HAND Housing Year 15 LIHTC Investor Exit

Transcription

1 HAND Housing Year 15 LIHTC Investor Exit Suzanne Welch Sr. RE Officer January 2016

2 Who We Are Community Preservation and Development Corporation (CPDC) Premier not for profit real estate developer, established in 1989 Mission: Develop vibrant communities through innovation and partnerships What makes us unique? Community Investment Challenging Developments Sophisticated Financing Sustainable Design Commitment to Residents Measurable Results

3 Who We Are 25+ 4,500+ 9,000 + $550 M + Communities Units Residents Investment Nationally recognized for innovative redevelopment projects Over 25 rental communities owned and/or developed in DC, MD and VA

4 What Are The Property Needs? Does the property need renovation? When will the 15 year tax credit compliance period expire? When does the debt mature and are there prepayment penalties? What is the current debt market like? What is the cost to exit the LP in the existing agreement?

5 Recapitalization Analysis Who in the organization performs the role of looking at the recapitalization analysis? Know when the last compliance year is and get started early. Accounting has a role. Don t forget the lawyers.

6 Recapitalization Analysis Review current LP tax situation what the accountants tell you. Status of Capital accounts What to expect this year and next Review LP Agreement and timing of the LP exiting for Buy Out and RFR Know yourself Have legal counsel confirm 6

7 Why Have Investor Exit? Need to fund with new LIHTC investment. Need Investor to be bought out because their exit taxes are growing. $$$$$$$$$$$$$ 7

8 Partnership Structure LIHTC Structure Limited Partnership/LLC General Partner/Managing Member Limited Partner/Investor Member Right of First Refusal Limited Partnership/LLC Operating Agreement (Owner) General Partner/Managing Member (0.01%) Limited Partner/Investor Member (99.99%) YOU Your Partner

9 Know your LP Agreement Right of First Refusal in case of a sale Timing When? How long do you have to exercise and close? LP buyout option Timing When? How long do you have to exercise and close?

10 Exit House Apartments Purchased in 1994 Old style LPA TOPA jurisdiction Needed major repairs Wanted to keep in portfolio

11 Exit House Apartments Financing Structure before Refinancing Existing Mortgage maturing Existing State loan Existing County loan Existing FHLB of Atlanta loan

12 Know your LP Investor Are they your major investor? What is their approval process? What are the state of their capital accounts and losses? Frequent communication helps. You need to get started before the end of the compliance period. Be positive but don t take no for an answer.

13 If Exiting Investor is Reluctant Find someone in the LP you can talk to and explain your case. May be business side and not asset management. Investors care about their reputation. Explain down side. Agree upon $$$$. Make the exit timely and easy for them.

14 Challenges Difficult timing between new tax credit deal and exiting of investor and TOPA timing. Settlement kept slipping. See if you can get investor out early. At the end of the day, the compelling case was the property condition.

15 Challenges

16 Exit House Apartments New Financing Structure - $22.3 million $10.8 million in tax exempt bonds $2.5 million in gap financing $570,000 energy loan $584,000 in interim income $247,000 in contributed reserves $4.3 million in equity $1.9 million Seller Note Assumed subordinate State and Local Debt

17 Transaction Form new entity to buy property and obtain refinancing, new tax credit investor, bond purchaser if 4% LIHTC, etc. Sign Exit Agreement with agreed upon exit price and with assignment of partnership interest. Usually need to indemnity. Buy out early or have simultaneous closing with sale and refinancing. 17

18 Refi Sources and Uses Permanent Sources Sources Equity (LIHTC) $4,344,604 First Mortgage $10,855,000 Seller Note $ 1,948,216 New Gap Financing $2,500,000 Existing Public loan $980,018 New Energy Loan $570,738 Existing Public Loan $874,600 Interim Income (taxes & Ins.) $584,500 transferred reserves $240,000 Summarized Uses Uses Acquisition Expenses $10,197,000 Construction $8,219,735 Architectural $389,174 Prof. Services and Fees $242,776 Financing $1,546,619 Partnership Expenses $38,309 Carrying Costs $1,193,793 Fees $1,385,000 TOTAL USES $23,212,406 Deferred Developer Fee $314,730 TOTAL PERMANENT $23,212,406 EXCESS (GAP) Permanent ($0) 18

19 It s a small world. Win Win. End on a positive note. Celebrate and move on to renovation. 19

20 21 Questions/Answers