Year 15 – The End of the Rainbow Where is my Pot of Gold? Texas Housing Conference July , 2013 Four Seasons Hotel Austin, TX

Presenters Justin MacDonald, MacDonald Companies Cynthia Bast, Locke Lord Michael Regan, Boston Capital Jeff Kunitz, Tax Credit Group of Marcus & Millichap Chris Thomas Cohn Reznick

APPROACHING YEAR 15 KNOW WHAT YOU HAVE STEP 1: KNOW THE PROPERTY – Physical Condition – Financial Condition (including capital accounts) – Market Conditions STEP 2: Know the Partners and Stakeholders – GP/Sponsor/Developer – Investors/Syndicators – Private & Public Lenders – Allocating Agencies – Residents

APPROACHING YEAR 15 STEP 3: Know your Documents – Land Use Restriction Agreement (LURA) – Partnership/Operating Agreement – Loan Documents STEP 4: Know the Restrictions – When does compliance period end? – TDHCA Requirements

APPROACHING YEAR 15 STEP 5: Develop Your Plan – Talk to TDHCA asset manager – Talk to investors and lenders – Talk to your lawyer and accountant

ROFR IS KEY DRIVER More typical of a 9% deal than a 4% deal Different ROFRs, depending upon year of allocation TDHCA Right of First Refusal provisions different than federal law Right of First Refusal must be satisfied before an owner can go through the qualified contract process (if qualified contract even available) A property must be eligible to go through the qualified contract process to be considered for the At-Risk Set-Aside under the QAP

ROFR PROCESS TDHCA Rules Section Generally, two different prices – Fair market value Used in allocation years Based on appraisal or offer Typically 90-day timeframe – Section 42(i)(7)(B) “debt plus exit taxes” Used in allocation year 1995 and 1997 to present Became statutory in 1998 (2-year timeframe) – Texas Gov’t Code Sec Includes debt secured by the property, not in the last five years

ROFR PROCESS The two-year ROFR: – First six months – Qualified Non-Profit Organization/CHDO – Next six months – any Qualified Non-Profit Organization – Next twelve months – any Qualified Non-Profit Organization or tenant organization – Note governmental entities are excluded, even though they are permitted in Section 42

ROFR PROCESS Required submission – Price calculation – Property description – All regulatory agreements – Title – Physical needs assessment – 12 months operating statements – 3 years audits – Photographs – Rent roll – $2500 fee

ROFR PROCESS

What if I get an offer? – Can accept and move forward, even if ROFR period has not fully run – Can wait until end of ROFR period for other offers – Can decline the offers and hold property – If sale price changes materially, may need to go through the process again Non-profit offeror must be qualified purchaser – Previous participation review – 100% ownership

ROFR PROCESS What if I don’t get an offer? – Can proceed for qualified contract – Can sell at the posted value or higher – 24-month period

OWNERSHIP TRANSFER Once a buyer is identified Development Owner must still go through the ownership transfer process with TDHCA – Full package – $500 fee – Previous participation review

AVOIDING THE ROFR Sell before end of compliance period Offer to a specific non-profit that is declined (only available in certain LURAs) Sell GP interest only (transfer of all partnership interests triggers ROFR) Sell directly to a qualified non-profit – Section (d) “To satisfy the ROFR requirement, the Development Owner may sell the Property to the Qualified ROFR Organization selected by the Development Owner on such basis as it shall determine appropriate and approved by the Department.” Take out the LP, hold, and refinance