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Finding the Dollars: Historic Tax Credit Equity Syndication. Historic Tax Credit Developer’s Conference Thursday, February 7, 2008 St. Petersburg Beach, Florida. What is Syndication?.

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finding the dollars historic tax credit equity syndication

Finding the Dollars: Historic Tax Credit Equity Syndication

Historic Tax Credit Developer’s Conference

Thursday, February 7, 2008

St. Petersburg Beach, Florida

what is syndication
What is Syndication?
  • “Syndication” is the process by which the owner of a building brings an investor into the ownership structure of the building so that the investor can claim the credits (and other economic and tax benefits), typically in exchange for providing equity to the project.
what is syndication3
What is Syndication?
  • Federal Historic Tax Credits are not sold directly to an investor.
  • Investors become “owners” of the property as limited partners in a limited partnership or as members in a limited liability company.
  • Some State Historic Tax Credits can be “certificated” and sold to investors.
common investment structures
Common Investment Structures
  • Single Entity Structure.
  • Master Lease/Credit Pass-Through Structure.
single entity structure
Single Entity Structure

GP/Manager

Investor

0.1%

Management Fees, etc.

99.9%

Tax Credits

Owner

(LP or LLC)

Development

Fee

Developer

Fee Ownership

Property

Lease

Lease

End User

End User

master lease credit pass through lessee claims credit
Master Lease/Credit Pass-ThroughLessee Claims Credit

Development

Fee

Developer

Owner/Lessor

(Affiliate of GP/Manager)

GP/Manager

Investor

Master

Lease

0.1%

99.9% Tax Credits

Master Lessee

(LP or LLC)

Property

Lease

Lease

End User

End User

should the owner developer syndicate
Should the Owner/Developer Syndicate?
  • Factors to Consider:
    • Does the Developer have limitations on claiming the credit for itself?
      • Is the Developer a tax exempt entity or have insufficient taxable income to be able to use tax credits?
      • Business Tax Credit Limitations ($25K +75%)
      • Passive Activity Rules Apply
should the owner developer syndicate cont d
Should the Owner/Developer Syndicate? Cont’d
  • Factors to Consider:
    • Net Economic Benefits
      • Equity raise versus lost cash and (sometimes) lost depreciation.
      • Transaction Costs (both closing and on-going).
should the owner developer syndicate cont d9
Should the Owner/Developer Syndicate? Cont’d
  • Factors to Consider:
    • Is additional equity needed during construction (i.e. prior to completion of the rehabilitation)?
should the owner developer syndicate cont d10
Should the Owner/Developer Syndicate? Cont’d
  • Factors to Consider:
    • Control: Are you willing to have a partner?
      • Loss of control issues.
      • Disclosure and Reporting.
      • Unwind concerns.
finding investors
Finding Investors
  • Does your bank or its CDC make HTC investments?
  • Referral sources:
    • State Historic Preservation Office (SHPO)
    • State and local preservation organizations
    • Other developers
    • Experienced accountants and lawyers
soliciting investment proposals things investors want to know
Soliciting Investment Proposals —Things Investors Want to Know
  • Proposed Budget and Timing
  • Financing Commitments
  • Property Acquisition Status
  • Real Estate issues including title and environmental issues, zoning, parking and other permitting
soliciting investment proposals things investors want to know cont d
Soliciting Investment Proposals —Things Investors Want to Know cont’d
  • Leasing Commitments/Market Study
  • Part 1 and Part 2 Status
  • Development Team—who they are, their experience and financial capacity
key syndication business issues picking the best offer
Key Syndication Business Issues — Picking The Best Offer
  • Pricing
  • Equity Pay-In Schedule
  • Reserves
  • Cash Flow, Fees, and other items that reduce the net economics to the developer
key syndication business issues picking the best offer cont d
Key Syndication Business Issues — Picking The Best Offer cont’d
  • Exit Strategy (Put and Call Options)
  • Guarantees
  • Structure
  • Due Diligence Requirements
  • Experience/Reputation and Closing Process
more information
More Information?

John H. Cornell III, Esq.

Nixon Peabody LLP

100 Summer Street

Boston, MA 02110

  • (617) 345-1127; jcornell@nixonpeabody.com