Bridge Partners has accumulated a wealth of experience in the affordable housing industry: LIHTC, Section 42, HUD 236, Project Based Section 8 and LP/GP interests.
The federally funded and state administered Low Income Housing Tax Credit (LIHTC) program has been the single largest producer of affordable housing since the 1986 Tax Reform Act, producing over two million units of newly constructed or newly improved housing set aside for low income households between 1987 and 2009. The program has produced this volume of privately owned, not-publicly developed affordable housing by making a future stream of tax credits available to private investors in exchange for their upfront equity investment in the deal.
While the tax credit and economic benefits to the tax credit investor are realized over a 10 year period, assets in the program are subject to a minimum 15 year compliance period, and more typically are subject to extended income and rent restrictions for a minimum 30 to 50 year period. This maturity mis-match creates an opportunity for re-capitalization and/or partner substitution at various points during the initial compliance and extended use period. Bridge Partners has a range of business plans within this market segment, including acquiring general or limited partner partnership interests in existing LIHTC partnerships; acquiring fee simple interest of LIHTC assets post tax credit delivery but during the initial 15 year compliance period, and; re-capitalizing previously syndicated partnerships through a tax credit re-syndication. Bridge Partners pursues these opportunities nationally in stable and growing markets with well-located B and C grade assets.
HUD 236 communities were built in the late sixties and early seventies for low-income households. In exchange for the owner limiting the rent charged to those households, HUD bought down the mortgage interest rate from the market rate to 1%. The mortgages on these typically modestly built properties were for a 40-year term, and as they neared maturity, most were badly in need of recapitalization and many more, having not been significantly updated, were functionality obsolete.
In the early 90s, Bridge Partners identified the opportunity to buy HUD 236 properties when the loans become pre-payable at 20 years. Bridge Partners built a database of all HUD 236 deals nationally and approached the owners, often the original developer, of assets in desirable locations. The investment thesis was to buy at the price supported by in-place rents and to then take both the asset and the residents through a market conversion process to realize the property’s greater rent potential.
The sale and prepayment of the 236 loan at sale both terminated the income and rent restrictions imposed on the owner and triggered tenants’ eligibility for enhanced housing vouchers. Bridge Partners managed the process of transitioning tenants from building-based subsidy to voucher subsidy to ensure eligible tenants’ rent remained set at 35% of their income. Bridge Partners then executed a capital investment program designed to address deferred maintenance, add needed functionality and elevate the asset to be competitive with conventional market rate assets. The plan produced a win-win; for tenants with portable vouchers, they had the opportunity to stay at the re-capitalized and physically improved asset, or to move elsewhere in response to employment or family needs, taking their subsidy with them.
PROJECT BASED SECTION 8
Like HUD 236 communities, Section 8 communities were built decades ago for low-income households. In exchange for the owner limiting the rent charged to those households, HUD agreed to guarantee an income stream to the property. Early Project Based Section 8 contracts had a term of 30 years, and at the end of that initial term, the deals were typically in need of recapitalization, upgrades and additional functionality.
Bridge Partners identified the opportunity to buy Project Based Section 8 properties- often directly from the original developer- to take both the assets and residents through a market conversion process. With proper notice, the termination of the Section 8 contract terminated the income and rent restrictions and triggered tenants’ eligibility for enhanced housing vouchers, producing a similar win-win situation for tenants, building and owner as under the 236 plan. In some cases, Bridge Partners renews the Section 8 contract. With an extended contract, the property is re-capitalized and renovated to create a comfortable clean, and safe living environment.
GP/LP PARTNERSHIP INTERESTS
With an interest in less liquid and less marketable positions, Bridge Partners has pursued and successfully transacted to acquire controlling interests in existing partnerships. Most typically in Section 42 deals, Bridge Partners has identified opportunities to replace the existing controlling partner of an existing ownership entity. These opportunities require an understanding and assessment not only of the real estate value, but also of the rights and obligations of the controlling partner. As such, these investments require Bridge Partners to provide performance guarantees to the remaining partners as well as indemnification to the exiting partner from any activity under Bridge Partners Partner’s governance that would produce tax credit recapture.