Acquisition and Rehabilitation Opportunities: Projects with an Expiring Nine Percent Tax Credit Compliance Period

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Residential rental projects financed with “9%” low income housing tax credits in the late 1990’s or early 2000’s offer, or will soon offer, special opportunities for acquisition/rehabilitation financing with tax exempt bonds and new “4%” low income housing tax credits. Many of these properties must remain affordable even though the tax credit compliance period has run, and, after being in service for over a decade, will generally benefit from new capital expenditure, either because significant work needs to be done to restore the property to its original condition or valuable additions, such as solar or other green energy improvements, can be made.

The current owner of a project, either the original tax-credit partnership or the general partner following exercise of its purchase option, may have a strong interest in selling. The owner/seller can realize gain from the receipt of the purchase price, either as cash remaining after retiring any debt not assumed by the purchaser or in the form of a seller take-back note. If the value of the property has increased, this gain can be substantial. The owner/seller may also be able to cash out any renewal and replacement or other reserves maintained for the project. Further, if the property needs substantial repairs, the seller/owner can be relieved of the burden of trying to obtain funding for the repair work.

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Published In: Business Organization Updates, General Business Updates, Mergers & Acquisitions Updates, Residential Real Estate Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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