The maturity of the tax credit industry has increased awareness of the disposition or liquidation phase of lower tier investments. Upon completion of the 15–year traditional expected holding period, syndicators play a pivotal role in divesting lower tier partnerships and ultimately closing out upper tier funds. A host of technical and analytic skills are required, and large firms may have specialized staff or use outsourced professionals to execute. Many industry trainings are conducted by various experts to build required skills.
Syndicators must coordinate with lower tier general partners, accountants, State HFAs and internal staff responsible for upper tier benefits analysis. Asset Management may handle the lower tier disposition function, or play a supporting role with Fund Accounting or Acquisitions, or oversee engagement and performance by external professionals. Certainly asset managers are responsible for reporting and analysis needed to prepare for and complete dispositions. To that end, following is a list of basic information required.
- Portfolio runs of scheduled Year 15 dates.
- Fund target return and current updated projections.
- Lower tier projected return and total benefits through disposition date.
- Quantify any exit taxes likely.
- Review partnership document for relevant terms, including buy-out option of developer, minimum return or total benefits standards, ROFR, allocation of capital proceeds.
- Confirm investment partnership is in good standing or identify any breach.
- Verify terms of existing land use and capital program restrictions.
- Estimate real estate value, factoring in all relevant land use restrictions.
- Obtain capital needs assessment, if feasible.
- Determine goals, resources and needs of developer.
- Evaluate alternative financing prospects, including re-syndication for tax credits, if applicable.
- Draft sources & uses of disposition funds, if any.
- Determine investors’ authority or reporting requirements over lower-tier disposition.
- Obtain required investor approvals, if any, for proposed transaction.
- Communicate to developer investor partner’s rights and goals, collaborate on potential disposition action plan.
- Confirm rights and goals of other stakeholders, such as lenders and State HFA.
- Facilitate communication and decision-making by other stakeholders, particularly State HFA.
- Engage professionals as needed to represent upper tier investor partner, specifically accounting and legal.
- Close disposition transaction, account for impact at upper tier, provide applicable tax and financial reports.