Structuring general partner transfers during the compliance period
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Structuring General Partner Transfers During the Compliance Period. By: Thomas A. Giblin Nixon Peabody LLP. Successfully Completing A General Partner Transfer. Understanding buyer/seller perspectives Tax and business issues Common due diligence traps Obtaining required consents

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Structuring General Partner Transfers During the Compliance Period

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Structuring general partner transfers during the compliance period

Structuring General Partner Transfers During the Compliance Period

By: Thomas A. Giblin

Nixon Peabody LLP


Successfully completing a general partner transfer

Successfully Completing A General Partner Transfer

  • Understanding buyer/seller perspectives

  • Tax and business issues

  • Common due diligence traps

  • Obtaining required consents

  • Working with project lenders and investors

  • Processing general partner transfers: the investor perspective


Understanding seller s motivation to sell

Understanding Seller’s Motivation to Sell

  • Retirement/family succession issues

  • Corporate merger/sale/restructuring of developer

  • Workout/removal situation

  • Death/incapacity/bankruptcy

  • Insufficient access to additional resources


Understanding buyer s motivation to buy

Understanding Buyer’s Motivation to Buy

  • Property management fees

  • Efficiencies with nearby projects

  • Future acquisition/rehabilitation transaction

  • Unlocking residual value (conversion to market rate/condominium)

  • Charitable purpose/mission for non-profits

  • Access to debt/equity not available to current owner


Ownership transfers business issues

Ownership Transfers: Business Issues

  • Structuring the business deal

    - Identifying assumed obligations

    - Release/indemnification

    - Representations and warranties

  • Addressing deferred maintenance/repairs

  • Partnership restructuring issues (refinancing/debt restructuring)

  • Negotiating management transition

  • Scope of due diligence review


Common due diligence traps when acquiring partnership interests

Common Due Diligence Traps When Acquiring Partnership Interests

  • Real estate/property due diligence

  • Tax credit due diligence

  • Financial due diligence


Real estate property due diligence

Real Estate/Property Due Diligence

  • Understanding physical condition/deferred maintenance

    • Physical needs assessment

    • Phase I report

  • Confirm no ROFR/Options have been granted

  • UCC/litigation/judgment searches and title “date down” reports

  • Review of material contracts

    • Termination fees/assignability

    • Construction warranties

  • Rent rolls

  • Identify deed restrictions/use agreements that survive repayment of loan


Tax credit due diligence

TAX CREDIT DUE DILIGENCE

  • Tax credit application/carryover/LURA/regulatory agreements/8609s

  • Tenant files (especially 1st year files to confirm minimum set-aside)

  • IRS Form 8823 (non-compliance reports)

  • Use of IRS Form 8821 (Tax Information Authorization)


Financial due diligence

Financial Due Diligence

  • Reviewing tax returns and financial statements

    - Unpaid tax credit adjusters

    - Accrued fees and loans to partners

    - Unpaid development fees

  • Understanding accrued soft debt and other financing issues

    - Accrued interest (especially with soft debt)

    - Loan terms/balloon payments

  • Understanding existing capital account balances


Understanding consent requirements

Understanding Consent Requirements

  • Lender

  • Tax credit agency

  • HUD

  • Syndicator/investor

  • Other partners

  • Local jurisdiction (if tax exemption/PILOT)


Working with project lenders

Working with Project Lenders

  • Reviewing transfer restrictions/due on sale clauses

  • Obtaining required lender consents

    • General partner interest

    • Management agent change

  • Negotiating application and transfer fees

  • Obtaining “no default” letter

  • Transferring any key principal/guarantor liability

  • Reserve funding


Ownership transfers tax issues

Ownership Transfers: Tax Issues

  • Managing exit tax liability

  • Calculating recapture liability/obtaining recapture bond

  • Reviewing partner capital account balances

  • Addressing future reallocations

  • Phantom income

  • Debt restructuring/debt forgiveness

  • Other state and local tax issues

    • Termination/liquidation under state law

    • Real estate transfer tax issues


Processing ownership transfers the investor perspective

Processing Ownership Transfers: the Investor Perspective

  • Understanding reasons behind the proposed transfer

  • Underwriting experience and financial strength of replacement general partner

  • Status of reporting obligations/adjusters/asset management fees

  • Assumption of all general partner obligations/replacement guaranties

  • Underwriting new accountant/management agent

  • Exit strategy

  • Consents (lender/agency consents)

  • Impact on other deals with investor

  • Insurance issues

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