Tax Credit Portfolio Exit Strategies

IPEDNovember 20, 2008

Kevin W. Day

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It’s Year 15!

– so what does that mean?

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We’re all in this together….

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Let Them Eat Cat Food

live area(click “control+g” to view live area guides)

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Investor/Syndicator Goals

Close Funds soon after year 15

Maximize residual value…can exit after credit stream ends in Year 11

Responsible transition to new ownership

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Who’s driving this thing?

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Let’s look under the hood…

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LAND, STICKS & BRICKS

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OTHER “STUFF”

What’ve we got to sell?

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What can we do with this thing?

Operate “as is”

Convert to market or other use (pre 90 ..or QC)

Convert to affordable condominium

Déjà vu all over again (new tax credits)

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Let me off this ride….

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Qualified Contract

QC Formula =

Outstanding debt + initial capital contribution + return on capital (CPI) - distributions

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….not so fast

50 flavors

Show me the paper!

Expensive process

Did we start yet?

Fuzzy math

What does qualified mean?

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QC Success Stories

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Early Exit

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Options before Y15

• Sale of Partnership vs. Property

• 10 year rule/Acquisition Basis

• Investor – Avoiding Recapture Exposure

• Cash Now vs. Losses/Future Value

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Resyndicate with 4% Credits

Cutler Vista

– Miami FL

– 216 Units

– PIS 1990 as 9%

– New construction

– Original Equity 5.1M

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Resyndicate with 4% Credits

Sources Uses

New Bonds:  7,120 Retire 1st 3,440

SAIL:  2,500 SAIL 2,500

TC Equity:    4,800 LPs 1,800

Total:           14,420 SAIL Int. 760

Rehab 3,600

Soft/DF/Reserves 2,320

Total 14,420

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Resyndication Issues

– Public benefit – cost of preservation vs. build new

– Sentiment against extended use properties

– Untangling restrictions and Rights of First Refusal

– Qualified households Vs tenants in possession

– Anti-churning rule (affiliated buyer) 10% 50% rule

– 10 year hold rule

– Aggressive buyers vs. Preservation resources

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Helpful hints for Year 15

Start early…Analyze in Y13, prepare in Y14, execute Y15

Analyze all possible strategies in light of the local market and capital markets

Many new financing programs available for preservation, but take time to implement

Know your regulatory agreements, partnership and loan agreements.. and approvals needed.

Pick the right local partner to help you execute your strategy

Patience Perseverance and Prozac