North Star Group, Inc.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
1
Affordable Housing Finance: Life
Settlement Integration
An Alternative Financing Structure for Public Housing
Authorities
Affordable Housing Finance: Life Settlement Integration 1
An Alternative Financing Structure for Public Housing Authorities 1
1. Executive Summary 3
2. Current Affordable Housing Finance Landscape 3
3. Life Settlement-Housing Finance Difference 4
4. Stakeholder Benefits 10
5. Implementation and Scale 12
6. Northstar's Role and Mission 13
7. Northstar Income Illustration 14
8. Hedge Fund Return Illustration 15
9. Conclusion 17
10. Universal Application Beyond Affordable Housing 18
11. Appendices 21
Appendix A: (Capital Return) 21
Appendix B: Preliminary Risk Assessment 24
Important Disclaimers 28
Combined Life Settlement Notes - no external credit warrantor
2
Appendix C: Text Flowcharts 28
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
3
1. Executive Summary
The affordable housing development industry relies heavily on Low Income Housing Tax Credits
(LIHTC) and HUD 221(d)(4) loans, creating structures where developers retain minimal
ownership and housing authorities receive no equity stake. This white paper presents a
financing approach that combines life settlement portfolios with affordable housing development,
potentially improving economics for participants.
Current State Challenges:
● Housing authorities typically receive no ownership despite providing project-based
vouchers
● Developers receive limited equity after compliance periods
● Development fees of 15–20% with minimal long-term ownership
● Cash flows that provide limited operational flexibility
Proposed Solution Characteristics:
● Housing authorities may receive improved cash flows with progressive participation
● Life settlement-backed financing may reduce recourse debt requirements
● Self-extinguishing debt structure as life settlements mature
● May provide improved economics compared to existing financing options
2. Current Affordable Housing Finance Landscape
2.1 Traditional LIHTC Structure
The Low Income Housing Tax Credit program is a primary source of equity for affordable
housing development. In Alabama, 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
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
4
● Developer receives 15–20% development fee
● Developer equity interest: typically ~1% after compliance
● Housing authority equity: 0%
● Community receives: New housing units
Example Challenge: While housing gets built and communities are served, the economic
structure leaves housing authorities dependent on other parties for development, with no
ownership stake in assets they support 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%+) present project feasibility challenges.
Current Market Conditions:
● High construction costs strain project feasibility
● Interest rates near 6% create limited cash flows
● Developers retain ownership but face thin margins
● PHAs receive no equity participation
2.3 Recourse Financing Limitations
Alternative recourse financing approaches typically feature:
● Higher interest rates than HUD programs
● Personal guarantees from developers
● Limited projects that achieve financial feasibility
● No improvement in PHA ownership position
3. Life Settlement-Housing Finance Difference
3.1 The Shift
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
5
This approach proposes using life settlement portfolio income to replace external tax credit
investors and traditional debt, creating a self-extinguishing debt structure that may improve
economics for all parties.
3.2 Financial 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
● Net Operating Income: $1,296,332
● Cash Flow: $177,425
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
Note: Based on a $200M life settlement portfolio generating $17M annually; $1.275M would
service each $15M loan.
Financial Comparison: Traditional HUD vs Life Settlement Structure
Component
Traditional HUD
Life Settlement Structure
Project Cost
$20,102,945
$20,102,945
Primary Financing
HUD Loan: $16,328,300 @
6.00%
Life Settlement Loan: $15,000,000 @
8.5%
Secondary Financing
-
Traditional Mortgage: $5,000,000 @
5.0%
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
6
Annual Debt Service
$1,118,907
$1,590,000
Net Operating Income
$1,296,332
$1,296,000
Life Settlement
Income
-
$1,275,000
Cash Flow
$177,425
$981,000 (5.5x improvement)
PHA Distribution
PHA Initial Share
$350,000 (36% of cash flow)
HUD Comparison
$177,425
PHA Improvement
$172,575 (1.97x increase)
Note: Life settlement analysis based on $200M portfolio generating $17M annually; $1.275M
would service each $15M loan.
3.3 Return Calculations
Interest Rate Equivalence: The improved cash flow is equivalent to:
● HUD loan at approximately 3–4% interest
● Self-extinguishing debt vs. 40-year amortization
3.4 Payment Waterfall and Debt Management Structure
The Flexible Payment System
Unlike traditional mortgages that require fixed monthly payments regardless of cash flow, this
structure uses a flexible waterfall approach that protects the PHA while ensuring debt service:
Payment Priority Order
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
7
1. Life Settlement Income (Primary)
○ Life settlement payouts directly service the hedge fund loan
○ Target yield: 8.5% annually
○ PHA receives any excess above required debt service
2. Property Rental Income (Secondary)
○ If life settlements underperform, excess rental income supplements debt service
○ Only surplus cash flows are used (after property operations)
○ PHA never required to inject additional funds
3. Debt Roll-Over (Buffer)
○ If both sources insufficient, debt simply rolls to next period
○ No default triggers or acceleration clauses
○ Accumulated interest compounds but doesn't create distress
Self-Correcting Mechanism
The system naturally balances because:
● Life settlements are self-liquidating: Eventually all policies pay out
● Property cash flows are stable: Project-based vouchers provide 15-year certainty
● Time is on the side of the structure: Longer duration allows for natural resolution
Example Scenario: Underperformance Year
● Year 3 Projections:
● - Required Debt Service: $1,275,000
● - Life Settlement Income: $800,000 (underperformance)
● - Shortfall: $475,000
● - Property Excess Cash: $200,000 (available)
● - Net Shortfall: $275,000
- Result: $275,000 rolls to next period, no PHA impact
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
8
Example Scenario: Recovery Year
● Year 4 Projections:
● - Required Debt Service: $1,275,000
● - Life Settlement Income: $1,900,000 (policies mature)
● - Excess: $625,000
● - Previous Shortfall: $275,000
● - Net After Catch-up: $350,000
- Result: Full current payment + catch-up, $350,000 excess
Why This Structure Works
For PHAs
● No cash call risk: Never required to fund shortfalls
● Stable operations: Property cash flows remain for operations
● Ownership benefits: Retain progressive equity interests
● Flexible timing: Structure accommodates property performance cycles
For Hedge Funds
● Secured position: Life settlements provide collateral
● Ultimate payment certainty: Death benefits ensure eventual payment
● Risk-adjusted returns: Structure compensates for timing uncertainty
● Scalable model: Repeatable across multiple properties
For the Overall Structure
● Self-balancing: Natural equilibrium through life settlement maturity
● Stress-resistant: Can withstand temporary underperformance
● Patient capital: Time horizon aligns with asset characteristics
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
9
● Innovative application: Creates new financing possibilities
Key Distinction from Traditional Financing
Traditional mortgages create potential distress because:
● Fixed payment obligations regardless of income
● Default triggers if payments missed
● Personal guarantees or recourse to other assets
This structure eliminates distress by:
● Payment flexibility based on available sources
● No default triggers, only roll-over
● Non-recourse to PHA beyond property
Implementation Considerations
Legal Documentation
● Clear waterfall priorities in loan documents
● Defined roll-over mechanisms and interest treatment
● Agreed-upon life settlement performance metrics
Operational Management
● Monthly reconciliation of payment sources
● Transparent reporting to all parties
● Regular update of life settlement maturity projections
Performance Monitoring
● Track life settlement performance vs. projections
● Monitor property cash flow trends
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
10
● Maintain reserve accounts for operational continuity
This innovative payment structure represents a fundamental shift in real estate finance, creating
a truly non-recourse opportunity for PHAs while providing sustainable returns for investors.
●
4. Stakeholder Benefits
4.1 Public Housing Authority/Non-profit Benefits
Current State:
● No equity in typical developments
● Dependent on developer decisions
● No long-term ownership benefits under typical structures
● Limited cash flows from traditional financing
Life Settlement Model Benefits:
Immediate Cash Flow Improvement:
● Base income doubles compared to HUD 221(d)(4) financing
● Example: $354,850 vs. $177,425 ( 2x improvement)
● Effective interest rate may approach 0% when life settlement income covers debt service
Progressive Income Structure:
● Initial equity sharing: PHA receives 36% of cash flows
● 50% life settlement maturity: PHA receives 50% of all cash flows
● 70% life settlement maturity: PHA receives 70% of all cash flows
● 100% life settlement maturity: PHA owns property debt-free (100% of cash flows)
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
11
Rental Growth Participation:
● Equal 50/50 sharing of all rental increases with hedge fund throughout deal term
● Applies to base rent increases, market adjustments, and property improvements
● Shared upside regardless of life settlement maturity stage
Operational Control:
● Full ownership from inception (not dependent on compliance periods)
● Option to hire developers on fee-for-service basis rather than equity partners
● Self-extinguishing debt structure eliminates refinancing risk
● Enhanced access to permanent capital for development
4.2 Hedge Fund Advantages
Investment Characteristics:
● Transform 8-12% life settlement returns into 15-20% total returns through leverage and
diversification
● Multiple uncorrelated income sources reduce portfolio volatility
● Self-liquidating asset class eliminates refinancing risk
● Government-backed rental income (project-based vouchers) provides stable cash flows
● ESG-compliant investment supporting affordable housing and community development
Return Sources:
● Interest income from PHA loans (8.5% on deployed capital)
● Life settlement yields (8.5-12%+ historically)
● Life settlement death benefit payouts (return of principal)
● Initial majority share of property cash flows (64% initially, decreasing as settlements
mature)
● Equal 50% participation in all rental growth throughout deal term
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
12
● Net returns target: 13-15% after management and performance fees
Strategic Benefits:
● Diversification through uncorrelated asset combination (real estate + life settlements)
● Predictable income stream backed by government voucher payments
● Progressive exit strategy as life settlements mature and return principal
● Lower fee structure than traditional private equity (1.5% management + 15% performance
above 8% hurdle)
5. Implementation and Scale
5.1 Portfolio Approach
Flexible Scale Options:
● Single deal basis: One life settlement pool financing one development
● Portfolio approach: Multiple deals across various PHAs
● Scalable from individual projects to large portfolio programs
● No minimum portfolio size requirement
Implementation Flexibility:
● May be structured for individual PHAs or multi-PHA programs
● Replicable across markets without requiring large initial scale
● Standardized documentation allows for efficient deal execution
● Accommodates various project sizes and PHA capabilities
5.2 Market Impact
Social Goals:
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
13
● Additional affordable housing units through improved financing access
● Enhanced cash flows enable better property maintenance and services
● Housing authorities gain equity ownership and development independence
● Reduced dependency on traditional LIHTC structures
● Greater PHA autonomy in development decisions
Financial Innovation:
● Novel application of life settlement assets for real estate development
● Alternative to traditional LIHTC/debt structures
● Demonstrates viability of uncorrelated asset combinations
● Creates new pathway for PHA-controlled development
● Establishes precedent for self-extinguishing debt in affordable housing
Market Potential:
● Enables PHAs to become developers rather than passive participants
● May attract new capital sources to affordable housing
● Creates sustainable financing model with built-in exit strategy
● Demonstrates alignment of social impact with investor returns
6. Northstar's Role and Mission
6.1 Personal Commitment
The loss of family to housing-related challenges motivates our work to create sustainable
affordable housing solutions. This personal commitment drives our focus on long-term success
of the model.
6.2 Expertise Integration
Team Capabilities:
● Affordable housing development experience
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
14
● Life settlement market knowledge
● Financial structuring capabilities
● PHA relationship management
Platform Benefits:
● Scalable deal origination
● Standardized processes
● Ongoing asset management
● Performance optimization
7. Northstar Income Illustration
$200M Portfolio Example:
Source
Calculation
Management Fee (1.5%)
$200M × 1.5%
Performance Fee (15% on returns
above 8% hurdle)
Example: 12% gross → 15% of
$8M excess
Deal Origination Fees
$100K per deal × 10–15
Total Estimated
Subtotal
Scaling Potential: If Northstar successfully scales to multiple $200M tranches:
● With 5 tranches ($1B total): $15–25M annually
● Each portfolio may create precedent for additional deals
● Management fees provide base income, performance fees reward success
Important Notes:
● Performance fees earned only when returns exceed 8% hurdle
● Management fees provide income regardless of performance
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
15
● Deal origination fees are one-time per project
● Fee structure aligns Northstar compensation with investor success
8. Hedge Fund Return Illustration
Target Returns (before Northstar fees):
● Life Settlement Base: 8.5% projected yield
● Target Total Return: 15–20% with all sources
● Calculation example using 16%
Fee Impact on 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%)
Fee Structure Rationale:
1. Performance Fee Structure
● Northstar receives performance fees only on returns above 8%
● Hedge funds receive 100% of returns up to 8%
● Above 8%, split is 85% hedge fund / 15% Northstar
2. Risk Sharing
● Management fee (1.5%) for active management
● Performance fee only earned when deals succeed
● Target 13–15% net returns for hedge funds
● Compares favorably to 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)
● Result: Lower fees than industry standard
Return Comparison:
Traditional Fund (2% + 20%):
● Gross Return: 16%
● Management Fee: 2%
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
16
● 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%
Hedge Fund Return Illustration
Return Structure
Life Settlement Base
8.5% projected yield
Target Total Return
15-20% with all sources
Example Calculation
16%
Year 1 Return Calculation ($200M Investment)
Gross Returns
$32,000,000
Management Fee (1.5%)
-$3,000,000
Performance Fee ($32M-$16M × 15%)
-$2,400,000
Net Return to Hedge Fund
$26,600,000 (13.3%)
Fee Structure
Management Fee
1.5% annually
Performance Fee
15% above 8% hurdle
Hurdle Rate
8%
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
17
Split Above Hurdle
85% Hedge Fund / 15% Northstar
Fee Comparison vs. Industry
Northstar
Traditional PE/HF
Management Fee
1.5%
2%
Performance Fee
15% (above 8% hurdle)
20% (no hurdle)
Gross Return
16%
16%
Management Fee Paid
1.5%
2%
Performance Fee Paid
1.2%
3.2%
Net Return
13.3%
10.8%
Advantage
+2.5%
-
9. Conclusion
The combination of life settlements with affordable housing development may create benefits
for:
● Housing Authorities through improved cash flows and ownership opportunities
● Investors through risk-adjusted returns via diversification
● Communities through potentially better-maintained housing
This model proposes transforming affordable housing finance by combining self-extinguishing
debt with improved cash flows, potentially providing an alternative to traditional financing
approaches. The structure allows for scaling while potentially maintaining social benefit.
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
18
10. Universal Application Beyond Affordable Housing
10.1 Investment Thesis
The life settlement financing model creates an investment strategy combining life settlement
portfolios with real estate development, potentially 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 life settlement yields
● Self-liquidating debt may eliminate refinancing risk
● Multiple return streams may provide downside protection
Financial Characteristics:
● Interest-only payments at competitive rates
● Self-extinguishing debt as policies mature
● May provide improved cash flows compared to conventional financing
● Predictable income stream coverage
● Long-term ownership benefits
10.2 Application Flexibility
This financing structure may adapt across property types while maintaining consistent
mechanics. The model's versatility allows deployment where traditional financing creates
constraints.
The same financial approach may be applied to:
● Office buildings
● Warehouses
● Industrial facilities
● Retail centers
● Hospitality projects
● Luxury residential
● Commercial developments
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
19
● Infrastructure projects
● Mixed-use complexes
10.3 Northstar's Mission Focus
While acknowledging the approach's broad applicability, Northstar remains committed to our
mission:
Our Focus We choose to concentrate on projects that:
● Improve housing quality and accessibility
● Benefit underserved communities
● Create sustainable community benefits
● Align with our values and expertise
● Maximize social impact
Strategic Approach While this financing tool could be used for any development, our discipline
comes from:
● Mission-driven project selection
● Community-focused partner selection
● Social impact prioritization
● Long-term community relationships
10.4 The Power of Choice
Available Options:
● Office towers
● High-end retail centers
● Speculative warehouses
● Premium residential projects
Our Chosen Focus:
● Affordable housing
● Community improvement
● Long-term benefit prioritization
● Impact over maximum profit
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
20
10.5 Real-World Example: Macedonia Church, Montgomery
To illustrate how this approach works with mission-aligned projects, consider our proposed
development with Macedonia Church in Montgomery, Alabama:
The Site
● Location: 3070 Selma Highway, Montgomery (21.2 acres)
● Context: Underserved community
● Opportunity: Transform corridor with mixed-use development
The Project Components
1. Boutique Hotel (30-40 rooms)
● Community conference center
● Wedding and event venue
● Visitor lodging
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
● Church programming spaces
● 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:
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
21
● Hotel operations
● Retail leases
● Home sales
● Event venue rental
Benefits to Church:
● Community improvement aligned with mission
● 80% of cash flows and ownership
● Long-term asset ownership
● Self-extinguishing debt structure
This example demonstrates how the same financial approach can benefit faith-based
organizations creating mixed-use developments that serve community needs while generating
sustainable revenue.
Key Point The life settlement financing model is a financial tool that may be applied to various
development types. We focus on affordable housing because it aligns with our mission of
creating better housing and supporting communities.
11. Appendices
Appendix A: Capital Return Mechanism
Purpose
This addendum outlines the capital return mechanism that ensures equitable treatment of Public
Housing Authorities (PHAs) while providing the hedge fund with both target returns and a clean
exit strategy. The structure recognizes that the hedge fund's 13.3% IRR is achieved during the life
settlement phase, with the final note conversion serving as a liquidity mechanism rather than an
additional return vehicle.
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
22
1. Interest-Only Period Structure
Life Settlement Income Assignment
● The life settlement income stream is assigned to the PHA as the borrower
● The PHA remits annual interest to the hedge fund at 8.5% on the outstanding balance
● Payments are made only to the extent that assigned life-settlement income supports
them
Payment Calculation
● As life settlements mature and people die, the outstanding balance decreases
● Interest obligation correspondingly decreases (e.g., $15M becomes $5M)
● However, the hedge fund continues to sweep all excess life settlement proceeds
beyond PHA obligations
2. PHA Protection Mechanism
2x HUD Baseline Protection
The PHA is guaranteed to retain at least twice the amount of net operating income after debt
service that they would have under comparable HUD 221(d)(4) financing.
Simple example:
● Under HUD 221(d)(4): PHA would retain $177,000 after debt service
● Under this structure: PHA will retain minimum $354,000 (2 × $177,000)
● This means the PHA is guaranteed to be at least twice as well off as under conventional
financing
Shortfall Treatment
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
23
● If life settlement income falls short of interest obligation, the hedge fund accepts partial
payment
● Shortfalls are tracked but non-defaulting
● Cumulative shortfalls are expected to balance over the investment period
● PHA maintains 2x HUD protection regardless of shortfall accumulation
3. Capital Return and Note Conversion
Trigger for Conversion
● When the hedge fund's $15M principal investment is fully recovered through life
settlement proceeds
● At this point, life settlement income ceases (all policies have matured)
● The hedge fund's 13.3% IRR target has been achieved through excess proceeds during
the interest-only period
New Note Creation
● Upon capital recovery, a new note is created for the same principal amount ($15M)
● Suggested terms: 30-year amortization at 5% interest
● Annual payment approximately $965,000
● This creates a conventional, sellable instrument for hedge fund exit
Property Performance Verification
● Year 5 projected NOI: approximately $1,400,000
● Proposed note payment: $965,000
● Debt-to-income ratio: approximately 69% (healthy coverage)
● Payment remains well within PHA's 2x HUD protection threshold
4. Exit Strategy Benefits
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
24
For the Hedge Fund
● Target returns achieved during life settlement phase
● Clean, sellable note for capital recovery
● Attractive to institutional buyers (pension funds, insurance companies)
● Standard government-backed affordable housing instrument
For the PHA
● Gradual transition from interest-only to conventional amortization
● No balloon payment risk
● Terms remain within protection parameters
● Sustainable long-term debt service
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
25
5. Refinancing Provisions
Cooperative Refinancing
● PHA cannot be forced into adverse terms
● Refinancing must maintain the 2x HUD protection standard
● Any refinancing preserves the accomplished return structure to date
6. Implementation Summary
This structure accomplishes:
● Hedge fund achieves 13.3% IRR during life settlement phase
● Clean exit via sellable conventional note
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
26
● PHA protection from structural disadvantage vs. HUD financing
● Sustainable transition from interest-only to amortizing debt
● Alignment of interests throughout investment period
The capital return mechanism effectively separates the investment return phase (life settlements)
from the capital recovery phase (final note), ensuring both parties achieve their objectives while
maintaining appropriate risk allocation.
Appendix B: Preliminary Risk Assessment
Investment Performance Risks
Life Settlement Portfolio Performance Risk
Risk: Life settlement yields may be lower than projected
Factors: Policyholder longevity variance, insurer credit quality, premium obligations
Mitigation: Diversified portfolio across multiple policies and insurers; non-correlated assets
provide additional income support
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
Interest Rate Risk
Risk: Rising interest rates could affect PHA's cost for remaining project funding
Factors: Credit market conditions affecting secondary financing
Mitigation: High debt service coverage ratio can withstand reasonable rate increases without
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
27
material impact; PHAs may access various funding sources; 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
● Payment bonds to ensure payments to subcontractors
● Use experienced contractors with surety bond capacity
● No funding until development entitlements are complete
● Staged draw requirements
● Predevelopment costs may be reimbursed from project proceeds
PHA Performance Risk
Risk: Housing authorities may fail to properly manage properties
Factors: Property management performance based on HUD metrics
Mitigation:
● Hedge fund step-in rights to 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 income provides stability
Counterparty Risk
Risk: Life settlement originators or insurers may fail to perform
Factors: Originator insolvency, insurer credit issues, policy validity problems
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
28
Mitigation: Due diligence on originators 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 to regulatory
changes
Liquidity Risk
Risk: Life settlements are illiquid until death benefits are paid
Factors: Inherent illiquidity of life settlement assets until policy maturation
Mitigation:
● Structure recognizes illiquidity as inherent investment characteristic
● Diversified pool reduces concentration risk
● Secondary market exists for life settlement assets at approximately equivalent yields
● Early exit not recommended due to structure design
Documentation Risk
Risk: Inadequate legal documentation could create disputes
Factors: Complex structure, novel financing approach
Mitigation: Experienced legal counsel; standardized documentation; clear dispute resolution
procedures
Market Risks
Concentration Risk
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
29
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 protocols with all parties
● Proactive intervention procedures
Risk Committee
● Regular risk assessment meetings
● Independent risk oversight
● Escalation procedures for material issues
Contingency Planning
● Appropriate liability and property insurance
● Key person insurance where applicable
● Errors and omissions coverage
Important Disclaimers
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
30
Forward-Looking Statements: This document contains forward-looking statements that involve
risks and uncertainties. Actual results may 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: Performance depends on numerous market factors beyond any party's control.
Due Diligence Required: Prospective participants should conduct independent analysis and
consult with advisors before making investment decisions.
Past Performance: Historical performance data is not indicative of future results.
This risk assessment is preliminary and subject to revision. It does not constitute investment
advice or a recommendation to invest.
Appendix C: Text Flowcharts
Deal Structure Flowchart
DEAL STRUCTURE FLOW
Start
↓
Hedge Fund Buys $200M Life Settlement Pool
├─ From: Abacus, Coventry, etc.
↓
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
31
Hedge Fund Receives Life Settlement Income
└─ 8.5% target yield
↓
Hedge Fund Lends to PHAs
├─ Amount: Varies per deal (modeled at $15M)
├─ Rate: 8.5% interest-only
└─ Secured by: Life settlement income
↓
PHA Provides
├─ 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
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
32
├─ 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 (Progressive)
├─ 0-70% Extinguished: PHA gets 50% of rental growth
├─ 70-100% Extinguished: PHA gets 70% of rental growth
├─ 100% Extinguished: PHA owns debt-free
└─ Hedge Fund: Target 15–20% total returns
↓
Life Settlements Pay Out
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
33
├─ 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
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
34
├─ Amount: $15M @ 8.5% (interest-only)
├─ Use: Reimburse entitlement costs + construction
└─ Effect: May improve raw land value
↓
VALUE CREATION PROCESS
├─ Site work & infrastructure
├─ Foundation & framing
├─ Building envelope
└─ Property value may increase significantly
↓
PROPERTY STATUS AT 75% COMPLETION
├─ Original: Raw land ($2.4M)
├─ Invested: $15M improvements
├─ Current value: May be higher (est. $18-20M)
└─ Remaining need: ~$5M to complete
↓
SECOND TRANCHE: Multiple Options
├─ TRADITIONAL LENDERS
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
35
│ ├─ Lower risk profile (improved property)
│ ├─ Better loan-to-value ratio
│ ├─ Stable income (project-based vouchers)
│ └─ Potentially competitive rates
│
├─ NONPROFIT/AFFORDABLE HOUSING SOURCES
│ ├─ Community Development Financial Institutions
│ ├─ 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
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
36
├─ Total project: $20M
├─ Sources: Hedge fund + PHA land + final loan/grant
├─ Risk profile: Lower than raw land
└─ Loan terms: May be favorable due to property improvements
↓
CONSTRUCTION COMPLETION
├─ Property fully developed
├─ Ready for occupancy
├─ Cash flows begin
└─ All debt service covered
FUNDING ADVANTAGES BY STAGE:
- Raw land: Higher risk, limited financing options
- 75% complete: Lower risk, more options
- Stable income: Project-based vouchers
- Improved loan-to-value: Due to improvements
- Multiple sources: Nonprofits have unique access
Participant Roles Flowchart
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
37
PARTICIPANT ROLES & RELATIONSHIPS
┌─────────────────┐ ┌─────────────────┐
│ HEDGE FUND │────│ PHA │
│ │ │ │
├─ Provides capital├ <─>├─ Owns property │
├─ Lends to PHAs │ ├─ Gets vouchers │
└─ Takes upside │ └─ Manages ops │
↑ ↑ ↑
│ │ │
↓ ↓ ↓
┌─────────────────┐ ┌─────────────────┐
│ NORTHSTAR │────│ CONTRACTORS │
│ │ │ │
├─ Structures deals│ ├─ Build projects │
├─ Manages process │ ├─ Get bonds │
└─ Gets fees │ └─ Follow AIA │
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Unset
Combined Life Settlement Notes - no external credit warrantor
38
RELATIONSHIPS:
- Hedge Fund/PHA: Loan and interest payments
- Northstar/All: Coordination and fees
- PHA/Contractors: Construction contracts
Risk Assessment Flowchart
RISK ASSESSMENT FRAMEWORK
OVERALL RISK FRAMEWORK
├─ INVESTMENT PERFORMANCE RISKS
│ ├─ Life Settlement Portfolio
│ │ ├─ Risk: Lower than projected yields
│ │ ├─ Factors: Longevity variance, insurer credit
│ │ └─ Mitigation: Diversified portfolio
│ │
│ ├─ Housing Market Performance
│ │ ├─ Risk: Underperformance
│ │ ├─ Factors: Market conditions, demographics
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
39
│ │ └─ Mitigation: Project-based vouchers
│ │
│ └─ Interest Rate Risk
│ ├─ Risk: Higher rates for PHA funding
│ ├─ Factors: Fed policy, credit markets
│ └─ Mitigation: Various funding sources available
│
├─ OPERATIONAL RISKS
│ ├─ Construction Completion
│ │ ├─ Risk: Delays, cost overruns
│ │ ├─ Factors: Contractor performance
│ │ └─ Mitigation: Performance bonds
│ │
│ ├─ PHA Performance
│ │ ├─ Risk: Poor management
│ │ ├─ Factors: HUD metrics performance
│ │ └─ Mitigation: Step-in rights
│ │
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
40
│ └─ Counterparty Risk
│ ├─ Risk: Originator issues
│ ├─ Factors: Credit, policy validity
│ └─ Mitigation: Due diligence
│
├─ STRUCTURAL RISKS
│ ├─ Legal/Regulatory
│ │ ├─ Risk: Regulatory changes
│ │ ├─ Factors: Various regulatory bodies
│ │ └─ Mitigation: Compliance monitoring
│ │
│ ├─ Liquidity Risk
│ │ ├─ Risk: Exit difficulty
│ │ ├─ Factors: Illiquidity until maturity
│ │ └─ Mitigation: Self-liquidating
│ │
│ └─ Documentation Risk
│ ├─ Risk: Legal disputes
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
41
│ ├─ Factors: Complex 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
├─ Insurance coverage
├─ Risk oversight
└─ Disclosure compliance
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com
Combined Life Settlement Notes - no external credit warrantor
42
Important Investment Considerations
This document is for informational purposes only and does not constitute an offer to sell or a
solicitation of an offer to buy any securities. Any such offer will be made only by means of a
formal offering memorandum in compliance with applicable securities laws. Prospective
investors should carefully consider the risks described herein and conduct their own
independent analysis and evaluation of the investment opportunity.
All investments involve risk of loss, including potential loss of principal. Past performance is not
indicative of future results. The views expressed in this document are those of North Star
Group, Inc. and are not intended as investment advice or a recommendation to purchase or sell
any security.
________________________________________________
© North Star Group, Inc. 2025 All rights reserved.
19901 Quail Circle
Fairhope AL 36532
701-770-9118
michaelh@nsgia.com