As thousands of low-income housing tax credit properties approach Year 15 every year, the importance of planning for and managing Year 15 transactions (mostly Limited Partner buy-outs) has grown considerably over time. Owners/developers of aging tax credit properties, seeking to manage this process effectively and maximize value should develop plans aimed at achieving the following 4 goals.
Goals for Maximizing Value in Year 15
- Stem the bleeding for those properties to which the owner is currently advancing funds to cover debt service;
- Maximize future flexibility by buying out Limited Partners in transactions in which the owner wants to retain an interest;
- Take advantage of low interest rates to recapitalize properties with new debt and/or equity financing that allows long-term flexibility as to the use and future financing; and
- Determine, on a case-by-case basis, whether the long-term opportunity for each property is conversion to market-rate, redevelopment with a new round of tax credits, holding for cash flow as an affordable property, or sale once certain market and operating objectives are achieved.
TCAM helps owner/developers of tax credit properties nearing Year 15 achieve these goals by employing the following workplan.
TCAM’s Year 15 Workplan
- Reviewing and centralizing Year 15 partnership agreement provisions for each transaction.
- Analyzing recent and historical operations of property and project, including the property’s operational and financial performance through Year 15 of the initial tax credit compliance period. This analysis includes a projection of the property’s capital accounts through Year 15. The analysis is based on an initial review of property and partnership financial statements and key documents.
- Based on TCAM’s findings from #1 and #2 above, we provide the client with feedback on how to strategically plan for the remaining years of the property’s tax credit compliance period, including an initial evaluation of options for refinancing, selling the property, restructuring the partnership and/or buying out the Limited Partners.
If needed, TCAM can also provide on-going analytical and advisory support to the client in negotiating and in completing a buy-out, refinancing, sale or workout transaction.
To learn more about TCAM’s Year 15 services, please contact Allen Feliz (afeliz@tcamre.com) — (617) 542-1200.