Issues in Real Estate Transactions Involving Affordable Rental Housing For Urban Re-Development. Stephanie M. M. Smith 500 Woodward Avenue Suite 3500 Detroit, MI 48226 313.965.8815 [email protected]
Issues in Real Estate Transactions Involving Affordable Rental Housing For Urban Re-Development
Stephanie M. M. Smith
500 Woodward Avenue
Detroit, MI 48226
SECOND, THE LEGALITY OF STRUCTURING A DEAL CAN BE QUITE HARROWING TO SAY THE LEAST WITH VARIOUS ENTITY FORMATIONS AND LASAGNA FINANCING.
THIRD, THE CLIENT MOST LIKELY WILL BE UNSOPHISTICATED IN UNDERSTANDING THE DEVELOPMENT PROCESS AND IS DRIVEN TO DEVELOP FROM AN EMOTIONAL STANDPOINT AND NOT MERELY AN ECONOMICAL STANDPOINT.
THE ROLE OF A DEVELOPMENT ATTORNEY DIFFERS FROM A TRADITIONAL COMMERICAL REAL ESTATE ATTORNEY
2. Joint Venture Partnership
3. Limited Dividend Housing Association Limited Partnership
ESTABLISHING AND STRUCTURING THE VARIOUS LEGAL EXISTENCES OF THE ENTITY TO TAKE TITLE TO THE PROPERTY
The CDC may form a more discrete entity such as the Community Housing Development Organization (“CHDO”) for the sole process of developing affordable housing.
Board members of the CDC consist of local residents who are generally not in the business of real estate development or finance.
1. NON-PROFIT ORGANIZATION1. Non-Profit Organization
Generally, a for-profit developer (“for-profit”) will be encouraged to joint venture with a CDC to achieve access/connection to the community.
The CDC will maintain a 51% interest in the partnership and the for-profit will maintain a 49% interest in the partnership.
2. JOINT VENTURE PARTNERSHIP
The Non-Profit will form a for-profit wholly-owned subsidiary and the For-Profit will form a single-purpose entity, such as a limited liability company. These formed entities will act as the Co-General Partners in the LDHA-LP maintaining a .01% interest in the LDHA-LP.
The Non-Profit will act as the Initial Limited Partner in the LDHA-LP. This entity will maintain a 99.99% interest in the LDHA-LP.
3. LIMITED DIVIDEND HOUSING ASSOCIATION LIMITED PARTNERSHIP
2. Limited Partnership AgreementKEY ISSUES IN NEGOTIATING AND STRUCTURING THE PARTNERSHIP AGREEMENTS
Roles and Responsibilities for the Non-Profit and the For-Profit Partners
The Specifics of the Development Project
Terms and Conditions of the Financing Structure
Developer’s Fee Provision
1. PRE-DEVELOPMENT AGREEMENT
The roles and responsibilities of the co-general partners as it relates to the Partnership
The Capital Contributions and Percentage of Interests
Powers, Restrictions, and Responsibilities
Distribution on Termination
The Co-General Partners are designated as tax matters partner of the partnership and shall engage in such undertakings as are required of the tax matters partner of the partnership as provided in regulations pursuant to Section 6231 of the Code
2. LIMITED PARTNERSHIP AGREEMENT
Details the construction schedule, pay-ins, and eligible basis for getting tax credits
Details the manner in which the premises are to be maintained in a manner suitable to the equity lenders and the governing state and local regulations
MOST-NEGOTIATED THIRD PARTY AGREEMENTS
Census data (population and income) existing services, market studies, financial proformas, target/market rent
KNOW THE SUPPORT MARKET
Investor Support (traditional, government, foundations), government support, non-profit-support, residential association support
What are the important sources and attached regulations (New Market Tax Credits, Historic Tax Credits, Community Development Block Grants)
How to leverage one funding source with another
How to effectively use debt
Combination with familiar sources (i.e., Low Income Housing Tax Credits, HOME Funds, etc.)
Using the Government: public improvements, architectural services, etc.
THE PARTNERSHIP MISSION AND FINANCING
Low-Income Housing Tax Credits
Historic Tax Preservation Credits
New Market Tax Credits
Community Development Block Grants (“CDBG”)
Private Bank LoansREVIEW AND NEGOTIATE THE LOAN DOCUMENTS FROM ALL POSSIBLE SOURCES OF FUNDING
Site Control Letters
Site Plan Approvals
Non-Profit Status LetterREVIEW AND ENSURE REGULATORY DOCUMENTS ARE IN PLACE AND THAT ENTITY COMPLIES FULLY WITH ALL LOCAL LAWS AND REGULATIONS
RE-EXAMINING THE PROJECT WITH THE OWNERSHIP ENTITY TO ENSURE ITS CAPABILITY OF MAINTAINING AN OWNERSHIP OR RENTAL COMMUNITY THROUGHOUT THE LIFE OF THE PROJECT