by
Brad Elphick, CPA, Novogradac & Company LLP


Danger Signals

Consequences of Danger Signals

Responding to Danger Signals

The Players and Value over Time

Danger Signals
•
Delays in Reporting
•
Lower Rental Income
– Slow Lease-up
–
Lower Rental Rates
–
High Turnover Rates
–
High Vacancy Rates

Danger Signals
•
Higher Operating Expenses
–
Larger Operating Expenses
– Missing Operating Expenses
– Lower Operating Expenses?
• Balance Sheet Items
–
Unexpected GP Loans or Capital Contributions
– Unidentified Accounts
• Suspense/Other/Unlocated Differences
– Large Payables and Accrued Expenses

Danger Signals
•
Receiving Forms 8823
•
Poor Communication
•
Unavailable for Site Visits
•
Other Projects Have Problems
– The Rumor Mill

Consequences of Danger
Signals
•
Slow Lease-Up
– Tax Credit Adjusters
• 1 st Year
• Year 10 to 15
• State Tax Credit Delay
–
Higher Interest Costs
•
Delay in lower permanent loan rate
• Delay in LP take-out equity
• Tax-Exempt Bonds – Negative Arbitrage
–
GP Loans / Capital Contributions
• Interest?
•
Credit for Amounts Advanced?

Consequences of Danger
Signals
•
Negative Cash Flow
–
Overall Financial Viability
• Cash Shortfall Funding
• State Mandated Lower Rents?
–
LIHC – Minimum Gain / 704(b) Issues
–
Reviewing the Numbers

Consequences of Danger
Signals
•
Negative Cash Flow
(cont.)
–
Reviewing the Numbers
– The Original Projections
• Basic Assumptions
• Net Operating Income
• Taxable Income/(Loss) and Credits
•
Minimum Gain Calculations

Consequences of Danger
Signals
•
Negative Cash Flow
(cont.)
–
The Revised Projections
– The Income Tax Effect of the Negative Cash Flow
• Quicker to Negative Capital Accounts
• Larger GP Loans
• Minimum Gain Problems

Consequences of Danger
Signals
•
Forms 8823
–
Responding to State Housing Agencies
– Responding to the Internal Revenue Service
• Mail Notices
• Field Audits

Responding to Danger Signals
•
What is Causing the Problem
–
Real Estate Market?
• Location
•
New Competition
• Changes in AMGI
•
Expense Cost Spikes
–
Property Manager?
•
Corporate
• Site Manager

Responding to Danger Signals
•
What is Causing the Problem
–
Construction
• Design Flaw
• Construction Flaw

Responding to Danger Signals
•
The Players and Value over Time
–
Who will lead the response?
• Developer/Asset Manager
•
Equity Investor
• Lender


Danger Signals

Consequences of Danger Signals

Responding to Danger Signals

Additional Questions?
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