Structuring Your Deal Now to Plan for the Exit 15 Years Later Melanie Clark, Sallie Lin, Kate Mathews Utah Housing Matters Conference September 1, 2020
Presenters z Melanie Clark Partner (801) 578-6904 melanie.clark@stoel.com 2
Presenters z Sallie Lin Attorney (206) 386-7572 sallie.lin@stoel.com 3
Presenters z Kate Mathews Attorney (206) 386-7519 kate.mathews@stoel.com 4
Background of Year 15 Exit • Tax Credit Compliance Period • Accelerated during the first 10 years • 15-year compliance period • Extended Compliance Period z • Why do you want your Investor out? 5
Right of First Refusal • Code Requirements under Section 42(i)(7) • “Debt Plus Taxes” • Qualified Nonprofit Organization • State Law Requirements for ROFR z • Seller decides to sell • Seller receives a bona fide offer to purchase from a third party, which offer seller is willing to accept 6
Option Agreement • Buy the real property • Buy the investor’s interest in the entity • Appraisal considerations z • Appraiser considerations 7
Change in Investor • Investor may not be the same at the end of the compliance period. • New investor needs to: • Agree to be bound by the terms of the z partnership agreement • Agree to any prior accounting • Old investor needs to release general partner from any prior claims 8
No Investor Exit • Investor can give up certain consent rights • Refinancing • Property manager • Accountants z • Use of reserves • Removal rights terminate • Approval of sales – create parameters 9
Other Provisions to Consider • Refinancing of the project • No need for investor approval if obtaining a loan in order to buy-out the investor • Change in property manager • Change in depreciation or other measures to slow down z losses • Fiduciary duties • Early Exit • Recapture Bond • Consents cannot be unreasonably withheld, conditioned or delayed • Change in investor partner 10
Qualified Contract • Background on Qualified Contract • 42(h)(6)(E)(i)(II) – affordability requirement during extended use period terminates if owner exercises “qualified contract” option. • State Housing Agency must advertise QC z requests for one year (Year 15) • This can be used to convert the project to a market rate project • Waive the qualified contract in Low-Income Housing Credit Commitment Agreement and Declaration of Restrictive Covenants 11
Questions? • Please contact us if you have questions: • Melanie Clark – melanie.clark@stoel.com • Sallie Lin – sallie.lin@stoel.com • Kate Mathews – kate.mathews@stoel.com z • www.stoel.com 12
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