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Raquel Morales

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 #1 
Attached are proposed amendments to the Right of First Refusal ("ROFR") rules.

 
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pdf Subchapter_E-_Working_2017_Draft_ROFR_FORUM.pdf (89.69 KB, 95 views)

nealdrob

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 #2 
(a)(7)(B) which limits the transfer to an entity formed to use government financing should be expanded to forming an entity for any type of rehab / recapitalization.  It would be in the public's interest to have properties recapitalized with private funds where that is economically feasible instead of requiring the financing to go through a public sources and get public subsidy that may not be needed.
It is a common financial structure for a owner, who wants to stay in control, to transfer to an entity where he brings in investment partners to capitalize the new entity.

While I am encouraged that the rules allow for a qualified nonprofit organization to take ownership in an LLC or other pass through entity, I would recommend that the rules allow the non-profit to take ownership in an LLC/ LP where it is in control and actively managing the property, but includes private investors as Limited Partners.  NHPF is a relatively well capitalized national non-profit but even we have challenges buying properties if we can not bring in social and economically minded investors as our limited partners.  As more of the LIHTC stock is sold post year 15 and removed from the affordable stock, I believe it would be in the public's interest to take actions which would facilitate mission minded non-profits to take ownership.
clbast

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 #3 
I firmly believe that HB 3576 provides that any owner with a ROFR in the LURA, no matter what vintage ROFR (90 days, 2 years, 180 days, etc.), should be able to sell through the ROFR process to a Qualified Entity (as that term is defined in statute).  An owner should not be required to amend the LURA to utilize this statutory change. 

If you look at HB 3576, you will see that Section 2306.6725(b)(1) was specifically amended to change the phrase "qualified nonprofit organization or tenant organization" to "qualified entity."  Then, Section 2306.6726 goes on to define a "qualified entity."    The statute provides that the revision in Section 2306.6725 shall "apply to the transfer or sale of a development supported with an allocation of low income housing tax credits issued before, on, or after the effective date of this Act."

Recently, TDHCA has been taking the position that an owner going through the ROFR process can sell to a Qualified Entity only if the owner amends the LURA to adopt the provisions of HB 3576.  For instance, if an owner has a 90-day ROFR in the LURA, the owner can only sell to a qualified nonprofit organization or an entity wholly owned by a qualified nonprofit organization.  But it cannot sell to a limited partnership in which the qualified nonprofit organization is a controlling general partner.  Similarly, if an owner has a 2-year ROFR in the LURA, during the first six months of the ROFR period, the owner can only sell to a CHDO or an entity wholly owned by a CHDO.  But it cannot sell to a limited partnership in which the CHDO is a controlling general partner.

I believe this is inconsistent with the legislation.  While an owner may need to amend the LURA to adopt the 180-day ROFR period instead of the 2-year ROFR period, the owner should not be required to amend the LURA in order to sell to a Qualified Entity.

TDHCA's current rules were carefully crafted after the passage of HB 3576 and are correct.  The additions on the redlined text (adding the phrase "Qualified Nonprofit Organization" in several places) provided above are not needed.
clbast

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 #4 
The 2-year ROFR gives a priority during the first six months of the ROFR period to a qualified nonprofit organization that "is also a community housing development organization, as defined for purposes of the federal HOME Investment Partnerships Program at 24 C.F.R. 92.1 (a "CHDO") and is approved by the Department."

The 180-day ROFR gives a priority during the first sixty days of the ROFR period to a qualified entity that is "a community housing development organization as defined by the federal HOME investment partnership program" or an entity controlled by a CHDO. 

We need TDHCA to provide a mechanism to identify which entities qualify for this priority and which do not.  Since the implementation of the 2013 HOME rule, the standards for CHDO qualification have become more stringent.  In recent attempts to certify CHDOs in connection with the HOME loan program, I have found TDHCA staff to require significant due diligence. 

We cannot have a situation where an owner submits a property to go through the ROFR period, accepts an offer from an entity that it believes is a CHDO, and submits an ownership transfer application, only to find out that the offeror did not qualify as a CHDO in the first place and therefore was not permitted to make the offer during the priority period.  What does that do for any other qualified CHDO that did make an offer during the initial priority period?  What does that do for other non-CHDOs who made offers and might be permitted to purchase?  To avoid untenable delays and promote transparency, this issue must be addressed.

TDHCA may be restricted on its ability to certify CHDOs, only in situations where the entity is applying for HOME funds.  However, it should be able to determine whether an entity meets the definition of a CHDO without actually certifying the CHDO.

I recommend that TDHCA establish a process to allow a nonprofit organization to approach TDHCA and seek a determination that the organization is eligible to participate in the first priority of the ROFR period.  Having this determination in advance will help both the nonprofits and the owners who want to work together on these sales. 



clbast

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 #5 
HB 3576 requires an owner initiating the ROFR process to identify to TDHCA any qualified entity that is the owner's intended recipient of the ROFR.  In discussions leading up to the passage of this bill, it was very important to the nonprofit community that their contracts continue to be honored.  The draft Rules do require the owner to notify TDHCA of any contractual right of first refusal (outside the LURA).  It may be appropriate for the Rules to allow the owner to sell directly to that intended contractual recipient, without the need of going through the ROFR process.  This would benefit both the owner and the nonprofit by allowing a direct transaction, subject to the ownership transfer rules.
tjmacdonald

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 #6 
I agree with clbast. HB 3576 specifically envisioned that a Development Owner that enters into a ROFR agreement with any Qualified Entity (as defined in the statute) shall be deemed as having satisfied the requirements of HB 3576 without having to go through the ROFR posting process.
clbast

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 #7 
Considerations for topics for Wednesday's round table:
1.  When can an owner sell directly to a qualified entity without posting for the ROFR process?
2.  What if an owner has a ROFR contract with a nonprofit outside of the LURA?
3.  Under what circumstances can an owner sell partnership interests without triggering the ROFR?
4.  What happens if an owner posts for ROFR and receives more than one offer?  
5.   If an owner wants to sell to a CHDO, how do we know whether a nonprofit qualifies?
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