Real Estate Resources

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A purchase option agreement is an option allowing the general partner to acquire the property or to purchase the entire limited partnership for a specified price.  The option price to acquire the property in a low income housing tax credit project is typically the greater debt plus exit taxes or the FMV of the property and the option to purchase the entire limited partnership interest is typically the FMV of the partnership interest. The purchase option is typically available following the credit period.

A right of first refusal is a right granted by the owner to tenants (in co-op form or otherwise), resident management corporations, qualified nonprofit organizations, or government agencies.  The low-income housing tax credit program offers nonprofit general partners a Right of First Refusal (ROFR) under Internal Revenue Code Section 42(i)(7).  The provision allows nonprofit general partners to obtain ownership of the property at a minimum purchase price equivalent to the outstanding debt plus exit taxes.

A put option is a contractual obligation that a partner (typically the investor) has to require another partner (typically the general partner) to purchase their interest in the partnership for a specified price.  The put is a mechanism the investor can utilize to exit the partnership.  The put option is usually available for a limited time period.

A Qualified Contract as defined in Section 42 is a bona fide contract to acquire (within a reasonable period after the contract is entered into) the nonlow-income portion of the building for fair market value and the low-income portion of the building for an amount not less than the applicable fraction of the sum of the (I)outstanding indebtedness secured by the building, (II) the adjusted investor equity in the building and (III) other capital contributions less cash distribution from the property. 

It is one of two ways to terminate the extended use agreement.

An owner can submit a written request to the housing credit agency to find a buyer under the Qualified Contract.  If the housing credit agency does not find a buyer for the property at the Qualified Contract Price within a 1 year period, the extended use agreement terminates. 

After the extended use period terminates, there is a 3-year period where rents cannot be increased beyond the section 42 limits.

The 50% test is required for every project that receives 4% credits by financing acquisition and construction costs with volume cap tax-exempt bonds.  The test is to verify that 50% or more of the tax-exempt bond proceeds are used to finance the aggregate basis of any building and the land on which the building is located.  Failure to meet the 50% test is catastrophic to a low-income housing tax credit project.

Also called 95% test or 95/5 test. 95% of the volume cap tax-exempt bonds must be used to pay for good costs. Good costs include land, building, construction or building improvements, common space, parking facilities, and other depreciable costs paid or incurred after the date of the inducement resolution. Bad costs include, but not limited to, cost of issuance, credit enhancement, syndication costs, cash reserves, tax credit fees, post construction interest, and certain payments to related parties.