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Secondary Transactions
The Whys + Wherefores of Buying +
Selling
2020 Webinar Series
Speakers:
- Brian Coffee, Synovus
- Michael Egidi, Capital One
- Beth Mullen, CohnReznick
Moderator:
- Dennis Donovan, Bank of America
How Big is the Secondary
Market?
– $1 to $1.5 Billion?
– How Much Does Everyone Really
See?
Why Sell?
Do You Ever Sell If You Don’t Have
To?
Investment Limits
Investors Do Not Have Unlimited Capital
Why Sell?– Concentration
• Syndicator
• Developer
• Location
– Tax Capacity
– BEAT
– Stabilize Earnings
– Equity Limits
– Recycle CRA
Why Buy?
Yield, Tax, Earnings, CRA, Reduced Risk
Why Buy?
– Earnings
– Tax Benefits
– CRA
– Reduce Construction and/or Lease-up Risk
– Ease of Execution if Already in a Fund
Managing the Sale Internally
Gains, Staffing, Relationships
Internal Expectations
– Book Gain
– Timing Expectations
– CRA Impact
– Clients: Developer & Syndicators
– Transaction Costs
– Adverse Selection on Portfolio?
Negotiated Sale or RFP?
Price versus Publicity?
Negotiated Sale or RFP?
– How Widely Do You Want this Known?
– How to Discuss with Syndicators &
Developers?
– What Impact on Pricing?
– What is Management Willing to Accept?
– Staffed to Handle or Need Help?
– How Marketable is Your Fund?
Due Diligence?
– How Hard or Easy?
– Syndicators & Developers Assist?
Due Diligence?– Already in Fund?
– Financial Statement of Developer?
– Use Actual Results to Reforecast
– Permanent Lender Issues
– Construction Issues – Waivers, Reports
– Physical Needs Assessment
– Environmental Updates?
– Appraisals & Market Study Updates?
– Insurance Issues?
– 3rd party Pricing Review?
– Tenant Files?
– Trust and Reputation Issues
Secondary Premium?
How Marketable is My Investment?
How Marketable?
-Direct? Proprietary? Multi-Investor?
-Specific Locations Or Diversity?
-Syndicator & Developer Preferences?
-Size – Too Big? Too Small?
-Capital Losses & 754
Capital Losses Matter?
Do Large Capital Losses Affect Marketability?
Capital Losses
Assumed Tax Rate 21%
Equity
Contribution Federal Credit Tax Losses/(Inc.)
Tax Loss/(Gain)-
Sale IRR w/Cap Gain IRR wo/Cap Gain
(39,800,000) (39,800,000)
2022 39,800,000 10,151,037 4,175,261 11,027,842 11,027,842
2023 9,821,313 4,153,147 10,693,474 10,693,474
2024 7,282,209 3,851,692 8,091,064 8,091,064
2025 5,720,272 3,344,944 6,422,710 6,422,710
2026 2,736,744 3,130,173 3,394,080 3,394,080
2027 1,882,139 3,081,101 2,529,170 2,529,170
2028 624,063 2,979,720 1,249,804 1,249,804
2029 3,159,562 663,508 663,508
2030 2,126,554 446,576 446,576
2031 1,681,960 353,212 353,212
2032 981,590 7,134,297 1,704,336 206,134
Total 39,800,000 38,217,777 32,665,703 7,134,297
5.1% 4.3%
Price per credit 1.041$
Consents
Syndicators, Developers, Lenders, GSE, Other
Consents– Transfer Taxes
– State Review?
– Developer Consents, Legal, and…
restructure?
– Lender Consents, Loan Fees & Legal
– Syndicators:
• Fees: In Existing Documents?
• Consents: In Existing Documents?
• Pricing: Syndicator Willing to Provide?
• What Level of Due Diligence?
754 Elections
Step Up/Step (Down)
Step Up/Step Down Calculation
Seller Capital Account Analysis
Original Purchase Price 55,661,101
Tax (Losses) (11,554,228)
Seller's Tax Basis 44,106,873
Buyer Purchase Price 39,800,000
Step Up/(Down) (4,306,873)
Amortize into income over time
Q&A