Seller considerations

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Presentation transcript:

Seller considerations Greystone Affordable Development

Topics What’s your situation? What are your restrictions? What can you support?

Tax Credit Transactions What’s your situation?

What’s Your Situation? Syndicator / institutional partner Individual partners No partners

What are your restrictions? Tax Credit Transactions What are your restrictions?

What Are Your Restrictions? Restrictions to seller consideration only apply when a transfer of the property is occurring. At any point, a GP / Managing Member can buy its partners’ ownership interest for any agreed-upon price with no restrictions, as long as the same entity owns the property after the transaction closes. Linked to financing / applicable appraised value Multiple restrictions (each party may have their own requirements) RD State HFA / LIHTC

What Are Your Restrictions? Appraised Value – the Income Approach Net Operating Income Cap Rate NOI is before debt service payments Cap Rate: an investor’s rate of return on an income-producing property Higher NOI = Higher Value Lower cap rate = Higher Value

What Are Your Restrictions? RD Restrictions: Relevant value tied to restrictive use provisions RUPs in place: as-is restricted value (actual NOI) RUPs expired: as-is market / unrestricted value (market NOI) *Cap rates can vary depending on subsidy Replacement reserve balance Interest Credit Subsidy The “Exit Incentive” Allowable when a property is underwater Must pass all “Dashboard Tests”

What Are Your Restrictions? Dashboard Tests: Post Transfer Rents Rents Cash Flow Proposed Operations Vacancy Loss Operating Expenses GOA Minimum Requirement Tenant Protection CNA Funding & Reserve Deposit New Loans for RD 515 Purposes DSCR Loan to Value Loan Terms of 3rd Party Debt Balanced Sources and Uses

What Are Your Restrictions? State HFA / LIHTC Restrictions Purchase Price cannot exceed as-is value Method for determining value may differ Underwater / “Exit Incentive” Properties may have issues

Tax Credit Transactions What can you support?

What Can You Support? Linked to financing: 9% Tax Credits Tax-Exempt Bonds / 4% Tax Credits 515 Funds Seller Notes

What Can You Support? 9% Tax Credits More Equity* Timing Balancing Act

What Can You Support? Tax-Exempt Bonds / 4% Tax Credits Less Equity Timing Bond-Eligible Costs and the 95-5 Test Portfolio approach

What Can You Support? Tax-Exempt Bonds / 4% Tax Credits – Portfolio Approach Current Scenario (property-by-property needs):

What Can You Support? Tax-Exempt Bonds / 4% Tax Credits – Portfolio Approach Revised / re-shuffled Scenario (portfolio needs):

What Can You Support? New 515 Funds Sales proceeds ineligible What other sources are available? Is a transfer occurring?

What Can You Support? Seller Notes Used to compensate sellers over time when up-front cash payments are not feasible No Reversionary Interest No mortgage Payment capped at RTO Potential issues if related sellers

Contact Information Greystone Affordable Development 4025 Lake Boone Trail, Suite 209 Raleigh, NC 27607 (919) 573-7502 www.greycoaffordabledev.com