Year 15 – The End of the Rainbow Where is my Pot of Gold?

Texas Housing ConferenceJuly 22- 24, 2013

Four Seasons HotelAustin, TX

Presenters

Justin MacDonald, MacDonald CompaniesCynthia Bast, Locke Lord

Michael Regan, Boston CapitalJeff Kunitz, Tax Credit Group of Marcus &

MillichapChris Thomas Cohn Reznick

APPROACHING YEAR 15

KNOW WHAT YOU HAVE• STEP 1: KNOW THE PROPERTY

– Physical Condition– Financial Condition (including capital accounts)– Market Conditions

• STEP 2: Know the Partners and Stakeholders– GP/Sponsor/Developer– Investors/Syndicators– Private & Public Lenders– Allocating Agencies– Residents

APPROACHING YEAR 15

• STEP 3: Know your Documents– Land Use Restriction Agreement (LURA)– Partnership/Operating Agreement– Loan Documents

• STEP 4: Know the Restrictions– When does compliance period end?– TDHCA Requirements

APPROACHING YEAR 15

• STEP 5: Develop Your Plan– Talk to TDHCA asset manager– Talk to investors and lenders– Talk to your lawyer and accountant

ROFR IS KEY DRIVER

• More typical of a 9% deal than a 4% deal• Different ROFRs, depending upon year of allocation• TDHCA Right of First Refusal provisions different than

federal law• Right of First Refusal must be satisfied before an owner

can go through the qualified contract process (if qualified contract even available)

• A property must be eligible to go through the qualified contract process to be considered for the At-Risk Set-Aside under the QAP

ROFR PROCESS

• TDHCA Rules Section 10.407• Generally, two different prices– Fair market value

• Used in allocation years 1991 - 1995 • Based on appraisal or offer• Typically 90-day timeframe

– Section 42(i)(7)(B) “debt plus exit taxes”• Used in allocation year 1995 and 1997 to present• Became statutory in 1998 (2-year timeframe)

– Texas Gov’t Code Sec. 2306.6726

• Includes debt secured by the property, not in the last five years

ROFR PROCESS

• The two-year ROFR:– First six months – Qualified Non-Profit

Organization/CHDO– Next six months – any Qualified Non-Profit

Organization– Next twelve months – any Qualified Non-Profit

Organization or tenant organization– Note governmental entities are excluded, even

though they are permitted in Section 42

ROFR PROCESS

• Required submission– Price calculation– Property description– All regulatory agreements– Title– Physical needs assessment– 12 months operating statements– 3 years audits– Photographs– Rent roll– $2500 fee

ROFR PROCESS

ROFR PROCESS

ROFR PROCESS

• What if I get an offer?– Can accept and move forward, even if ROFR period

has not fully run– Can wait until end of ROFR period for other offers– Can decline the offers and hold property– If sale price changes materially, may need to go

through the process again• Non-profit offeror must be qualified purchaser– Previous participation review– 100% ownership

ROFR PROCESS

• What if I don’t get an offer?– Can proceed for qualified contract– Can sell at the posted value or higher– 24-month period

OWNERSHIP TRANSFER

• Once a buyer is identified Development Owner must still go through the ownership transfer process with TDHCA– Full package– $500 fee– Previous participation review

AVOIDING THE ROFR

• Sell before end of compliance period• Offer to a specific non-profit that is declined (only

available in certain LURAs)• Sell GP interest only (transfer of all partnership interests

triggers ROFR)• Sell directly to a qualified non-profit

– Section 10.407(d)“To satisfy the ROFR requirement, the Development Owner may sell the Property to the Qualified ROFR Organization selected by the Development Owner on such basis as it shall determine appropriate and approved by the Department.”

• Take out the LP, hold, and refinance