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Turning Your Tax Credits into Cash. Iped Tax Credits 101, October 16, 2008 Presenter: Gayle Manganello Ellis, PNC MultiFamily Capital. Initial Steps. Receive annual reservation of tax credits from the state, either through 9% or 4% application process

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Turning your tax credits into cash l.jpg

Turning Your Tax Credits into Cash

Iped Tax Credits 101, October 16, 2008

Presenter: Gayle Manganello Ellis, PNC MultiFamily Capital


Initial steps l.jpg
Initial Steps

  • Receive annual reservation of tax credits from the state, either through 9% or 4% application process

  • Look to Syndicator/Investor to purchase the credits for cash

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital


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Syndicator/Investor Process

  • Forecast of Yield to investor based on Equity Price and Timing of Equity Pay-Ins

  • Issuance of Letter of Intent outlining Pricing and Terms

  • Underwriting of Proposed Investment by Syndicator/Investor

    • Third party market study, environmental review, expense analysis, insurance coverage and construction analysis

    • Review of experience, financials and previous performance of development team

    • Finalization of financing terms

    • Review of legal documents such as zoning, title, partnership formation, etc.

    • Execution of Partnership Agreement

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital


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Syndicator/Investor Process (cont’d)

  • Closing/Admission of Syndicator/Investor

    • Commonly at construction start and simultaneously with construction loan closing

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital


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What to Expect From Your Partner

The Syndicator/Investor and the Letter of Intent

  • Assumptions

    • Assumptions for Timing of Closing, Construction Start, Construction Completion, Lease-up and Delivery of Benefits

  • Pricing

    • Will be paid in installments

    • Each installment will have it’s own conditions

  • Payment of Developer Fee

    • When and how much

  • Distribution of Cash Flow and Sales/Refinance Proceeds

    • Investor service fees

    • Deferred development fee

    • Incentive management fee/partnership management fee

    • Cash split

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital


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What to Expect From Your Partner (cont’d)

The Syndicator/Investor and the Letter of Intent

  • Sale Refinance

    • After Year 15 Syndicator/Investor will want to have its interest sold or to have the partnership sold

  • General Obligations

    • Construction completion/stabilization

    • Operating deficits

    • Appropriations/retenanting risk

    • Tax credit adjusters

    • Repurchase

    • Reporting

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital


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CONCLUSION

  • It is never too early to begin discussing intended developments with a Syndicator/Investor

  • Be sure your assumptions are in line with those of the Syndicator/Investor’s

  • Be aware of your obligations

  • Maintain good communication with your Syndicator/Investor

“Turning your Tax Credits into Cash,” Gayle Manganello Ellis, PNC MultiFamily Capital