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
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.
Year 15 Dispositions
• Nonprofit ROFR
• Sale of the property
• Sale or Transfer of Interest(s)
• Put/Call options
• Qualified contract
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?
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.
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
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.
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
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
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
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
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
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
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
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
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
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
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
Partnership Agreement is GPS System
20
You’ve Arrived at Your Destination
21
IRC §704(b) is Your Guard Rail
22Photo courtesy mrhayata; flickr
• 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
• 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
Year 15 DispositionsMODERATOR PANELISTS
Brad WeinbergNovogradac & Company LLP
Tim FlintCBRE Affordable Housing
Thomas StaggNovogradac & Company LLP
Dean WalstonKeyBank