1 / 23

How Credits Become Capital: When and How to Syndicate

How Credits Become Capital: When and How to Syndicate. Incentives for Historic Preservation in Detroit Thursday, June 5, 2008 The Detroit Athletic Club. The Basic of Syndication: What? Why? How? . Rehabilitation Tax Credit Syndication What is Syndication?.

mason
Télécharger la présentation

How Credits Become Capital: When and How to Syndicate

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. How Credits Become Capital: When and How to Syndicate Incentives for Historic Preservation in Detroit Thursday, June 5, 2008The Detroit Athletic Club

  2. The Basic of Syndication:What? Why? How?

  3. Rehabilitation Tax Credit SyndicationWhat 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.

  4. 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.

  5. 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.

  6. Single Entity Structure GP/Manager Investor 99.9% Tax Credits 0.1% Management Fees, etc. Owner (LP or LLC) Development Fee Developer Fee Ownership Property Lease Lease End User End User

  7. Master Lease/Credit Pass-ThroughLessee Claims Credit Development Fee Developer Owner/Lessor (Affiliate of GP/Manager) GP/Manager Investor Master Lease Funds 0.1% 99.9% Tax Credits Master Lessee (LP or LLC) Property Lease Lease End User End User

  8. Rehabilitation Tax Credit Syndication Calculating the Investor’s Contribution Qualified Rehab Expenditures 2,000,000 Credit Rate 20.00% Total Calculated Credit 400,000 Tax Credit Investor Allocation 99.99% Total Credit to Investors 399,960 Credit Price Per Each $1 of Credit 0.95 379,962 Equity Contributions by Investors

  9. 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

  10. 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).

  11. Should the Owner/Developer Syndicate? (cont’d) • Factors to Consider: • Is additional equity needed during construction (i.e. prior to completion of the rehabilitation)?

  12. 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.

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. Successful Negotiation and Closing — Strengthening the Developer’s Position • Reducing Risk of Recapture: • favorable debt terms • high debt coverage ratio • significant developer equity • Leasing Commitments/tenant strength • Guarantor Strength/Scope

  19. Successful Negotiation and Closing — Strengthening the Developer’s Position • Reducing Construction Risk: delayed pay in • Team Coordination and due diligence follow through

  20. “We structured the deal so it won’t make any sense to you.”

  21. apotts@nixonpeabody.com dschon@nixonpeabody.com More Information?

More Related