There are multiple opportunities and obstacles facing affordable housing projects during their life span. One of the more complex decisions is to determine how and when to exit the project. There are several items to consider when making this determination in order to effectively and efficiently exit the project with the least amount of legal and tax ramifications.
The first step in the process is to review and become familiar with all of the legal documents associated with the project including the partnership agreement, loan documents, development agreements, and other restrictive covenants. These agreements give a baseline as to what, if any, constraints the project will face at the time of disposing either the property or the partnership interest.
Analyzing the debt structure of the project and any discrepancies with the original underwriting is a necessary step to take early in the life span of the project. If there is a substantial amount of debt on the project, then a determination needs to be made regarding the payment or forgiveness of this debt prior to end of the project. It is imperative to determine the type of debt on the project and what limitations are associated with the debt. Refinancing the project prior to exiting might also be a viable solution.
Once a determination is made that an exit strategy is warranted, then the strategies associated with the project may range from selling the property itself to having one or more of the partners selling their specific interest. Depending upon the strategy taken, the exit taxes, from a federal, state and local perspective may be substantially different.
With the various agreements, covenants, financing sources, physical and market conditions of the project, it is never too early to begin planning for the disposition of an affordable housing project. If you would like more specific information on this topic, please download the attached presentation