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Ownership Changes During the Compliance Period:
structuring general partner transfers and secondary market sales
Tom MangumVice PresidentNational Tax Credit Advisory GroupT: [email protected]
A Seller’s Perspective
CB Richard Ellis | Page 2
A Seller’s Perspective
About CB Richard Ellis & The National Tax Credit Advisory Group
CB Richard Ellis
• Nation’s Largest Real Estate Services Company
• $52.7 Billion in Investment Property Sales in 2006
• $22.5 Billion in Multi-Housing Sales in 2006
• 150 ± Offices in 37 States
National Tax Credit Advisory Group
• Specializes in the Sale of LIHTC Properties Throughout the Country
• Sold over 60 LIHTC Properties (About Half GP Interest Sales)
• Current Listings Include 2,348 Units.
CB Richard Ellis | Page 3
A Seller’s Perspective
Types of Ownership Transfers
Fee Simple (Asset Sale)Fee Simple (Asset Sale) GP InterestGP Interest
LP InterestLP Interest GP & LP InterestsGP & LP Interests
CB Richard Ellis | Page 4
A Seller’s Perspective
Realize Upside
Recycle Capital
Underperforming Property
Manage / Diversify Risk
Change of Business Plan
Administrative
Because You Can
Whatever your motivation it
must be aligned with
your partners’
GP Motivations
CB Richard Ellis | Page 5
A Seller’s Perspective
Restrictive Covenants, Partnership & Other Agreements• Bonds• LIHTC• HUD• Right of First Refusal / Puts /
Calls
Property Performance • Ongoing Liability / Guarantees• Risk• Upside
Determining the Appropriate Type of Ownership Transfer
CB Richard Ellis | Page 6
A Seller’s Perspective
LP (What’s In It For Me?)
• Value of Remaining Tax Benefits and Cash Flow and Likelihood of Receiving Them VS.
• Value Realized from Fee Simple Sale or LP Sale (Net of Costs Such As Recapture Bonds, Legal Fees, Etc...)
• Quality of New / Replacement GP
Re-Syndication Value
At What Point in Initial 15 Year Compliance Period
continued from previous pageDetermining the Appropriate Type of Ownership Transfer
CB Richard Ellis | Page 7
A Seller’s Perspective
Performing Properties
GP GP & LP Fee Simple
Years 1-5 X
Years 5-10 X X
Years 10-15 X X
Generally Speaking
Underperforming Properties Could Be Candidates For All Options Depending on Circumstances
CB Richard Ellis | Page 8
A Seller’s Perspective
Preparation
• Communicate With Your Constituents/Partners
• Know Your Position– What Benefits Are You Entitled To?– What Can and Can’t You Do?
• Documentation– Financial Statements / Audits / Tax
Returns– Compliance– Loan Documents– Partnership & Related Documents– Restrictive Covenants / LURAs– Schedule of LIHTCs By Year– Key Dates
Specific Considerations for GP Interest Sales
Know Your Position_____
CB Richard Ellis | Page 9
A Seller’s Perspective
Preparation (Continued)
• Packaging (Individual VS. Portfolio)– Good With the Bad– Geography– Syndicators, Lenders, Partners– Closings– Pool of Buyers– Complexity
• Valuation
• Marketing
Specific Considerations for GP Interest Sales
Know Your Position_____
CB Richard Ellis | Page 10
A Seller’s Perspective
Buyer Evaluation• Financial Strength & Experience of New GP• Existing Relationships
– Lender(s)– State Agency– Syndicator / Tax Credit Investors
• Ability to Close on Time and as Agreed
Consents, Consents, Consents• LP / Tax Credit Investor(s)• State Housing Agency• Non-profit Partner• Lender(s) / Servicer(s)• HUD
Process / Documentation• LOI Contract to Acquire or Amend?• Existing or New LP Agreement?
Ability to Close
_______
Likelihood & Speed of
Approvals
Specific Considerations for GP Interest Salescontinued from previous page
CB Richard Ellis | Page 11
A Seller’s Perspective
Deal Terms & Structure• Fees & Costs • Guarantees• Indemnifications (Pre/Post Closing)• Assignment of GP Assets / Liabilities
Outstanding Equity from LP• Capital Improvements• Loan Conversions• Underperforming Properties
– Operating Reserves– Administrative Sale or True Sale (GAAP)
Timing• Process Can Be Long and Slow (Consents)
Transition / Closing
Specific Considerations for GP Interest Salescontinued from previous page
CB Richard Ellis | Page 12
Questions
Tom MangumVice PresidentCB Richard Ellis
National Tax Credit Advisory Group
