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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

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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