Item 1A .  RISK FACTORS

Investing in our securities involves various risks and uncertainties.  The risks described in this section are among those that could , directly or indirectly, have a material adverse effect on our business, financial condition or results of operations, as well as on the value of our common shares.

Risks Related to Our Business

Increases in interest rates and credit spreads may adversely affect the fair value of our financial assets, our results of operations and   our net worth . 

Our bonds and other financial assets as reported on our Consolidated B alance S heet s   expose us to changes in interest rates and credit spreads.

Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary policies of the federal government and its agencies.  Federal Reserve policies directly and indirectly influence the yield on our interest-earning assets.  Interest rates can also fluctuate as a result of geopolitical events or changes in general economic conditions, including events or conditions that alter investor demand for Treasury or other fixed-income securities.

Changes in market conditions, including changes in interest rates, liquidity, prepayment and/or default expectations, and the level of uncertainty in the market for a particular asset class, may cause fluctuations in credit spreads.

Our financial results and net worth can be significantly affected by changes in interest rate s and credit spreads, especially results driven by financial instruments that are measured at fair value.  These instruments include our investments in bonds, loans held-for-sale and loans for which we elected the fair value option.

If long-term rates increase or credit spreads widen , the fair value of our bonds and other financial assets will generally decline and these declines could be significant.     Because most of our bonds are secured by multifamily rental properties, increasing interest rates that lead to higher mortgage rates may make it more difficult for buyers of multifamily properties to obtain mortgage financing and , as a result,   may depress prices that buyers are willing to pay for such properties.  Accordingly ,   changes in interest rates and credit spreads may adversely affect the fair value of collateral that secures our bonds .

The Company uses total return swaps (“TRS”) for financing and other purposes that expose us to certain risks.

A TRS is an agreement that requires one party to make interest payments based on either fixed or floating rate of interest in exchange for payments from its counterparty that are based on the return of referenced asset that is typically an index, a loan or a bond.  All payments under these agreements are calculated based upon contractually-specified notional amounts.  In our typical TRSs, we are required to make interest payments that are based on a floating rate and our counterparty is required to make payments to us that reflect the total return associated with a referenced asset .  Cash flows associated with such agreements are subject to the risks associated with the referenced asset (in most cases real estate related risks) and to credit risk of both the obligor on the referenced asset and the counterparty on our TRSs.  As a result, to the extent the associated referenced assets lose value, we are at risk of having to provide additional collateral.  If we were unable to post such additional collateral, the referenced asset might be sold at a time when its full value could not be achieved and our existing collateral would be at risk.

Changes in interest rates may increase our borrowing costs and decrease our cash flows and net income. 

As short-term rates rise, our borrowing costs will increase and our net income will decline as our bond and other lending income is fixed and a significant portion of our debt is variable and tied to short-term rates.  At December 31, 2015, we had $177.7 million notional amount of bond related TRSs (accounted for as either debt or derivatives) tied to the Securities Industry and Financial Markets Association (“ SIFMA ”) 7-day municipal swap index and $23.5 million notional amount of loan related TRSs (accounted for as derivatives) tied to the London Interbank Offer Rate (“ LIBOR ”) 1-month index plus a spread.  We also had $95.4 million (unpaid principal balance (“ UPB ”)) of subordinated debt at December 31, 2015 tied to the LIBOR 3-month index plus a spread. 

Changes in capitalization rates and interest rates may adversely affect the value of our real estate - related investments .

The carrying value of our real estate is at fair value when initially recorded and is then evaluated for impairment or carried at the lower of cost or fair value depending on its balance sheet classification.  The fair value of both our direct real estate holdings and real estate that collateral izes our bond investments will generally decline if capitalization and discount rates rise.  Furthermore, t he value of our real estate-related interest s in our LIHTC business line is dependent on the residual value of multifamily rental properties.  The residual value of these rental properties will generally decline if capitalization and discount rates rise in the markets where these properties are located.  These rates vary from market to market and our real estate in some markets could be more affected than our real estate in other markets.

The cash flows and value from our bond portfolio and all other real estate -related interests that we have are dependent upon the quality of the related real estate collateral and can be impacted by the risks related to real estate.

Because a substantial portion of our assets are secured by real estate, or consist of real estate or investments in entities that own real estate, the value of our assets is subject to the risks associated with investments in real estate.  Most of these investments are directly or indirectly secured by multifamily rental properties, and therefore the value of these investments may be adversely affected by macroeconomic conditions or other factors that adversely affect the real estate market generally, or the market for multifamily real estate and bonds secured by these properties in particular.   These possible negative factors include, among others: (i) increasing levels of unemployment and other adverse economic conditions, regionally or nationally; (ii) decreased occupancy and rent levels due to supply and demand imbalances; (iii) changes in interest rates that affect the cost of our capital, the value of our bonds or the value of the real estate we own or have an interest in or that secures the bonds; and (iv) lack of or reduced availability of mortgage financing.

Most of our investments derive their value from the cash flows generated by tenant leases.  The majority of the properties which we have financed or have   invested in have rent limitations that could adversely affect the ability to increase rents, as well as tenant income restrictions that may reduce the number of eligible tenants and, thus, occupancy rates at such properties. If, because of general economic conditions, local market conditions or property specific conditions, the tenants move out or cannot pay the rents charged on the specific units they lease, the owners (our borrowers and partners ) may not be able to lease the units to replacement tenants at full rent (or at all), in which case the cash flows from the properties may not be sufficient to pay interest on our bonds or loans , which would cause the value of our investments to decline.  Real estate may also decline in value because of market conditions, environmental problems, casualty losses for which insurance proceeds are not sufficient to cover the loss, or condemnation proceedings.   

The value of our assets and our ability to conduct business may be adversely affected by changes in local or national laws or regulatory conditions that affect significant segments of the real estate market, especially the multifamily housing market, including environmental, land use and other laws and regulations that affect the cost of maintaining and operating the properties in which we have an interest.

We may from time to time enter into agreements to reduce our interest rate exposure, but such arrangements themselves have risk.

We may from time to time enter into contracts intended to reduce our interest rate risk.  For example, we may enter into interest rate swaps whereby we agree to pay a fixed rate of interest and the counterparty agrees to pay us a floating rate of interest in order to create fixed rate debt to better match assets that pay on a fixed rate basis.  We also may enter into interest rate caps whereby we pay the counterparty on the interest rate cap a premium upfront and the counterparty pays us if the benchmark rate on the cap reaches a certain level.  Interest rate swaps and caps have the risk that the counterparty fails to meet its payment obligations.  There is also a risk that these contracts do not perform as expected and may cost more than the benefits received.  In the case of interest rate swaps, we also have the risk of collateral calls depending on changes in interest rates as compared to the benchmark rate on the interest rate contract.

We need to make new investments that grow shareholder value over the long term.

There is a risk that we will not be able to deploy our cash and or expand our leverage to make investments that generate risk-adjusted returns that sufficiently grow shareholder value.  Also, because there are no restrictions as to the nature of our investments, our investments in the future may result in additional or new risks that we do not face today. 

We face risks associated with our renewable energy finance business .  

Our renewable energy finance business makes development and construction loans for the purpose of building commercial scale solar facilities .  This business is subject to construction risk, permanent financing and repayment risk, collateral risks (such as value and ability to foreclose), and the risk of a change in certain current laws that incentivize construction of clean energy facilities.  In this regard, our ability to fund our development or construction loan commitments is currently and may become increasingly dependent upon the repayment of other, similar loans that we originated.  Repayment of such loans are often dependent upon permanent loans whose funding are outside of our control since, among other factors, lenders of permanent loans may be subject to having access to the credit markets .  Although we have previously had some experience in this business, we cannot be certain we have identified and adequately prepared for all of the risks associated with re-entering the business at this time.    

We have been, and may continue to be, directly and indirectly affected by disruptions in credit markets.

Our business was significantly affected by the disruptions in the credit markets during the global financial crisis.  Disruptions in credit markets may cause significant deterioration in the market for tax-exempt mortgage revenue bonds and other debt instruments that are a major part of our assets and likely to play a significant role in our reinvestment strategy.  This has in the past and may in the future result in our having to reduce the carrying value of our bonds and other receivables associated with our lending activities .  We are also dependent up on our capital partners to extend existing credit facilities upon their maturity.  If we were unsuccessful in renewing existing facilities, we may be forced to create liquidity in an unfavorable market which could have a material adverse effect on our business .      

Virtually all of our non-cash assets are illiquid and may be difficult to sell at their reported carrying values.

Our bonds, our direct and indirect investments in real estate, and our other debt investments are illiquid and difficult to value.  As to our bonds in particular, they are unenhanced and unrated and, as a consequence, the purchasers of our bonds are generally limited to accredited investors and qualified institutional buyers, which results in a limited trading market.  This lack of liquidity complicates our ability to ascertain the fair value of our bonds and other debt investments as there is limited information on trades of comparable bonds and debt investments.  Therefore, there is a risk that if we need to sell any of these assets, the price that we are able to realize may be lower than the carrying value. 

Some of our bonds are 30 or more days past due in principal and/or interest and others are at risk of becoming 30 or more days past due in principal and/or interest.

As of December 31, 201 5 , the aggregate UPB of bonds that were 30 or more days past due in either principal and/or interest was $ 50.8 million, or approximately 16 % of all bonds in which we have an economic interest .  We report our defaulted bonds at their f air value ,   which considers an issuer default .  However, amounts realized by us could be even less than such estimates if foreclosures were pursued or if our borrowers filed for bankruptcy protection.  Additionally, properties collateralizing certain performing bonds have net operating income (as represented in operating statements provided by the borrowing partnerships), which is less than the debt service owed to us .  These bonds are at risk of default if the partners of the borrowing partnerships are unable or unwilling to continue to cover the shortfall in order to pay the full debt service.  

The value of our tax-exempt bonds and renewable energy investments could be adversely affected by changes in tax laws.

There is a risk that the government will pass legislation that could adversely affect the value of our tax-exempt bonds. The government could make changes in tax or other laws, such as affordable housing incentive programs that while not directly affecting our tax-exempt bonds, could make them less valuable to investors.  For example, if the federal government were to lower marginal federal income tax rates, or phase out the tax-exempt nature of the interest income for all or higher income taxpayers, our bonds would likely decline in value.  Congress could also pass laws that make competing investments more attractive than tax-exempt bonds, which would also make our bonds less valuable.  

F ederal and S tate government s have established various incentives and financial mechanisms to accelerate the adoption of renewable energy.  The incentives include tax credits, tax abatements and rebates among others.  These incentives help catalyze private sector investments in solar energy.  Changes in government incentives could adversely affect our renewable energy investment s.

Our   bonds may not   retain their tax-exempt status.

On the date of initial issuance of any tax-exempt bond that we hold, bond counsel or special tax counsel has rendered its opinion that interest on the bond is excludable from gross income for federal income tax purposes.  However, under certain circumstances, our bonds could lose their tax-exempt status subsequent to issuance.  While we take steps to ensure that these circumstances do not occur, there can be no guarantees that the tax-exempt status will be maintained.  If our bonds were to lose their tax-exempt status, then the fair value of those bonds would decline, and to the extent that the bond was the referenced asset in a TRS   financing, the TRS would terminate causing us to reacquire the bonds at the then fair value plus any difference required to pay-off the related financing.  If we did not purchase the bonds, they could be sold and if the value at inception of such agreements were not realized, our TRS collateral would be at risk.

Executing TRSs are important to our U . S . Operations.

Currently, our TRSs are with one financial institution.  At least in the near term, entering into new TRSs or rolling over existing agreements ,   is a significant part of our U . S . Operations.  To the extent we are unable to execute these types of agreements in the future , we may not be able to achieve our near term goals and our financial position could suffer significantly. 

We could lose the tax benefit of our Net Operating Losses (“NOLs”).

We have significant deferred tax assets that are currently offset by a valuation allowance on our balance sheet.  The most significant deferred tax asset is our federal NOL that can be used to offset federal taxable income for the foreseeable future.  However, there are events that could cause us to lose or to otherwise limit the amount of NOLs available to us.  For example, our NOLs could be lost if we suffer a change of control event as defined by the Internal Revenue Code.  A change of control event may occur when a shareholder, or a collection of shareholders, owning at least five percent of our shares, acquire more than 50% of our outstanding shares within a three - year period.  The Company adopted a Tax Benefits Rights Agreement on May 5, 2015 (“ Rights Plan ”) in an attempt to avoid a change of control event as defined by the Internal Revenue Code, although the Company cannot guarantee the effectiveness of the Rights Plan. 

In addition to limitations that a change in control have o n our NOLs , our NOLs are subject to a 20-year carryforward limitation that limits the time that we have to generate the income necessary to fully utilize our NOLs.  It is possible that some of the NOLs will become permanently impaired if the Company is unable to generate the income required to utilize our NOLs before their expiration period begins in 2027.

If we become subject to the Investment Company Act of 1940 (the “Investment Company Act”) , we could be required to sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result.

We continuously monitor our activities to be sure we do not become subject to regulation as an investment company under the Investment Company Act.  We currently rely on an exempt ion from the Investment Company Act for companies that are “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.”  Because of changes in the nature and number of companies relying on this exemption and because most of the guidance surrounding this exemption comes from “no action” letters issued by the SEC staff, the SEC on August 31, 2011 issued a concept release requesting comment directed to the scope and use of this exemption.  We do not know what action , if any, the SEC may take in response to the comments that it receives.  If we were to become regulated as an investment company under the Investment Company Act, either due to a change in the SEC’s interpretation of that Act or due to a significant change in the value and composition of our assets, we would be subject to extensive regulation and restrictions.  Among other restrictions , we would not be able to incur borrowings , which would limit our ability to fund certain investments .  Accordingly, either we would have to restructure our assets so we would not be subject to the Investment Company Act or we would have to change materially the way we do business.  Either course of action could require that we sell substantial portions of our assets at a time when we might not otherwise want to do so, and we could incur significant losses as a result.  Any of these consequences could have a material adverse effect on our business, financial condition and results of operations .

We have provided guarantees with respect to certain of the tax credit equity funds and properties , and if we were to become obligated to perform on those guarantees our financial condition and results of operation could suffer.

Within our LIHTC business line, we have provided a limited guarant ee of the expected tax credits to be generated by limited partnership investments held by our   LIHTC Partnership .  We have also guaranteed m inimum yield s on investment to investors in g uaranteed LIHTC f unds in which we sold our GP interests (“ Guaranteed Funds ”) and agreed to indemnify the purchaser of our GP interests in such funds from investor claims related to those guarantees .  We have   also agreed to indemnif y specific investors in certain non-Guaranteed Funds related to the performance on certain lower tier property partnerships (“ LTPP s ”).  We continue to be obligated on our guarantees to the investors (or purchasers) in these funds and we could be required to make substantial payments with regard to these guarantees.  In order for the investors in the Guaranteed Funds and the LIHTC Partnership   to benefit from low-income housing

tax credits, the LTPPs in which the se   entities invest must operate affordable housing properties in compliance with a number of requirements in the Code and the regulations under it.  Failure to comply continuously with these requirements throughout a 15-year recapture period could result in loss of the right to those low-income housing tax credits, including recapture of credits that were already taken, potentially creating liability under our guarantees.  If we were to become obligated to perform on these guarantees our financial condition and results of operation would be negatively impacted and the impact could be significant.

Our ability to grow our business would be adversely affected if we are unable to raise capital from third-party investors.

Our growth depends ,   at least in part, on our ability to raise capital from third-party investors, which in turn depends on a number of factors, including certain factors that are outside our control.  Additionally, we need to identify and attract new investors in order to increase the number and size of funds or other businesses that we manage or will manage.  There can be no assurances that we can find or secure commitments from those new investors.  The failure to raise capital in sufficient amounts could result in a decrease in management and other fee revenue or a decline in the rate of growth of such fees, any of which could adversely impact our revenues, cash flows and financial condition.

The value of our International Operations investments and cash flows could fluctuate with changes in the relative value of the dollar and South African rand (“rand”) as well as with changes in benchmark interest rates.

The net assets and operations of IHS are denominated in various currencies.  In addition, our co-investments in the SAWHF and the IHS Residential Partners I are denominated in rand and the majority of our co-investment in the IHS Fund II is denominated in rand.  We do not hedge these foreign currency exposures and may experience losses as the value of our holdings in IHS, SAWHF, IHS Residential Partners I and IHS Fund II fluctuates with changes in foreign exchange rates relative to the dollar.  In addition, the SAWHF borrows money in U . S . dollars from the Overseas Private Investment Corporation, resulting in the SAWHF itself having dollar to rand currency risk.  The SAWHF also enters into contracts in an effort to hedge the foreign currency risk associated with its dollar denominated debt.  These borrowings and hedges could adversely impact the SAWHF’s results and the value of our investment.  We expect IHS Fund II to have similar risks. Additionally because there are financing arrangements in place for the IHS managed funds as well as the properties in which the funds have invested, the cost associated with the financing arrangements will change as the respective benchmark interest rate changes.  Furthermore, interest rates affect the availability of mortgage financing which is important for the successful disposition of the funds’ investments.  These interest rate changes could adversely impact the value of our International Operations investments and cash flows. 

The value of investments and cash flows of our U.S. and International Operations are dependent on the quality of the management of the underlying properties.

The performance of the properties in which the funds that we manage have invested can be adversely impacted by the quality of the property management.  To the extent property managers are not able to provide quality property management, the value of our investments and the cash flows from these investments will suffer.  IHS PM manages a substantial portion of the properties in funds that we manage in our International Operations, thereby giving us a significant degree of control over the quality of the management of the underlying properties.

Our International Operations are subject to foreign government risk and stability risk.

Foreign governments have different laws and policies than the U . S . government.  They may change their laws and policies in ways that harm or limit our operations.  Such actions may include, but are not limited to, directly competing with us and nationalizing our operations without providing us with fair compensation.  They also may enact laws that make it more difficult for foreign companies to do business, thereby giving local competitors an advantage.  South Africa and other countries impose exchange controls that regulate how money enters and leaves the country.  These laws could be changed in ways that are adverse to us.  Our ability to anticipate, control or counteract these risks is very limited.

Foreign countries have social and economic stability risks that are different than the U . S.  South Africa has experienced some social unrest in the past and if that were to continue our operations and investments there could be adversely affected.

The application of international tax regimes could substantially affect our after tax results from International Operations .

Income we earn abroad is subject to an entirely different set of tax risks than income we earn domestically.  We are subject to the laws of the various jurisdictions in which we earn income, or through which our income must move in order for us to receive it in the U . S.  International treaties also govern these tax consequences.  If any of these laws or treaties changes, it could adversely impact our projected after-tax results.

Our International Operations are subject to additional real estate risks as compared to our U . S . Operations, including laws and customs related to real estate ownership and finance.

The SAWHF , IHS Residential Partners I and IHS Fund II invest in real estate in South Africa.  While many of the risks are similar to investing in U . S . real estate, there are legal and market differences that result in higher risks, which may adversely impact our operations and our results.  In addition, the IHS Fund II may invest in countries outside of South Africa.  We have limited experience outside of South Africa and we might face additional risks which we have not identified and which we are not sufficiently prepared to address.

Our International Operations include investments in funds that have investments in for-sale units, meaning adverse conditions in the mortgage market could affect the value of those units.

The SAWHF , IHS Residential Partners I and IHS Fund II investments include for-sale units.  If buyers have difficulty obtaining mortgages or other financing, unit sales and, therefore, the value of our interests in these ventures, could be adversely affected. 

We are at risk of key employee turnover.

We are vulnerable to key talent turnover and our business operations could suffer if we were unable to find suitable replacements on a timely basis.   This risk is higher because our employee headcount is relatively small .

Risks Relating to Ownership of Our Shares

Our Rights Plan could depress our share price.

Under the Rights Plan, the acquisition by an investor (or group of related investors) of greater than a 4.9% stake in the Company, could result in all existing shareholders other than the new 4.9% holder having the right to acquire new shares for a nominal cost, thereby significantly diluting the ownership interest of the acquiring person.  By discouraging acquisitions of greater than a 4.9% stake in the Company, the Rights Plan might limit takeover opportunities and, as a result, could depress our share price .  At December 31, 2015, we have one shareholder with a   greater than 4.9% (5.5%) stake in the Company .  

Our Board of Directors (“Board”) can issue an unlimited number of common or preferred shares, which could reduce our book value per common share and earnings per common share and the cash or other assets available for distribution per common share upon liquidation or otherwise.

Under our Operating Agreement, subject to N asdaq Capital Market rules imposing some limitations on our ability to issue shares without shareholder approval, our Board can authorize, the issuance of an unlimited number of common shares without obtaining shareholder approval .  Issuances of common shares could dilute the book value or the net income per common share or the cash per share available for distribution to common shareholders.  Our Board can also authorize, without any requirement of shareholder approval other than those imposed by N asdaq Capital Market , the issuance of an unlimited number of shares with preferences over the common shares as to dividends, distributions on liquidation and other matters, other than voting.  This could reduce the book value and net earnings that would be allocable to our common shares and the cash or other assets that are available for distribution to our common shareholders either periodically or upon our liquidation.

Provisions of our Operating Agreement may discourage attempts to acquire us. 

Our Operating Agreement contains at least three groups of provisions that could have the effect of discouraging people from trying to acquire control of us.  Those provisions are:

The above provisions could deprive our shareholders of opportunities that might be attractive to many of them.

Our shares are thinly traded and , as a result, the price at which they trade may not reflect the ir   full intrinsic value .

Although we are traded on N asdaq Capital Market, our shares are thinly traded and we do not have analysts actively tracking and publishing opinions on the Company and our stock.  Additionally, when we repurchase our shares, the number of shares outstanding is reduced, which has the effect over time of further decreasing the trad ing volume of our shares.  Accordingly, the trading price of our shares may not reflect their full intrinsic value.