10 Red Flags in LIHTC Deals: Insights From Dave Davenport, Litigation Expert
With the rapid increase of year-15 disputes and growing issues surrounding industry Aggregators, LIHTC developers need to keep a sharp eye on their project partnerships.
Dave Davenport of BC Davenport outlines ten red flags you need to look out for that may indicate a problem is looming. These potential events and circumstances should be evaluated no later than year-10, in Dave’s opinion.
LP Interests have changed hands
The investor limited partner interests have changed hands from the original investor limited parter. Is your partner today the same as the one you did your deal with at the beginning?
History of litigation with LP interest ownership
The investor limited partner intersts are managed by and/or affiliated with organizations that have been invovled in litigation concerning LIHTC project partnerships around Year-15.
Large Capital Accounts and intentions to monetize through “Cash Out”
The investor limited parnter has a large positive capital account and is determined to monetize the book entry through a cash-out process of their interest.
Investor LP discussions about future planning
The investor limited partner initiates conversations about future values and circumstances. This could include planning beyond Year-15, like refinancing and syndication, as a means for you to generate proceeds to buy them out after the compliance period.
Styming reserve accounts, approvals, and other mechanics
The investor limited partner attempts to restrict or limit the use of reserve accounts, or slow up approvals necessary for project needs like capital expenses.
Accounting fillibusters
The investor limited partner beings to question routine financial reports that would otherwise be considered business as usual. They may also suggest that a forensic audit of past events is necessary for some reason.
Negotiation fillibusters
Exit negotiations stall or you experience periods of non-responsiveness.
Qualified Contract requests are suddenly presented
Discussions concerning liquidation of the partnership are presented
Unfamiliarity with your documents, and fielding questions about LP exit
Aggregators search secondary markets where these LP interests are sold as bulk commodities as if they were derivative investments. These Aggregators enter the frame toward the end of the Compliance Period, despite the fact that the benefit of the original bargain has been fulfilled.
They implement schemes meant to extricate further financial windfalls that are not in line with the LIHTC program’s aims or the mission-driven intent of the original parties.
The effect can be costly and catastrophic for those who have worked diligently to develop and operate these affordable housing communities.
It is up to practitioners, courts, and regulators to preserve the integrity of the LIHTC program.
About David Davenport and BC Davenport
The law firm of BC Davenport specializes in representing real estate developers, sponsors, community based non-profits and mission based organizations, housing authorities, and other stakeholders in the Low-Income Housing Tax Credit (“LIHTC”) industry in year-15 disputes and other partnership matters across the United States.
The Firm’s Managing Partner, David A. Davenport, has for many years led successful litigation efforts across the country in cases involving Aggregators and others.
These cases include
Section 42 non-profit rights of first refusal
general partner or managing member purchase option disputes
limited partner removal efforts
refinance challenges
appraisal disputes
Selected content in this article was sourced from David Davenport’s whitepaper co-written with Samuel T Johnson entitled “Year-15 Disputes in the Low-Income Tax Credit Program, Aggregators, and Their Playbooks”. Their whitepaper is available here.
Please note that this content does not constitute legal advice. Contact an attorney at BC Davenport for specific guidance.