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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. 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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  1. Structuring General Partner Transfers During the Compliance Period By: Thomas A. Giblin Nixon Peabody LLP

  2. 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

  3. 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

  4. 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

  5. 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

  6. Common Due Diligence Traps When Acquiring Partnership Interests • Real estate/property due diligence • Tax credit due diligence • Financial due diligence

  7. 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

  8. 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)

  9. 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

  10. Understanding Consent Requirements • Lender • Tax credit agency • HUD • Syndicator/investor • Other partners • Local jurisdiction (if tax exemption/PILOT)

  11. 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

  12. 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

  13. 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 1593854

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