1. AHIC 2018 Fall Meeting GP Replacements Discussion
ALDEN

2. Alden’s Current Portfolio and Watchlist Change
162 Funds 1085 Properties 150,267 Units
Watchlist Properties
2013: 332
2018: 121
Of the 200+ Watchlist Reduction, Many Did Not Require GP Replacement
ALDEN

3. When a GP Replacement is Required, Who’s Involved?
Asset Managers
Identify Problem/Default:
Poor Operating Performance
Mismanagement of Partnership Funds
Unfunded Deficits
Capital Events Department
Attempt to Negotiation a Cure, Resolution
Quantify Damages
Identify Replacement GP
Legal Department
Send Notice of Default and Demand for Cure
Seek Remedies per the LPA
Voluntary Withdrawals—Negotiate Terms
Involuntary Removals—Manage Litigation
ALDEN

4. Case Studies - Summaries
Case Study 1
Voluntary Withdrawal
3 Commercial Tenants
Parking Structure Lease
Overleveraged, Deferred Maintenance
Prolonged Replacement GP Negotiations
Lender Unwilling to Allow Debt Assumption
Case Study 2
Voluntary Withdrawal
Numerous GP Defaults
Significant Deferred Maintenance
Deficit Funding Sharing Agreement
Case Study 3
Involuntary Removal
Post-EOC
Retail Fund
GP Refused to Sell per LP Sale Rights
Litigated to Remove GP
Settlement Resulted in LP Receiving Full LP Sales Value
ALDEN

5. ALDEN Case Study 1 Voluntary Withdrawal of Original GP
With the agreement of the outgoing GP, we negotiated a contract to sell the property to a new GP and led all agency and lender consent negotiations.
The project had two layers of bond debt, two third party debt instruments and seven additional obligations to affiliated parties. We renegotiated the sale waterfall and negotiated a partial payment schedule for affiliated debt.
Overleveraged with Significant Deferred Maintenance
3 Commercial Tenants
The negotiations took over a year but the new GP provided a significant deposit that could be used for operating deficits during negotiations.
To obtain lender consent, we negotiated a series of post-closing escrow agreements to cover shortfalls during the New GP’s subsequent refinance.
Parking Structure Lease
Prolonged Replacement GP Negotiations
We addressed capital needs of commercial tenants to entice them to cooperate in the sale.
Lender Unwilling to Allow Debt Assumption
The parking structure had a lease that was improperly documented. We worked with the owner to correct the parking contract so it would be acceptable to the new GP.
ALDEN

6. ALDEN Case Study 2 Voluntary Withdrawal of Original GP
The partners entered into an enhanced asset management agreement and began the workout process.
Numerous GP Defaults
The New GP managed the day-to-day operations of the property through to close.
Significant Deferred Maintenance
We reached an agreement the following year to sell the GP interest to a 3rd party buyer with an option to buy the LP interest at EOC.
The state agency (also the senior debt holder) refused to consent to the GP transfer unless its senior and subordinate debt was paid off at par.
Deficit Funding Sharing Agreement
The New GP agreed to immediately begin funding operating deficits 50/50 with the limited partner (Fund) prior to close of the purchase transaction. The LP’s funding obligations were capped and the New GP was solely responsible for all additional funding.
The New GP obtained new tax exempt bond financing and a bank loan to allow for the agency debt payoff to close the transaction.
ALDEN

7. ALDEN Case Study 3 Involuntary Removal, Post-EOC
In response to the exercise of the LP’s forced sale rights, the GP offered to buy LP interest at a price materially below its value.
For the subsequent two years, the Capital Events Department and Legal Department attempted a negotiated outcome.
Retail Fund
GP Refused to Sell per LP Sale Rights
The partners agreed to market the property.
Eventually, we sought the removal of the GP through litigation and sought emergency relief from the court.
Litigated to Remove GP
Once the GP understood the waterfall, and that the GP position was worth less than initially believed, the GP refused to sell the property.
Settlement Resulted in LP Receiving Full LP Sales Value
The court would not grant emergency relief but ordered the GP to cooperate with the sale of the property.
The GP claimed the sale rights were not operative until the end of the extended use period (year-30).
The GP eventually cooperated and the LP received the full value for its interest.
The LP sent a sale notice under the LPA requiring the GP to find a buyer.
ALDEN