year 15 dispositions - novogradac & company llp · – gp buyout of lp interest. • generally...
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Year 15 DispositionsMODERATOR PANELISTS
Brad WeinbergNovogradac & Company LLP
Tim FlintCBRE Affordable Housing
Thomas StaggNovogradac & Company LLP
Dean WalstonKeyBank
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Year 15 Dispositions
• Start Early– All parties should be communicating early and often.
• What do the documents say?– Understand what the docs call for and discuss/confirm
understanding with all parties.
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Year 15 Dispositions
• Nonprofit ROFR
• Sale of the property
• Sale or Transfer of Interest(s)
• Put/Call options
• Qualified contract
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Year 15 Dispositions
• Nonprofit ROFR– Debt plus applicable LP income taxes.
– Likely still requires consent of lenders and consent/notification of state agency.
– May still trigger RE transfer taxes.
– Who pays legal costs?
– What if the nonprofit can’t/won’t pay?
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Year 15 Dispositions
Sale of the property vs.
Sale of Interest(s)
• Determine this as early as possible to avoid drafting multiple versions of documents.
• Agreement may specify but generally always negotiable.• Market sale can be structured either way.
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Year 15 Dispositions
• Sale of the property– Most common sale structure
– Debt can be repaid or assumed
– Deed needs to be transferred and filed
– Requires wind up of partnership after closing
– RE transfer taxes may apply
– Recapture guarantees prior to Y15• Guarantees from buyer
• Recapture bonds
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Year 15 Dispositions
• Sale or Transfer of Interest(s)– Either or both interests can be sold at market. – GP buyout of LP interest.
• Generally requires agreement on value of interest.
– Documentation may be more difficult in market sale scenario due to reps and warranties.
– Recapture considerations.• Existing guarantees if GP buyout of LP interest.• New guarantees from buyer in market prior to Y15.• Recapture bonds.
– RE transfer taxes may apply.
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Year 15 Dispositions
• Put/Call Options– Do the docs specify how to determine value?
• Appraisal vs. BOV• What if there is disagreement?
– Common areas of disagreement• RE Taxes• Insurance• Expenses• Comps/Cap rates• Capital needs
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Year 15 Dispositions
• Qualified contract– Often waived in LURA on newer deals
– Many states have a specific process/form
– Outstanding indebtedness plus adjusted investor equity
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LIHTC Market Overview
3.8 MillionRegulated Affordable Units in the US
20%of all multifamily is regulated affordable
$205BTotal real estate value of regulated affordable properties
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LIHTC Cap Rates and PPU
RegionMedian $/Unit
Median Cap Rate
West Coast $70,121 6.07%
Mountain West $101,667 5.88%
Southwest $43,572 6.00%
Midwest $47,135 6.81%
Northeast $56,567 6.51%
Southeast $57,435 6.32%
*As of Sept 2017, per CBRE Affordable Housing database
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Buyer Profiles
17% 12% 19%27%
44%
53% 64% 54% 42%
38%4%
4% 6% 8%
5%25% 19% 21% 22%12%
1% 1%
2013 2014 2015 2016 2017 (to date)
Development Co./ Tax Credit DeveloperInvestment CompanyNot For Profit/ Housing AuthorityPrivate Individual
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Geographical Buyer Preferences
18% 18% 15%7% 10%
42% 48%44%
67% 66%
40% 34%42%
26% 24%
2013 2014 2015 2016 2017 (to date)
Local National Regional
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Buyer Strategy
35% 31% 35%25% 25%
5% 15%15%
9% 6%
47% 36% 33%
42%
24%
11%12% 15%
24%
41%
2% 6% 2% 1%4%
2013 2014 2015 2016 2017 (to date)
Management Upside Market Conversion Stabilized Current YieldTax Credit Execution Physical Improvement
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Buyer Primary Debt Source
21% 27% 28% 35%23%
8% 8%9%
9%
7%
3%4%
7%
4%
3%
32% 17%
26%24%
45%
19% 29%
18% 12%15%12% 15% 10%
3%
7%5% 1% 2%
12%1%
2013 2014 2015 2016 2017 (to date)
Bank Loan Other Bridge Fannie Mae Freddie Mac No debt State Housing Authority
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Typical options available to partners
Purchase of Partnership Assets
IRC704(b) limitation
Purchase of LP interest
Special options available to Non-
Profits
Option is not guaranteed in IRC
Section 42 – must be in agreement
Year 15 Options
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Special Option for Non-Profit• Right of First Refusal
– Nonprofits MAY have option price of:
• Partnership debt +
• Taxes (i.e. exit taxes)
(Great Deal! If taxes don’t exist, then just assume debt!)
– Not always as easy as it seems it should be
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Things to consider:
• Impact of capital accounts– Partnership agreement vs 704(b)
• Who controls the timing
• Partnership agreement generally contemplate a purchase of the assets
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Fair Market Value Option
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Partnership Agreement is GPS System
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You’ve Arrived at Your Destination
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IRC §704(b) is Your Guard Rail
22Photo courtesy mrhayata; flickr
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• 704(b) requires liquidation on positive capital accounts.
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Impact of Capital Account
Gain split 20%- LP/80% - GP Remaining cash split 20% - LP/ 80% - GP
Gain:Cash:LP Equity:GP Equity:
$5 mil$6 mil$1 mil$0 mil
Gain Allocation
$5 mil
$1.0 mil$4.0 mil
Cash Allocation
$6 mil$1.2 mil$4.8 mil
EndingCapital
$800K-$800K
704(b) Won’t Allow
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• 704(b) requires liquidation on positive capital accounts.
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Impact of Capital Account
Gain split 20%- LP/80% - GP Remaining cash split 20% - LP/ 80% - GP
Gain:Cash:LP Equity:GP Equity:
$5 mil$6 mil$1 mil$0 mil
Gain Allocation
$5 mil
$1.0 mil$4.0 mil
Cash Allocation
$6 mil$2.0 mil$4.0 mil
EndingCapital
$0K$0K
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Year 15 DispositionsMODERATOR PANELISTS
Brad WeinbergNovogradac & Company LLP
Tim FlintCBRE Affordable Housing
Thomas StaggNovogradac & Company LLP
Dean WalstonKeyBank