d)(4) loans, creating structures where developers

retain minimal ownership and housing authorities receive no equity stake. This white paper

presents a revolutionary ﬁnancing approach that combines life settlement portfolios with

aﬀordable housing development, fundamentally changing the economics for all participants.

Current State Problems:

● Housing authorities typically receive 0 % ownership despite providing project-based

vouchers

● Developers receive only 1 % equity after 15+ year LIHTC compliance periods

● High developer fees (15–20 %) with no long-term ownership

● Limited cash ﬂows that barely support operations

Proposed Solution Beneﬁts:

● Housing authorities receive 2× baseline cash ﬂows plus growth participation

● Life settlement-backed ﬁnancing eliminates the recourse debt burden

● Self-extinguishing debt structure as life settlements mature

● Equivalent to HUD ﬁnancing at 3–4 % interest with better terms

2. Current Aﬀordable Housing Finance Landscape

2.1 Traditional LIHTC Structure

The Low Income Housing Tax Credit program dominates aﬀordable housing development. In

Alabama alone, approximately seven major developers focus on multifamily Section 8

project-based voucher housing using this structure.

Standard LIHTC Deal Structure:

● 9 % or 4 % tax credits provide capital

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

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● Developer receives 15–20 % development fee

● Final developer interest: ~1 % equity

● Housing authority receives: 0 % equity

● Community receives: New housing

Example Problem: While housing gets built and communities are served, the economic structure

leaves housing authorities entirely dependent on others for development, with no ownership

stake in assets they help create through voucher assignments.

2.2 HUD 221(d)(4) Challenges

The HUD 221(d)(4) program oﬀers 40-year mortgages with below-market rates, but current

interest rate environments (6%+) make projects increasingly diﬃcult to pencil out.

Current Market Realities:

● High construction costs strain feasibility

● Interest rates near 6 % create tight cash ﬂows

● Developers retain ownership but face thin margins

● PHAs still receive no equity participation

2.3 Recourse Financing Limitations

Alternative recourse ﬁnancing approaches exist but feature:

● Higher interest rates

● Personal guarantees from developers

● Even fewer deals that pencil economically

● No improvement in PHA ownership position

3. Life Settlement-Housing Finance Innovation

3.1 Fundamental Shift

Our approach replaces external tax credit investors and traditional debt with life settlement

portfolio income, creating a self-extinguishing debt structure that fundamentally improves

economics for all parties.

3.2 Financial Transformation Example

Traditional HUD Structure (from actual term sheet):

● Project Cost: $20,102,945

● HUD Loan: $16,328,300 @ 6.00 %

● Annual Debt Service: $1,118,907

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

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● Net Operating Income: $1,296,332

● Cash Flow: $177,425 (barely adequate)

Life Settlement Structure (same property):

● Life Settlement Loan: $15,000,000 @ 8.5 % (interest-only)

● Traditional Mortgage: $5,000,000 @ 5.0 %

● Combined Debt Service: $1,590,000

● Net Operating Income: $1,296,000

● Life Settlement Income: $1,275,000 (covers primary loan)

● Cash Flow: $981,000 (5.5× improvement)

Note: Income from the $200 M pool = $17 M annually (portfolio context); of that, $1.275 M

services each $15 M loan.

3.3 Return Calculations

Equivalent Interest Rate Analysis: The 5.5× cash ﬂow improvement is equivalent to:

● HUD loan at approximately 3–4 % interest

● Better than 221(d)(4) even at historical low rates

● Self-extinguishing debt vs. 40-year amortization

3.4 Self-Extinguishing Debt Advantage

Unlike traditional mortgages that require payment over 40 years:

● Life settlements naturally mature as policies pay out

● Principal automatically returns to investors

● No long-term debt service burden on properties

● PHAs retain ownership with no debt after policy maturation

4. Stakeholder Beneﬁts

4.1 Housing Authority Transformation

Current State:

● 0% equity in developments (though PHAs may retain options to acquire ownership over

time)

● Dependent on developer decisions, with limited control despite providing project-based

vouchers

● No long-term ownership beneﬁts under typical LIHTC structures

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

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Life Settlement Model:

● 2× baseline cash ﬂows (projections suggest approximately double typical LIHTC cash

ﬂows)

● 50% participation in rental growth above baseline levels

● Majority ownership (may retain 70–80% equity, depending on deal structure)

● Ability to hire private developers on fee-for-service basis

4.2 Hedge Fund Advantages

Investment Characteristics:

● Transform 8–12% life settlement returns into 15–20% total returns

● Multiple uncorrelated income sources

● Self-liquidating primary asset class

● Government-backed rental income security

Return Sources:

● Interest income from PHA loans (8.5%)

● Life settlement yields (8.5–12%+ historical)

● Life settlement payouts (return of principal)

● Rental growth participation

● NOI sharing above baselines

Important Disclaimers and Risk Factors

Forward-Looking Statements: This section contains forward-looking statements that involve risks

and uncertainties. Words such as "may," "will," "expect," "project," "potential," and similar

expressions identify forward-looking statements. These statements are based on current

expectations and assumptions and are subject to risks and uncertainties that could cause actual

results to diﬀer materially from those projected.

No Guarantees: There can be no guarantee that any investor will receive projected returns or

that the structure will perform as anticipated. All investments involve risk of loss, including

potential loss of principal.

Market Risks: The performance of both life settlements and real estate investments depends on

numerous market factors beyond the control of any party, including interest rates, real estate

values, insurance industry changes, and economic conditions.

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Fairhope AL 36532

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Regulatory Risks: Changes in securities, insurance, or real estate regulations could materially

impact the viability or proﬁtability of the structure.

Due Diligence Required: Prospective participants should conduct their own independent analysis

and consult with legal, ﬁnancial, and tax advisors before making any investment decisions.

Past Performance: Any historical performance data presented is not indicative of future results.

The information presented in this section is for informational purposes only and does not

constitute an oﬀer to sell or a solicitation of an oﬀer to buy any securities. Any oﬀers will be made

only by means of a formal oﬀering memorandum in compliance with applicable securities laws.

5. Implementation and Scale

5.1 Portfolio Approach

Initial Scale:

● $200M life settlement portfolio

● 10–15 housing developments

● Multiple PHA partnerships

Scalability Potential:

● Replicable across markets

● Multiple $200M tranches possible

● Standardized documentation and processes

5.2 Market Impact

Social Goals:

● More aﬀordable housing units developed

● Better cash ﬂows enable better maintenance and services

● Housing authorities gain equity ownership

● Sustainable ﬁnancing model beyond tax credit dependency

Financial Innovation:

● New application for life settlement assets

● Alternative to traditional LIHTC/debt structures

● Demonstration of uncorrelated asset combination beneﬁts

6. Northstar's Role and Mission

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

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6.1 Personal Commitment

The loss of family to housing-related challenges drives our determination to create sustainable

aﬀordable housing solutions that extend beyond any individual lifetime. This personal stake

ensures long-term commitment to the model's success.

6.2 Expertise Integration

Team Capabilities:

● Years of aﬀordable housing development experience

● Life settlement market knowledge

● Financial structuring innovation

● PHA relationship management

Platform Beneﬁts:

● Scalable deal origination

● Standardized processes

● Ongoing asset management

● Performance optimization

7. Northstar Income Illustration

$200M Portfolio Example:

Source

Calculation

Annual Amount

Management Fee (1.5%)

$200M × 1.5%

$3,000,000

Performance Fee (15 % on returns

above 8 % hurdle)

Example: 12 % gross → 15 % of $8

M excess

$1,200,000

Deal Origination Fees

$100 K per deal × 10–15

$1,000,000 –

$1,500,000

Total Estimated

Subtotal

≈ $5,200,000

Scaling Potential: If Northstar successfully scales to multiple $200M tranches:

● With 5 tranches ($1 B total): $15–25 M annually

● Each successful portfolio creates precedent for more deals

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

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● Management fees provide stable base, performance fees reward success

Important Notes:

● Performance fees only earned when returns exceed 8% hurdle

● If portfolio yields exactly 8.5%, performance fees would be minimal

● Management fees provide steady income regardless of performance

● Deal origination fees are one-time per project

● This creates alignment with investors - Northstar only gets big payouts when everyone

wins

8. Hedge Fund Return Illustration

Gross Returns (before Northstar fees):

● Life Settlement Base: 8.5% guaranteed

● Target Total Return: 15–20% with all sources

● Let's use 16% for calculation

Fee Impact on Hedge Fund Returns: Year 1 Example:

● Gross Returns: $200M × 16% = $32,000,000

● Management Fee: $200M × 1.5% = $3,000,000

● Performance Fee: ($32M - $16M) × 15% = $2,400,000

● Net Return to Hedge Fund: $26,600,000 (13.3%)

Why This Balance Works:

1. Performance Fee Structure is Fair

○ Northstar only gets performance fees on returns above 8%

○ Hedge funds get 100% of returns up to 8%

○ Above 8%, split is 85% hedge fund / 15% Northstar

○ This means on a 16% total return:

■ First 8%: 100% to hedge fund

■ Next 8%: 85% to hedge fund, 15% to Northstar

2. Risk Sharing

○ Management fee (1.5%) is reasonable for active management

○ Performance fee only earned when deals succeed

○ Hedge funds still achieve 13–15% net returns

○ Much better than traditional 2% management + 20% performance

3. Comparison to Alternatives

○ Traditional PE/Hedge Funds: Often 2% mgmt + 20% performance

○ Northstar Structure: 1.5% mgmt + 15% performance (above hurdle)

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

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○ Result: Lower fees than industry standard with better alignment

Return Comparison Example: Traditional Fund (2% + 20%):

● Gross Return: 16%

● Management Fee: 2%

● Performance Fee: 20% × (16% - 0%) = 3.2%

● Net to Investor: 10.8%

Northstar Structure (1.5% + 15% above 8%):

● Gross Return: 16%

● Management Fee: 1.5%

● Performance Fee: 15% × (16% - 8%) = 1.2%

● Net to Investor: 13.3%

The Balance Equation:

● Northstar creates value by combining uncorrelated assets

● Hedge funds get 15–20% gross returns from 8–12% life settlements

● Even after fees, hedge funds achieve 13–15% net returns

● This is still superior to many other investments

● Northstar earns well but only when everyone wins

This fee structure ensures Northstar has strong incentives to:

● Create deals that exceed 8% returns

● Scale the platform eﬃciently

● Maintain good relationships with all parties

● Focus on long-term success rather than quick fees

9. Conclusion

The combination of life settlements with aﬀordable housing development creates a win-win-win

scenario:

● Housing Authorities receive unprecedented cash ﬂows and equity ownership

● Investors achieve superior risk-adjusted returns through diversiﬁcation

● Communities beneﬁt from better-maintained, ﬁnancially sustainable housing

This model transforms aﬀordable housing from a subsidy-dependent industry into a

self-sustaining, proﬁtable sector that serves all stakeholders' interests while addressing critical

community needs.

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

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The self-extinguishing nature of life settlement debt, combined with improved cash ﬂows

equivalent to ultra-low interest rates, represents a fundamental advancement in housing ﬁnance

that can scale nationally while maintaining social beneﬁt.

This white paper provides an overview of the life settlement-aﬀordable housing ﬁnancing model.

Detailed ﬁnancial projections, legal structure documentation, and implementation timelines are

available for qualiﬁed investors and housing authority partners.

10. Universal Application Beyond Aﬀordable Housing

10.1 Investment Thesis

The life settlement ﬁnancing model creates a diﬀerentiated investment strategy combining life

settlement portfolios with real estate development, generating superior risk-adjusted returns

across multiple asset classes.

Core Strategy:

● Deploy life settlement portfolio income as acquisition/development ﬁnancing

● Interest-only structure at 8.5% covered by guaranteed life settlement yields

● Self-liquidating debt eliminates reﬁnancing risk

● Multiple unlevered return streams create downside protection

Financial Characteristics:

● Interest-only payments at competitive rates

● Self-extinguishing debt as policies mature

● Improved cash ﬂows equivalent to ultra-low ﬁnancing

● Predictable income stream coverage

● Long-term ownership beneﬁts

10.2 Application Flexibility

This ﬁnancing structure adapts across property types while maintaining consistent

mechanics—from aﬀordable housing partnerships to commercial acquisitions. The model's

versatility allows deployment in markets where traditional ﬁnancing creates constraints.

The same ﬁnancial tool can be applied to:

● Oﬃce buildings

● Warehouses

● Industrial facilities

● Retail centers

● Hospitality projects

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19901 Quail Circle

Fairhope AL 36532

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● Luxury residential

● Commercial developments

● Infrastructure projects

● Mixed-use complexes

10.3 Northstar's Mission Focus

While acknowledging the tool's universal applicability, Northstar remains committed to our

mission:

Our "Drill Bit Selection" We choose to focus the tool on projects that:

● Improve housing quality and accessibility

● Uplift underserved communities

● Create sustainable community beneﬁts

● Align with our values and expertise

● Maximize social impact

Strategic Discipline Just because we can use this tool for any development doesn't mean we

should. Our discipline comes from:

● Mission-driven project selection

● Community-focused partner vetting

● Social impact prioritization

● Long-term community relationships

10.4 The Power of Choice

Available Options:

● We could ﬁnance luxury oﬃce towers

● We could develop high-end retail centers

● We could build speculative warehouses

● We could create premium residential projects

Our Chosen Focus:

● We choose aﬀordable housing

● We choose community uplift

● We choose long-term beneﬁt over short-term gain

● We choose impact over maximum proﬁt

10.5 Real-World Example: Macedonia Church, Montgomery

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

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To illustrate how this "universal drill" works with a "mission-aligned bit," consider our proposed

project with Macedonia Church in Montgomery, Alabama:

The Site

● Location: 3070 Selma Highway, Montgomery (21.2 acres)

● Context: ZIP code 36108, underserved community

● Opportunity: Transform legacy redlined corridor

The Project Components (Diﬀerent "Bits")

1. Boutique Hotel (30-40 rooms)

○ Community conference center

○ Wedding and event venue

○ Lodging for visitors and conferences

2. Retail Shops

○ Coﬀee shop for community fellowship

○ Local businesses and services

○ Ground ﬂoor activation

3. Aﬀordable Housing

○ Single-family homes for sale

○ Senior cottages

○ Mixed-income options

4. Community Facilities

○ Existing church programming

○ Rain gardens and green infrastructure

○ Community gathering spaces

The Financial Structure

● Total Project: ~$10 million

● Church Contribution: Land ($2.4M value) plus improvements

● Life Settlement Loan: Would cover primary development costs

● Partnership Split: 80% church / 20% developer

● Revenue Streams:

○ Hotel operations

○ Retail leases

○ Home sales

○ Event venue rental

Why This Works The church gains:

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● Community uplift aligned with mission

● 80% of cash ﬂows and residual value

● Long-term asset ownership

● Self-extinguishing debt structure

This example shows how the same ﬁnancial tool (our "universal drill") can be applied to a

faith-based organization creating a mixed-use development that serves community needs while

generating sustainable revenue.

Key Takeaway The life settlement ﬁnancing model is a powerful, versatile ﬁnancial tool that can

be applied to any development type. It's not inherently limited to aﬀordable housing—it's simply

the "bit" we choose to use because it aligns with our mission of creating better housing and

uplifting communities.

This acknowledgment actually strengthens our position: we're not using this model because it

only works for aﬀordable housing—we're using it because it's the best ﬁnancial tool available, and

we're applying it to achieve our higher purpose.

11. Appendices

Appendix A: Preliminary Risk Assessment

Investment Performance Risks

Life Settlement Portfolio Performance Risk

● Risk: Life settlement yields may fall below projected levels

● Factors: Policyholder longevity variance, insurer credit quality, premium obligations

● Mitigation: Return guarantor provides yield ﬂoor protection; diversiﬁed portfolio across

multiple policies and insurers

Housing Market Performance Risk

● Risk: Property values or rental income may underperform projections

● Factors: Local market conditions, demographic changes, maintenance costs

● Mitigation: Project-based vouchers provide 15-year guaranteed income stream;

government-backed rental payments

Interest Rate Risk

● Risk: Rising interest rates could aﬀect PHA's cost for remaining project funding

● Factors: Federal Reserve policy, credit market conditions aﬀecting whatever source PHAs

use for additional funding

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● Mitigation: PHAs may use various sources (grants, municipal programs, low-rate lenders)

for remaining funds; life settlement-backed ﬁnancing remains ﬁxed cost

Operational Risks

Construction Completion Risk

● Risk: Projects may experience delays, cost overruns, or quality issues

● Factors: Contractor performance, weather, permitting delays, material costs

● Mitigation:

○ Require contractors to obtain performance bonds (typically 100% of project value)

○ Payment bonds to ensure subcontractors/suppliers are paid

○ Use experienced contractors with surety bond capacity

○ No funding until development entitlements are complete

○ Staged draw requirements with AIA document suite

○ Predevelopment costs may be reimbursed from project proceeds

PHA Performance Risk

● Risk: Housing authorities may fail to properly manage/operate the property

● Factors: Poor property management based on HUD performance metrics

● Mitigation:

○ Hedge fund has contractual right to step in and hire professional operators

○ Operator costs paid from PHA's share of returns

○ Performance standards tied to HUD metrics

○ Diversiﬁcation across multiple PHAs

○ Project-based voucher security provides stable income regardless of operator

Counterparty Risk

● Risk: Life settlement originators or insurers may fail to perform

● Factors: Life settlement originator insolvency, insurer credit issues, policy validity

problems

● Mitigation: Return guarantor covers life settlement performance shortfalls; due diligence

on Abacus/Coventry and underlying insurers; diversiﬁcation across multiple insurers

Structural Risks

Legal/Regulatory Risk

● Risk: Changes in regulations aﬀecting life settlements, housing ﬁnance, or tax treatment

● Factors: State insurance regulations, HUD policy changes, tax law modiﬁcations

● Mitigation: Legal review of all structures; compliance monitoring; ﬂexibility to adapt

Liquidity Risk

● Risk: Diﬃculty accessing capital or exiting positions before life settlements mature

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● Factors: Life settlements naturally illiquid until death payouts; no secondary market

● Mitigation:

○ Life settlements are self-liquidating as policies pay out

○ Return guarantor provides capital preservation if yields underperform

○ Diversiﬁed pool reduces concentration risk (highly unlikely no one dies)

○ Credit analysis of life settlement originators and insurers

○ Premium paid for guarantee should preserve capital, not provide liquidity

Documentation Risk

● Risk: Inadequate or ﬂawed legal documentation could create disputes

● Factors: Complex multi-party structure, novel ﬁnancing approach

● Mitigation: Experienced legal counsel; standardized documentation; clear dispute

resolution procedures

Market Risks

Concentration Risk

● Risk: Over-concentration in geographic markets or property types

● Factors: Limited diversiﬁcation, correlated exposures

● Mitigation: Geographic diversiﬁcation strategy; various housing authority partnerships

Risk Monitoring and Management

Regular Monitoring

● Monthly performance reporting on life settlement portfolios

● Quarterly property performance and development updates

● Annual review of all counterparty creditworthiness

Early Warning Systems

● Trigger mechanisms for underperforming assets

● Regular communication with all parties

● Proactive intervention protocols

Risk Committee

● Regular risk assessment meetings

● Independent risk oversight

● Escalation procedures for material issues

Contingency Planning

● Insurance Coverage

● Appropriate liability and property insurance

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Unset

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● Key person insurance where applicable

● Errors and omissions coverage

Disclosure Considerations All identiﬁed risks will be fully disclosed to potential investors in

accordance with applicable securities laws and regulations. This preliminary assessment is not

exhaustive and additional risks may be identiﬁed during detailed due diligence.

This risk assessment is preliminary and subject to revision. It does not constitute investment

advice or a recommendation to invest.

Appendix B: Text Flowcharts

Deal Structure Flowchart

DEAL STRUCTURE FLOW

Start

↓

Hedge Fund Buys $200M Life Settlement Pool

├─ From: Abacus, Coventry, etc.

└─ With: Return Guarantor provides yield floor

↓

Hedge Fund Receives Life Settlement Income

└─ 8.5% base yield (guaranteed floor)

↓

Hedge Fund Lends to PHAs

├─ Amount: Varies per deal (modeled at $15M)

├─ Rate: 8.5% interest-only

└─ Secured by: Life settlement income

↓

PHA Provides

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Combined Life Settlement Notes

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├─ Land/equity contribution

└─ Project-based vouchers (15-year guarantee)

↓

PHA Obtains Additional Funding

├─ Traditional mortgage (~$5M @ 5%)

├─ Grants/municipal programs

└─ Other nonprofit sources

↓

Construction Begins

├─ Contractor obtains performance bonds

├─ Payment bonds protect suppliers

├─ AIA documents for draw schedule

└─ No funding until entitlements complete

↓

Property Operations

├─ PHA operates (or hires operator)

├─ Life settlement income → pays hedge fund

├─ Rental income → covers traditional debt

└─ If PHA underperforms → Hedge fund step-in rights

↓

Returns Distribution

├─ PHA: 2x baseline + 50% of rental growth

├─ Hedge Fund: Various return sources

│ ├─ Interest income (8.5%)

│ ├─ Life settlement yields (8.5–12%+)

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19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Unset

Combined Life Settlement Notes

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│ ├─ Life settlement payouts

│ ├─ Rental growth share

│ └─ NOI participation

└─ 15–20% total returns

↓

Life Settlements Pay Out

├─ Hedge fund recovers principal

└─ Deal naturally terminates

Construction Funding & Value Creation Flowchart

CONSTRUCTION FUNDING SEQUENCE

PHA Project Initiation

├─ Land: $2.4M value

├─ Project cost: $20M

└─ Total need: $17.6M

↓

PRE-FUNDING REQUIREMENTS

├─ Complete all entitlements

├─ Secure permits

├─ Get approvals

└─ No hedge fund $ until complete

↓

FIRST TRANCHE: Hedge Fund Loan

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├─ Amount: $15M @ 8.5% (interest-only)

├─ Use: Reimburse entitlement costs + construction

└─ Effect: Dramatically improves raw land

↓

VALUE CREATION PROCESS

├─ Site work & infrastructure

├─ Foundation & framing

├─ Building envelope

└─ Property value increases significantly

↓

PROPERTY STATUS AT 75% COMPLETION

├─ Original: Raw land ($2.4M)

├─ Invested: $15M improvements

├─ Current value: Much higher (est. $18-20M)

└─ Remaining need: ~$5M to complete

↓

SECOND TRANCHE: Multiple Options

├─ TRADITIONAL LENDERS

│ ├─ Low risk profile (improved property)

│ ├─ Strong loan-to-value (~30% or better)

│ ├─ Guaranteed income (project-based vouchers)

│ └─ Competitive rates (~5%)

│

├─ NONPROFIT/AFFORDABLE HOUSING SOURCES

│ ├─ Community Development Financial Institutions

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19901 Quail Circle

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Combined Life Settlement Notes

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│ ├─ Housing trust funds

│ ├─ Municipal programs

│ ├─ State affordable housing programs

│ └─ Land bank participation

│

└─ OTHER SOURCES

├─ Grants (no repayment)

├─ Tax increment financing

└─ Public-private partnerships

↓

FINAL FUNDING SECURED

├─ Total project: $20M

├─ Sources: Hedge fund + PHA land + final loan/grant

├─ Risk profile: Much lower than raw land

└─ Loan terms: Favorable due to improved property

↓

CONSTRUCTION COMPLETION

├─ Property fully developed

├─ Ready for occupancy

├─ Cash flows begin

└─ All debt service covered

FUNDING ADVANTAGES BY STAGE:

- Raw land: High risk, limited financing

- 75% complete: Lower risk, many options

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Unset

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- Guaranteed income: Project-based vouchers

- Strong loan-to-value: Due to improvements

- Multiple sources: Nonprofits have unique access

Participant Roles Flowchart

PARTICIPANT ROLES & RELATIONSHIPS

┌─────────────────┐ ┌─────────────────┐

┌─────────────────┐

│ HEDGE FUND │ │ RETURN │ │ PHA │

│ │ │ GUARANTOR │ │ │

├─ Provides capital├─<──├─ Provides yield ├──>─├─ Owns property

│

├─ Lends to PHAs │ │ protection │ ├─ Gets vouchers │

└─ Takes upside └─ └─────────────────┘ └─ Manages ops

┘

↑ ↑

│ │

↓ ↓

┌─────────────────┐ ┌─────────────────┐

│ NORTHSTAR │<──────────────────>│ CONTRACTORS │

│ │ │ │

├─ Structures deals│ ├─ Build projects │

├─ Manages process │ ├─ Get bonds │

└─ Gets platform └ └─ Follow AIA ┘

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Unset

Combined Life Settlement Notes

22

FLOW RELATIONSHIPS:

- Hedge Fund ←→ Return Guarantor: Premium payment / Yield

guarantee

- Hedge Fund ←→ PHA: Loan / Interest + principal return

- Return Guarantor ←→ PHA: Indirect protection / Stable

performance

- Northstar ←→ All parties: Coordination / Fees

- PHA ←→ Contractors: Construction contracts / Payment

Risk Assessment Flowchart

RISK ASSESSMENT TREE

OVERALL RISK FRAMEWORK

├─ INVESTMENT PERFORMANCE RISKS

│ ├─ Life Settlement Portfolio

│ │ ├─ Risk: Low yields

│ │ ├─ Factors: Policyholder longevity, insurer credit

│ │ └─ Mitigation: Return guarantor provides floor

│ │

│ ├─ Housing Market Performance

│ │ ├─ Risk: Poor rental/property performance

│ │ ├─ Factors: Local market, demographics

│ │ └─ Mitigation: Project-based vouchers

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

23

│ │

│ └─ Interest Rate Risk

│ ├─ Risk: Higher rates for PHA additional funding

│ ├─ Factors: Fed policy, credit markets

│ └─ Mitigation: PHAs can use various sources

│

├─ OPERATIONAL RISKS

│ ├─ Construction Completion

│ │ ├─ Risk: Delays, cost overruns

│ │ ├─ Factors: Contractor performance, weather

│ │ └─ Mitigation: Performance bonds, stages

│ │

│ ├─ PHA Performance

│ │ ├─ Risk: Poor property management

│ │ ├─ Factors: HUD metrics performance

│ │ └─ Mitigation: Hedge fund step-in rights

│ │

│ └─ Counterparty Risk

│ ├─ Risk: Life settlement originators fail

│ ├─ Factors: Insurer credit, policy validity

│ └─ Mitigation: Return guarantor, due diligence

│

├─ STRUCTURAL RISKS

│ ├─ Legal/Regulatory

│ │ ├─ Risk: Regulation changes

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

24

│ │ ├─ Factors: HUD, insurance, tax laws

│ └─ Mitigation: Compliance monitoring

│ │

│ ├─ Liquidity Risk

│ │ ├─ Risk: Cannot exit before maturity

│ │ ├─ Factors: Illiquid until death payouts

│ │ └─ Mitigation: Self-liquidating structure

│ │

│ └─ Documentation Risk

│ ├─ Risk: Legal disputes

│ ├─ Factors: Complex multi-party structure

│ └─ Mitigation: Experienced counsel

│

└─ MANAGEMENT & MONITORING

├─ Regular Reporting

│ ├─ Monthly: Life settlement performance

│ ├─ Quarterly: Property updates

│ └─ Annual: Counterparty reviews

│

├─ Early Warning Systems

│ ├─ Performance triggers

│ ├─ Communication protocols

│ └─ Intervention procedures

│

└─ Contingency Planning

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com

Combined Life Settlement Notes

25

├─ Insurance coverage

├─ Risk committee oversight

└─ Disclosure compliance

This white paper provides a comprehensive overview of the life settlement ﬁnancing model. The

detailed aﬀordable housing analysis demonstrates the ﬁnancial innovation's power, while

alternative applications show its versatility. Macedonia Church represents one example of how

this tool can create value for mission-driven organizations beyond traditional aﬀordable housing

authorities.

________________________________________________

19901 Quail Circle

Fairhope AL 36532

701-770-9118

michaelh@nsgia.com