year 15 dispositions - novogradac & company llp · – gp buyout of lp interest. • generally...

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.


• Nonprofit ROFR

• Sale of the property

• Sale or Transfer of Interest(s)

• Put/Call options

• Qualified contract


• 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?


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.


• 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


• 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.


• 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


• 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

10/12/2017 19

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.

10/12/2017 23

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.

10/12/2017 24

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

year 15 dispositions - novogradac & company llp · – gp buyout of lp interest. • generally...

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