secondary transactions the whys + wherefores of buying + selling · 2020-04-21 · secondary...

Secondary Transactions

The Whys + Wherefores of Buying +

Selling

2020 Webinar Series

Speakers:

- Brian Coffee, Synovus

- Michael Egidi, Capital One

- Beth Mullen, CohnReznick

Moderator:

- Dennis Donovan, Bank of America

How Big is the Secondary

Market?

– $1 to $1.5 Billion?

– How Much Does Everyone Really

See?

Why Sell?

Do You Ever Sell If You Don’t Have

To?

Investment Limits

Investors Do Not Have Unlimited Capital

Why Sell?– Concentration

• Syndicator

• Developer

• Location

– Tax Capacity

– BEAT

– Stabilize Earnings

– Equity Limits

– Recycle CRA

Why Buy?

Yield, Tax, Earnings, CRA, Reduced Risk

Why Buy?

– Earnings

– Tax Benefits

– CRA

– Reduce Construction and/or Lease-up Risk

– Ease of Execution if Already in a Fund

Managing the Sale Internally

Gains, Staffing, Relationships

Internal Expectations

– Book Gain

– Timing Expectations

– CRA Impact

– Clients: Developer & Syndicators

– Transaction Costs

– Adverse Selection on Portfolio?

Negotiated Sale or RFP?

Price versus Publicity?

Negotiated Sale or RFP?

– How Widely Do You Want this Known?

– How to Discuss with Syndicators &

Developers?

– What Impact on Pricing?

– What is Management Willing to Accept?

– Staffed to Handle or Need Help?

– How Marketable is Your Fund?

Due Diligence?

– How Hard or Easy?

– Syndicators & Developers Assist?

Due Diligence?– Already in Fund?

– Financial Statement of Developer?

– Use Actual Results to Reforecast

– Permanent Lender Issues

– Construction Issues – Waivers, Reports

– Physical Needs Assessment

– Environmental Updates?

– Appraisals & Market Study Updates?

– Insurance Issues?

– 3rd party Pricing Review?

– Tenant Files?

– Trust and Reputation Issues

Secondary Premium?

How Marketable is My Investment?

How Marketable?

-Direct? Proprietary? Multi-Investor?

-Specific Locations Or Diversity?

-Syndicator & Developer Preferences?

-Size – Too Big? Too Small?

-Capital Losses & 754

Capital Losses Matter?

Do Large Capital Losses Affect Marketability?

Capital Losses

Assumed Tax Rate 21%

Equity

Contribution Federal Credit Tax Losses/(Inc.)

Tax Loss/(Gain)-

Sale IRR w/Cap Gain IRR wo/Cap Gain

(39,800,000) (39,800,000)

2022 39,800,000 10,151,037 4,175,261 11,027,842 11,027,842

2023 9,821,313 4,153,147 10,693,474 10,693,474

2024 7,282,209 3,851,692 8,091,064 8,091,064

2025 5,720,272 3,344,944 6,422,710 6,422,710

2026 2,736,744 3,130,173 3,394,080 3,394,080

2027 1,882,139 3,081,101 2,529,170 2,529,170

2028 624,063 2,979,720 1,249,804 1,249,804

2029 3,159,562 663,508 663,508

2030 2,126,554 446,576 446,576

2031 1,681,960 353,212 353,212

2032 981,590 7,134,297 1,704,336 206,134

Total 39,800,000 38,217,777 32,665,703 7,134,297

5.1% 4.3%

Price per credit 1.041$

Consents

Syndicators, Developers, Lenders, GSE, Other

Consents– Transfer Taxes

– State Review?

– Developer Consents, Legal, and…

restructure?

– Lender Consents, Loan Fees & Legal

– Syndicators:

• Fees: In Existing Documents?

• Consents: In Existing Documents?

• Pricing: Syndicator Willing to Provide?

• What Level of Due Diligence?

754 Elections

Step Up/Step (Down)

Step Up/Step Down Calculation

Seller Capital Account Analysis

Original Purchase Price 55,661,101

Tax (Losses) (11,554,228)

Seller's Tax Basis 44,106,873

Buyer Purchase Price 39,800,000

Step Up/(Down) (4,306,873)

Amortize into income over time

Q&A