In this Management's Discussion and Analysis, the "Partnership" refers to America First Tax Exempt Investors, L.P. and MF Properties on a consolidated basis and the "Company" refers to the consolidated financial information of the Partnership and certain entities that own multifamily apartment projects financed with mortgage revenue bonds held by the Partnership that are treated as "variable interest entities" ("VIEs") because the Partnership has been determined to be the primary beneficiary of these entities although it does not hold an equity position in them. The consolidated financial statements of the Company include the accounts of the Partnership, the MF Properties and the VIEs. All significant transactions and accounts between the Partnership, the MF Properties and the VIEs have been eliminated in consolidation.

Critical Accounting Policies

The Company's critical accounting policies are the same as those described in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. There have been no changes to those critical accounting policies during 2008, except that the Company implemented SFAS No. 157, Fair Value Measurements, on January 1, 2008 as described in Note 11.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Executive Summary

Recently the Company has faced a challenging operating environment as the credit and capital markets have continued to deteriorate. Although the consequences of the credit and capital market issues are not fully known, we do not anticipate that our existing assets will be adversely affected in the long-term by these events. If uncertainties in these markets continue, the markets deteriorate further or the Company experiences further deterioration in the values of its investment portfolio, the Company may recognize impairments to its investment portfolio through earnings which could negatively impact the Company's results of operations and ability to make cash distributions at planned levels.

The Company does not issue mortgage loans secured by mortgages on single-family residential properties. In addition, we believe that additional demand for affordable rental housing may be created if there are continued defaults on sub-prime single family mortgages and a general contraction of credit available for single family mortgage loans. Additional demand for rental housing may have a positive economic effect on apartment properties financed by the tax-exempt bonds held by the Company. While we believe the current tightening of credit may also create opportunities for additional investments consistent with the Company's investment strategy because there may be fewer parties competing to acquire tax-exempt bonds issued to finance affordable housing, there can be no assurance that we will be able to finance the acquisition of additional tax-exempt bonds through either additional equity or debt financing.

Historically, our primary leverage vehicle has been the Merrill Lynch P-Float program. Credit rating downgrades at Merrill Lynch resulted in a significant increase in Merrill Lynch's cost of borrowing which, in turn, resulted in a significantly higher interest rate on the Company's P-Float financing. As discussed in Note 5 to the financial statements, on June 26, 2008, the Company effectively replaced the Merrill Lynch P-Float program by entering into an agreement for a new tender option bond credit facility ("TOB facility") agreement with Bank of America. The new TOB facility functions in much the same fashion as the P-Float program. In connection with the TOB facility tax-exempt mortgage revenue bonds are placed into trusts which issue senior securities (known as "Floater Certificates") to unaffiliated institutional investors and subordinated residual interest securities (known as "Inverse Certificates") to the Company. Net proceeds generated by the sale of the Floater Certificates are then remitted to the Company and accounted for as secured borrowings and, in effect, provide variable-rate financing for the acquisition of tax-exempt mortgage revenue bonds and other investments meeting the Company's investment criteria and for other purposes. The new TOB facility is a one year agreement with a one year renewal option by Bank of America and bears a variable interest rate at a weekly floating bond rate, the Securities Industry and Financial Markets Association ("SIFMA") floating index, plus associated remarketing, credit enhancement, liquidity and trustee fees.

On June 26, 2008, as part of the new TOB facility, Bank of America funded a $65.1 million bridge loan which was used to retire the Merrill Lynch P-float program debt. On July 3, 2008, the new TOB facility was closed and the resulting Floater Certificates were sold. The closing of the TOB facility resulted in debt proceeds of approximately $76.7 million. After repayment of the bridge loan and related fees and expenses, net proceeds of approximately $10.8 million were remitted to the Company for investment in additional tax-exempt mortgage bonds and other investments consistent with its investment policies and for other purposes. The initial variable interest rate at closing of the TOB facility was 3.27% calculated as the SIFMA index of 1.62% plus fees of 1.65%. During the three months ended September 30, 2008 and 2007, the Company's average effective interest rate on the TOB facility and P-Float program was approximately 4.2% and 4.5%, respectively. During the nine months ended September 30, 2008 and 2007, the Company's average effective interest rate on the P-Float and TOB facility was approximately 4.5% and 4.4%, respectively.

Discussion of the Partnership Bond Holdings and the Related Apartment Properties as of September 30, 2008

The Partnership's purpose is to acquire and hold as long-term investments a portfolio of federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. At September 30, 2008, the Partnership held 19 tax-exempt mortgage bonds (secured by 17 properties), eight of which are secured by properties held by VIEs and, therefore, eliminated in consolidation on the Company's financial statements. The nine properties underlying the eleven non-consolidated tax-exempt mortgage bonds contain a total of 1,137 rental units. At September 30, 2007, the Partnership held ten non-consolidated tax-exempt mortgage bonds secured by eight apartment properties containing a total of 1,034 rental units.

To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by multifamily apartment properties, the Partnership may acquire ownership positions in apartment properties ("MF Properties"). The Partnership expects to ultimately restructure the property ownership through a sale of the MF Properties and a syndication of low income housing tax credits ("LIHTCs"). The Partnership expects to provide the tax-exempt mortgage revenue bonds to the new property owners as part of the restructuring. Such restructurings will generally be expected to be initiated within 36 months of the initial investment in MF Properties and will often coincide with the expiration of the compliance period relating to LIHTCs previously issued with respect to the MF Property. However, the market for syndicated LIHTCs has become very difficult over the last few quarters and there can be no assurance that these syndications and restructurings can be successfully completed within this time frame, or at all. The Partnership will not acquire LIHTCs in connection with these transactions. As of September 30, 2008 and 2007, the Partnership held indirect limited partnership interests in seven entities that own MF Properties containing a total of 668 rental units including a 124 unit apartment complex in Chesapeake, Virginia ("Churchland") that was acquired on August 29, 2008.

The VIEs' primary operating strategy focuses on multifamily apartment properties as long-term investments. Each VIE owns one multifamily apartment property that has been financed by a tax-exempt mortgage revenue bond held by the Partnership. As of September 30, 2008 and 2007, the Company consolidated eight VIE multifamily apartment properties containing a total of 1,764 rental units.

                                                                            Economic
                                                                         Occupancy (1)
                                                        Percentage of   for the period
                                             Number  Occupied Units as       ended
                                    Number  of Units of September 30,    September 30,
Property Name        Location      of Units Occupied     2008     2007     2008     2007

Non-Consolidated
Properties
Clarkson College     Omaha, NE          142      120      85%      92%      67%      72%
Bella Vista          Gainesville,
Apartments           TX                 144      140      97%      92%      93%      66%
Woodland Park   (2)  Topeka, KS         236      n/a      n/a      n/a      n/a      n/a
Runnymede
Apartments   (3)     Austin, TX         252      165      65%      n/a      69%      n/a
Gardens of
DeCordova   (2)      Granbury, TX        76      n/a      n/a      n/a      n/a      n/a
Gardens of           Weatherford,
Weatherford   (2)    TX                  76      n/a      n/a      n/a      n/a      n/a
Bridle Ridge
Apartments   (3)     Greer, SC          152      148      97%      n/a      80%      n/a
Woodlynn
Village   (3)        Maplewood, MN       59       52      88%      n/a      92%      n/a
                                      1,137      625      83%      92%      77%      70%

VIEs
Ashley Pointe at     Evansville,
Eagle Crest          IN                 150      140      93%      94%      95%      91%
                     Des Moines,
Ashley Square        IA                 144      134      93%      76%      86%      80%
Bent Tree Apartments Columbia, SC       232      219      94%      81%      85%      82%
Fairmont Oaks        Gainsville,
Apartments           FL                 178      171      96%      97%      91%      96%
Iona Lakes
Apartments           Ft. Myers, FL      350      289      83%      72%      66%      74%
Lake Forest          Daytona
Apartments           Beach, FL          240      229      95%      87%      91%      88%
Woodbridge Apts. of  Bloomington,
Bloomington III      IN                 280      275      98%     100%      92%      93%
Woodbridge Apts. of  Louisville,
Louisville II        KY                 190      179      94%      97%      92%      91%
                                      1,764     1636      93%      87%      85%      86%

MF Properties
Eagle Ridge          Erlanger, KY        64       55      86%      84%      79%      86%
                     Highland
Meadowview           Heights, KY        118      109      92%      85%      95%      88%
                     Cincinnati,
Crescent Village     OH                  90       80      89%      92%      86%      94%
                     Columbus
                     (Hilliard),
Willow Bend          OH                  92       82      89%      95%      85%      95%
                     Reynoldsburg,
Postwoods I          OH                  92       89      97%      90%      89%      91%
                     Reynoldsburg,
Postwoods II         OH                  88       83      94%      91%      92%      90%
                     Chesapeake,
Churchland (3)       VA                 124      106      85%      n/a      85%      n/a
                                        668      604      90%      90%      87%      91%

(1) Economic occupancy is presented for the nine months ended September 30, 2008 and 2007, and is defined as the net rental income received divided by the maximum amount of rental income to be derived from each property. This statistic is reflective of rental concessions, delinquent rents and non-revenue units such as model units and employee units. Actual occupancy is a point in time measure while economic occupancy is a measurement over the period presented, therefore, economic occupancy for a period may exceed the actual occupancy at any point in time.
(2) These properties are still under construction as of September 30, 2008, and therefore have no occupancy data.
(3) Previous period occupancy numbers are not available, as this is a new investment.

Ashley Square - Ashley Square Apartments is located in Des Moines, Iowa. In the first nine months of 2008, Net Operating Income was $207,000 as compared to $174,000 in 2007. This increase was the result of higher property revenue from improved occupancy.

Bella Vista -Bella Vista Apartments is located in Gainesville, Texas. June 2007 was the first full month of operations at Bella Vista. In the first nine months of 2008, Bella Vista's operations resulted in Net Operating Income of $416,000 on revenue of approximately $738,000.

Bent Tree - Bent Tree Apartments is located in Columbia, South Carolina. In the first nine months of 2008, Net Operating Income was $552,000 as compared to $549,000 in 2007. This increase was the result of higher property revenue from improved occupancy but offset by higher real estate taxes and utilities expense.

Bridle Ridge Apartments -- Bridle Ridge Apartments is located in Greer, South Carolina. In the first nine months of 2008, Bridle Ridge Apartments' operations have resulted in Net Operating Income of $566,000 on revenue of approximately $773,000.

Clarkson College - Clarkson College is a 142 bed student housing facility located in Omaha, Nebraska. In the first nine months of 2008, Net Operating Income was $300,000 as compared to $342,000 in 2007. The decrease is attributable to lower revenues due to lower occupancy.

Crescent Village - Crescent Village Townhomes is located in Cincinnati, Ohio. In the first nine months of 2008, Crescent Village's operations resulted in Net Operating Income of $311,000 on revenue of approximately $566,000.

Eagle Ridge - Eagle Ridge Townhomes is located in Erlanger, Kentucky. In the first nine months of 2008, Eagle Ridge's operations resulted in Net Operating Income of $142,000 on revenue of approximately $342,000.

Fairmont Oaks - Fairmont Oaks Apartments is located in Gainesville, Florida. In the first nine months of 2008, Net Operating Income was $627,000 as compared to $630,000 in 2007. This decrease was the result of slightly higher property insurance contractual expenses offset by slightly higher rental revenues from improved occupancy.

Gardens of DeCordova - The Gardens of DeCordova Apartments is currently under construction in Granbury, Texas and will contain 76 units upon completion. Pre-leasing for finished units has begun and final completion of the project is expected in the fourth quarter. The originally scheduled completion date was August 2008. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The project has an additional five months of capitalized interest reserve sufficient to fund debt service beyond the expected date of completion.

Gardens of Weatherford - The Gardens of Weatherford Apartments is currently under construction in Weatherford, Texas and will contain 76 units upon completion. Construction has been delayed significantly due to planning and zoning issues. The current estimated completion date is August 2009 with some units available for rent prior to that date. The originally scheduled completion date was August 2008. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The owner has represented that it will add funds to the project as required to meet potential funding shortfalls through project completion and stabilization.

Iona Lakes - Iona Lakes Apartments is located in Fort Myers, Florida. In the first nine months of 2008, Net Operating Income was $675,000 as compared to $925,000 in 2007. This decrease was directly related to poor occupancy trends resulting in lower revenues. The decline in occupancy is a reflection of the poor market conditions in the Fort Myers area.

Lake Forest - Lake Forest Apartments is located in Daytona Beach, Florida. In the first nine months of 2008, Net Operating Income was $813,000 as compared to $834,000 in 2007. This decrease was attributable to slightly higher advertising and utility expenses.

Postwoods I - Postwoods Townhomes is located in Reynoldsburg, Ohio. In the first nine months of 2008, Postwoods I's operations resulted in Net Operating Income of $325,000 on revenue of approximately $573,000.

Postwoods II - Postwoods Townhomes is located in Reynoldsburg, Ohio. In the first nine months of 2008, Postwoods II's operations resulted in Net Operating Income of $298,000 on revenue of approximately $513,000.

Runnymede Apartments - Runnymede Apartments is located in Austin, Texas. In the first nine months of 2008, Runnymede Apartments' operations resulted in Net Operating Income of $280,000 on revenue of approximately $1.2 million.

Churchland - The Commons at Churchland is located in Chesapeake, Virginia. Churchland generated approximately $65,000 in Net Operating Income since its acquisition on August 29, 2008.

Willow Bend - Willow Bend Townhomes is located in Columbus (Hilliard), Ohio. In the first nine months of 2008, Willow Bend's operations resulted in Net Operating Income of $335,000 on revenue of approximately $582,000.

Woodbridge at Bloomington - Woodbridge Apartments at Bloomington is located in Bloomington, Indiana. In the first nine months of 2008, Net Operating Income was $814,000 as compared to $840,000 in 2007. The decrease is due to increased real estate taxes.

Woodbridge at Louisville - Woodbridge Apartments at Louisville is located in Louisville, Kentucky. In the first nine months of 2008, Net Operating Income was $611,000 as compared to $555,000 in 2007. This increase was the result of higher property revenue from improved occupancy.

Woodland Park - Woodland Park Apartments is currently under construction in Topeka, Kansas and will contain 236 units upon completion. Finished units have been delivered and are currently leasing. Final completion of the project is expected by April 2009. The originally scheduled completion date was January 2009. The developer and principals have guaranteed completion and stabilization of the project. The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place. The project has an additional four months of capitalized interest reserve sufficient to fund debt service beyond the expected date of completion.

Woodlynn Village - Woodlynn Village is located in Maplewood, Minnesota. In the first nine months of 2008, Woodlynn Village's operations resulted in Net Operating Income of $244,000 on revenue of approximately $394,000.

Results of Operations

Consolidated Results of Operations

The following discussion of the Company's results of operations for the three and nine months ended September 30, 2008 and 2007 should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this report as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

Three Months Ended September 30, 2008 compared to Three Months Ended September 30, 2007 (Consolidated)

                        Change in Results of Operations


                                                     For the Three     For the Three
                                                     Months Ended      Months Ended
                                                     September 30,     September 30,
                                                         2008              2007           Dollar Change
Revenues:
Property revenues                                    $   4,664,068     $   4,438,001     $       226,067
Mortgage revenue bond investment income                  1,016,176         1,143,354            (127,178 )
Other income                                                81,612           128,957             (47,345 )
   Total Revenues                                    $   5,761,856     $   5,710,312     $        51,544

Expenses:
Real estate operating (exclusive of items shown
below)                                                   2,941,474         2,828,252             113,222
Depreciation and amortization                            1,429,172         1,279,426             149,746
Interest                                                   835,382         1,119,930            (284,548 )
General and administrative                                 394,810           374,623              20,187
  Total Expenses                                     $   5,600,838     $   5,602,231     $        (1,393 )

Minority interest in net loss of consolidated
subsidiary                                                     911             5,232              (4,321 )
Net income                                           $     161,929     $     113,313     $        48,616

Property revenues. Property revenues increased mainly as a result of revenue generated by Churchland and improved economic occupancy associated with the apartment properties of the consolidated VIEs. MF Properties economic occupancy was 86% in 2008 and 91% in 2007. MF Properties average monthly rents per unit for the third quarter of 2008 were $648 as compared to $624 in 2007. VIE economic occupancy was 84% in 2008 and 83% in 2007. For the VIEs, the average monthly rents per unit for the third quarter of 2008 were $636 as compared to $612 in 2007.

Mortgage revenue bond investment income. Mortgage revenue bond investment income was lower in 2008 compared to 2007 due to the recognition of deferred interest income in 2007. This was partially offset by interest income generated by new bond investments in 2008. In 2007, deferred interest totaling approximately $258,000 was recognized on one bond investment. No such deferred interest was recognized in 2008. One new bond was acquired in the fourth quarter of 2007 with a total par value of approximately $10.8 million. During the first half of 2008, two bond investments were sold and two additional bond investments were acquired with a total par value of $12.4 million. The net impact of these purchases and sales was an increase in interest income of approximately $131,000.

Other income. The decrease in other interest income is attributable to decreased temporary investments in liquid securities. The proceeds from the sale of Northwoods Lake during the third quarter of 2006 created additional cash that was invested during the second quarter of 2007 in short term liquid securities. Such additional cash was subsequently deployed to acquire long term investments.

Real estate operating expenses. Real estate operating expenses associated with the MF Properties and the consolidated VIEs are comprised principally of real estate taxes, property insurance, utilities, property management fees, repairs and maintenance, and salaries and related employee expenses of on-site employees. A portion of real estate operating expenses are fixed in nature, thus a decrease in physical and economic occupancy would result in a reduction in operating margins. Conversely, as physical and economic occupancy increase, the fixed nature of these expenses will increase operating margins as these real estate operating expenses would not increase at the same rate as rental revenues. The real estate expense increase is related to increased insurance, professional fees, utilities and repairs expenses at the VIEs and the acquisition of Churchland.

Interest expense. The net decrease in interest expense was due to the mark-to-market adjustment on interest rate derivatives offset by interest . . .