htc deal structuresstep by step iped htc developers conference february 8, 2008 mark einstein
TRANSCRIPT
HTC Deal Structures—Step by Step
IPED HTC Developer’s ConferenceFebruary 8, 2008
Mark Einstein
Reznick Group Building Business Value 2
Engage historic consultant & submit Parts I & II
Develop equity package for HTC investor
Negotiate Letter of Intent with investor
Prepare documents
Close equity deal
Process to Close HTC Deal
Deal should close within 75 – 90 days of receiving Part II approval, depending on deal complexity and negotiation timing
HTC Lease Pass-Through
HTC Deal Structures—Step by Step
Reznick Group Building Business Value 4
For $10MM in tax credits
$1.15 equity per credit $ 2.5% preferred return on tax
credit equity 15% put five years after
placed in service
Pricing in This ExampleActual pricing will vary depending on…
Deal size and complexity
Market conditions Needs of developer
SpeedEquity up front versus over time
Developer reputation and credit risk
Investor experience
Reznick Group Building Business Value 5
Project
Project Inception—A New Project
ManagingMember
DeveloperMember
0.01%99.99%
Reznick Group Building Business Value 6
Project
Adding Debt Capital
ManagingMember
DeveloperMember
Mortgage Loan
Lender
Reznick Group Building Business Value 7
Project
Closing—Step 1, Create Master Tenant
ManagingMember
DeveloperMember
0.01% 99.99%
Master Tenant
Tax Credit Investor
Reznick Group Building Business Value 8
Project
Closing—Step 2, MT Invests in Project
ManagingMember
DeveloperMember
79.99% *20%
Master Tenant
Tax Credit Investor
* Ownership split of Project between Developer and Master Tenant may vary
Reznick Group Building Business Value 9
Project
Before Placed in Service
ManagingMember
DeveloperMember
Master Tenant
Tax Credit Investor
Long-term Lease of Building(typically 32 years)
Reznick Group Building Business Value 10
Project
Placed in Service
ManagingMember
DeveloperMember
Master Tenant
Tax Credit Investor
$10 MM Tax Credit
Reznick Group Building Business Value 11
Project
Tax Credit Distribution
ManagingMember
DeveloperMember
Master Tenant
Tax Credit Investor
$10 MM Tax Credit
$10 MM Tax Credit
Reznick Group Building Business Value 12
Master Tenant
Tax Credit Investor
Project
Operations—Step 1, MT Operates Building
ManagingMember
Space Tenant
Rent
DeveloperMember
Reznick Group Building Business Value 13
Master Tenant
Tax Credit Investor
Project
Operations—Step 2, MT Pays Lease
ManagingMember
Space Tenant
Rent
DeveloperMember
Lease Payment
Note: Lease Payment generally NOI less preferred return
Reznick Group Building Business Value 14
Master Tenant
Tax Credit Investor
Project
Operations—Step 3, Debt Service
ManagingMember
Space Tenant
Rent
DeveloperMember
Lender
Debt Service
Lease Payment
Reznick Group Building Business Value 15
Master Tenant
Tax Credit Investor
Project
Operations—Step 4, Project Distribution
ManagingMember
Space Tenant
20% Profits & Losses +Special Allocations
80% Profits & LossesLess Special Allocations
DeveloperMember
RentLease Payment
Reznick Group Building Business Value 16
Master Tenant
Tax Credit Investor
Project
Operations—Step 5, MT Distribution
ManagingMember
Space Tenant
DeveloperMember
20% Profits & Losses +Special Allocations
80% Profits & LossesLess Special Allocations
Rent
Preferred Return +20% Project Profits & Losses +Special Allocations
Note: Preferred Return to Investor taken from difference between Rent and Lease Payments
Lease Payment
Reznick Group Building Business Value 17
Master Tenant
Tax Credit Investor
Project
Exercise of Put—Sixth Year After Placed In Service Date
ManagingMember
Space Tenant
DeveloperMember
20% Profits & Losses +Special Allocations
80% Profits & LossesLess Special Allocations
Rent
$1.7 MM
Interest in MT
Lease Payment
Reznick Group Building Business Value 18
Master Tenant
Project
After Exercise of Put
ManagingMember
Space Tenant
DeveloperMember
20% Profits & Losses +Special Allocations
80% Profits & LossesLess Special Allocations
Rent
Preferred Return +20% Project Profits & Losses +Special Allocations
Lease Payment
HTC Sandwich Lease
HTC Deal Structures—Step by Step
Reznick Group Building Business Value 20
Rent Less Sub-lease Payment
Master Tenant
Tax Credit Investor
Project
Operations—New Step, MT II Distribution
ManagingMember
Master Tenant
II
Space Tenant
RentSub-lease PaymentLease Payment
$10 MM Tax Credits +20% Profits & Losses +Special Allocations
80% Profits & Losses;Less Special Allocations
Note: Master Tenant “sandwiched” between Project & MT II; upside rents trapped at MT II
DeveloperMember
DeveloperEntity
Reznick Group Building Business Value 21
Reznick Group Building Business Value 22
Golden Belt- May 2007
Reznick Group Building Business Value 23
Golden Belt- December 2007
Reznick Group Building Business Value 24
Golden Belt- July 2008
Reznick Group Building Business Value 25
Golden Belt- July 2008
Reznick Group Building Business Value 26
Golden Belt- What it Takes