Disposition Alternatives
From the outset, at the Year 15 stage of an Enterprise-funded project's life cycle, Enterprise's intention was that ownership of projects sponsored by nonprofit entities would be transferred directly to the nonprofit sponsor. Typically, nonprofit ownership would ensure that these projects would be maintained as affordable housing over the long term, preventing the displacement of tenants or loss of housing affordability. But projects may also be sold after the end of the 15-year compliance period—without a loss of tax credits.
Exit Taxes
If the cumulative tax losses claimed exceed the amount of the capital invested, then the investor will recognize a taxable gain. This gain will result in a tax liability for the investor at the time of disposition of the project. This is referred to as an “exit tax,” meaning the taxes due when the investor exits the partnership. Enterprise proactively manages the proper allocation of tax losses and credits throughout its investors' ownership of the project. In addition, Enterprise continually evaluates the tax impact of project dispositions in order to provide its investors with accurate projections, including the effect of Year 15 dispositions. Enterprise is staffed with seasoned tax professionals able to analyze the impact of exit taxes and, where desired, propose possible mitigation strategies. Enterprise is well positioned to provide support to organizations beginning to address these issues, including disposition alternatives and exit taxes, as well as to facilitate the disposition of projects either on behalf of investors or sponsors of LIHTC projects.
Services For Partners
Development of disposition plans. As projects near the end of the 15-year compliance period, Enterprise is working closely with its nonprofit partners to help develop their plans for the continued viability of each project, usually through its transfer to the nonprofit sponsor. As part of that effort, Enterprise is evaluating the financial, physical and tax credit aspects of each project, and advising our partners on viable options. To the extent possible, these plans will provide for maintenance of affordable housing for the long term.
Strategies. Enterprise is working closely with its sponsors to develop disposition plans for those projects in which Enterprise-managed funds invested, to ensure the continued viability of projects well into the future, as well as ensuring quality affordable housing for the residents. Following are some of the strategies Enterprise is pursuing with its partners:
- For projects that are performing well and in good condition, sponsors are planning to continue operations as they were during the initial 15-year compliance period.
- In some cases, a refinance scenario is appropriate to raise funds for capital improvements to ensure the viability of the project for the foreseeable future.
- Other projects are being re-syndicated with new tax credits, which are used to raise funds for capital improvements and pay off debt, allowing projects to continue operations with more affordable rents.
- In a few instances, projects developed under a lease-purchase concept are being transferred to the low- and moderate-income tenants, helping create stability in the project neighborhoods.
- After reaching agreement with the project sponsor on the disposition plan, implementing the necessary steps to complete the transfer of the project or the investor's partnership interest to the sponsor.
Services For Partners, Investors, and Others
Training. Since 2003, Enterprise has conducted numerous training sessions on the Year 15 disposition process. These trainings have been held at both Enterprise-sponsored events and various industry-related conferences. With professionals from various backgrounds— sponsors/general partners, investors, accountants, syndicators, lenders, developers and attorneys—in attendance, Enterprise provides in-depth expertise on year 15 transitions.
Re-syndication. Projects with recapitalization needs offer the opportunity for sponsors/developers to consider re-syndication. Enterprise will assist partners in facilitating the re-syndication process, from feasibility to completion, under the following conditions:
1) the project has recapitalization needs;
2) tax credits are determined to be a viable funding source given the particular State's QAP and alternative sources of funding;
3) the sponsor desires to pursue re-syndication to recapitalize the project; and
4) Enterprise decides to pursue the re-syndication opportunity.
Consulting. Enterprise is currently assisting organizations that invested directly in LIHTC projects in their disposition process after Year 15. Enterprise 's services have included working with the sponsor on alternative disposition plans, analyzing tax impacts for the investor and managing the disposition process. |
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