5.06.06 confidential #5261633v1 issues in real estate transactions involving affordable rental...

5.06.06Confidential #5261633v1

Issues in Real Estate Transactions Involving

Affordable Rental Housing For Urban Re-Development

Stephanie M. M. Smith500 Woodward Avenue

Suite 3500Detroit, MI 48226

[email protected]


• FIRST, THE NOTION HERE IS NOT JUST TO GET THE JOB DONE, BUT TO REBUILD COMMUNITIES, LIVES AND RECONSTRUCT CULTURAL MORES AND NORMS.

• SECOND, THE LEGALITY OF STRUCTURING A DEAL CAN BE QUITE HARROWING TO SAY THE LEAST WITH VARIOUS ENTITY FORMATIONS AND LASAGNA FINANCING.

• THIRD, THE CLIENT MOST LIKELY WILL BE UNSOPHISTICATED IN UNDERSTANDING THE DEVELOPMENT PROCESS AND IS DRIVEN TO DEVELOP FROM AN EMOTIONAL STANDPOINT AND NOT MERELY AN ECONOMICAL STANDPOINT.

THE ROLE OF A DEVELOPMENT ATTORNEY DIFFERS FROM A TRADITIONAL COMMERICAL

REAL ESTATE ATTORNEY

THE ROLE OF A DEVELOPMENT ATTORNEY DIFFERS FROM A TRADITIONAL COMMERICAL

REAL ESTATE ATTORNEY


1. Non-profit Organization

2. Joint Venture Partnership

3. Limited Dividend Housing Association Limited Partnership

ESTABLISHING AND STRUCTURING THE VARIOUS LEGAL EXISTENCES OF THE ENTITY TO TAKE TITLE TO THE

PROPERTY

ESTABLISHING AND STRUCTURING THE VARIOUS LEGAL EXISTENCES OF THE ENTITY TO TAKE TITLE TO THE

PROPERTY


• Non-Profit Organization will form a Community Development Corporation (“CDC”), which allows the 501 (c) (3) organization to provide services to community for housing, jobs, and commercial space.

• The CDC may form a more discrete entity such as the Community Housing Development Organization (“CHDO”) for the sole process of developing affordable housing.

• Board members of the CDC consist of local residents who are generally not in the business of real estate development or finance.

1. Non-Profit Organization 1. Non-Profit Organization 1. NON-PROFIT ORGANIZATION1. NON-PROFIT ORGANIZATION


• Generally, the CDC will form a joint venture partnership with a for-profit developer to increase the likelihood of success for financing and completing the project.

• Generally, a for-profit developer (“for-profit”) will be encouraged to joint venture with a CDC to achieve access/connection to the community.

• The CDC will maintain a 51% interest in the partnership and the for-profit will maintain a 49% interest in the partnership.

2. JOINT VENTURE PARTNERSHIP2. JOINT VENTURE PARTNERSHIP


• The Joint Venture will agree to structure a limited dividend housing association limited partnership (“LDHA-LP”) to allow the partners to seek tax credit financing.

• The Non-Profit will form a for-profit wholly-owned subsidiary and the For-Profit will form a single-purpose entity, such as a limited liability company. These formed entities will act as the Co-General Partners in the LDHA-LP maintaining a .01% interest in the LDHA-LP.

• The Non-Profit will act as the Initial Limited Partner in the LDHA-LP. This entity will maintain a 99.99% interest in the LDHA-LP.

3. LIMITED DIVIDEND HOUSING ASSOCIATION LIMITED PARTNERSHIP

3. LIMITED DIVIDEND HOUSING ASSOCIATION LIMITED PARTNERSHIP


Maplewood LDHA-LP

( Non-Profit For-ProfitSubsidiary- 51%)

Maplewood Inc.

.005%Co-General Partner

(For-Profit Single-Purpose Entity- 49%)

Jam Maplewood, LLC.005%

Co-General Partner

(Non-Profit)

Maplewood CDC

99.99%Initial Limited Partner

THE LDHA-LP SCHEMATIC STRUCTURE

THE LDHA-LP SCHEMATIC STRUCTURE


KEY ISSUES IN NEGOTIATING AND STRUCTURING THE PARTNERSHIP

AGREEMENTS

KEY ISSUES IN NEGOTIATING AND STRUCTURING THE PARTNERSHIP

AGREEMENTS

1. Pre-Development Agreement

2. Limited Partnership Agreement


• KEY CONCERNS:– Roles and Responsibilities for the Non-Profit and the For-

Profit Partners– The Specifics of the Development Project– Terms and Conditions of the Financing Structure– Developer’s Fee Provision– Remedies/Liabilities Provision

1. PRE-DEVELOPMENT AGREEMENT 1. PRE-DEVELOPMENT AGREEMENT


• KEY CONCERNS:– The roles and responsibilities of the co-general partners

as it relates to the Partnership– The Capital Contributions and Percentage of Interests– Powers, Restrictions, and Responsibilities– Distribution on Termination– Tax Matters

• The Co-General Partners are designated as tax matters partner of the partnership and shall engage in such undertakings as are required of the tax matters partner of the partnership as provided in regulations pursuant to Section 6231 of the Code

2. LIMITED PARTNERSHIP AGREEMENT

2. LIMITED PARTNERSHIP AGREEMENT


• CONSTRUCTION AGREEMENT– Details the construction schedule, pay-ins, and eligible

basis for getting tax credits

• MANAGEMENT/MARKETING AGREEMENT– Details the manner in which the premises are to be

maintained in a manner suitable to the equity lenders and the governing state and local regulations

MOST-NEGOTIATED THIRD PARTY AGREEMENTS

MOST-NEGOTIATED THIRD PARTY AGREEMENTS


• KNOW THE CONSUMER MARKET– Census data (population and income) existing services, market

studies, financial proformas, target/market rent

• KNOW THE SUPPORT MARKET– Investor Support (traditional, government, foundations), government

support, non-profit-support, residential association support• What are the important sources and attached regulations (New

Market Tax Credits, Historic Tax Credits, Community Development Block Grants)

• How to leverage one funding source with another• How to effectively use debt• Combination with familiar sources (i.e., Low Income Housing Tax

Credits, HOME Funds, etc.)• Using the Government: public improvements, architectural services,

etc.

THE PARTNERSHIP MISSION AND FINANCING

THE PARTNERSHIP MISSION AND FINANCING


REVIEW AND NEGOTIATE THE LOAN DOCUMENTS FROM ALL POSSIBLE

SOURCES OF FUNDING

REVIEW AND NEGOTIATE THE LOAN DOCUMENTS FROM ALL POSSIBLE

SOURCES OF FUNDING

Tax Syndication Loans via:

Low-Income Housing Tax Credits Historic Tax Preservation Credits New Market Tax Credits

Community Development Block Grants (“CDBG”)

HOME Loans

Private Bank Loans


REVIEW AND ENSURE REGULATORY DOCUMENTS ARE IN PLACE AND THAT

ENTITY COMPLIES FULLY WITH ALL LOCAL LAWS AND REGULATIONS

REVIEW AND ENSURE REGULATORY DOCUMENTS ARE IN PLACE AND THAT

ENTITY COMPLIES FULLY WITH ALL LOCAL LAWS AND REGULATIONS

Title Work

Environmental Reports

Site Control Letters

Site Plan Approvals

Market Study

Zoning Letter

Non-Profit Status Letter


RE-EXAMINING THE PROJECT WITH THE OWNERSHIP ENTITY TO ENSURE ITS

CAPABILITY OF MAINTAINING AN OWNERSHIP OR RENTAL COMMUNITY THROUGHOUT THE

LIFE OF THE PROJECT

RE-EXAMINING THE PROJECT WITH THE OWNERSHIP ENTITY TO ENSURE ITS

CAPABILITY OF MAINTAINING AN OWNERSHIP OR RENTAL COMMUNITY THROUGHOUT THE

LIFE OF THE PROJECT

UNDERSTAND THE EXIT STRATEGIES FOR THE VARIOUS FINANCING NEEDED TO FUND THE

PROJECT.


Any Questions?

Thank You

Stephanie M. M. Smith500 Woodward Avenue

Suite 3500Detroit, MI 48226

[email protected]

5.06.06 confidential #5261633v1 issues in real estate transactions involving affordable rental...

Documents

nonprofit organization

ldha lp

initial limited partner

5261633v1 issues

affordable housing

property slide

development attorney

development process