Case Study
Willow Creek Apartments: Acquiring a LIHTC Property Mid-Compliance-Period
The Deal
Meridian Affordable Housing Partners, LLC ("Meridian") is under contract to acquire Willow Creek Apartments, a 72-unit LIHTC property at 4400 Willowbrook Lane, Rangeview, DL, for $7,400,000. Willow Creek was placed in service in June 2018 under a 9% competitive credit allocation from the Delmar Housing Finance Agency (DHFA). Its 15-year Section 42 compliance period runs from January 1, 2018 through December 31, 2032 (today is September 1, 2026 — the property is in year 9 of 15, with roughly 6 years of compliance-period exposure remaining), and the recorded Land Use Restriction Agreement (LURA) imposes an extended-use period running a full 30 years, through December 31, 2047. Current ownership is Bellwood Community Development Corporation as 0.01% general partner and Hearthstone Tax Credit Fund XIV, L.P. (managed by syndicator Concord Housing Capital) as 99.99% limited partner and tax-credit investor. Because the property is still inside its compliance period, Meridian cannot simply buy the real estate — it must acquire Bellwood's GP interest and Hearthstone's LP interest in the existing ownership entity (subject to DHFA and investor consent), assume the recorded regulatory agreement, and either assume or refinance the existing tax-exempt-bond first mortgage. Meridian's acquisition team has pulled the rent roll, trailing-12-month operating statement, the broker's offering memorandum, and the existing lender's loan assumption term sheet to underwrite the deal.
You’ll Practice
- Calculate restricted NOI for a LIHTC property from AMI-based rent-roll and T12 data, and explain why it materially understates a hypothetical unrestricted market-rate NOI.
- Distinguish IRC §42 compliance-period recapture risk from LURA extended-use-period enforcement risk, and identify which mechanism applies at a given point in a project's life.
- Size acquisition value (cap rate) and debt service coverage using restricted, not market, NOI when assuming an existing LIHTC regulatory agreement and affordable first mortgage.
- Evaluate financing-structure trade-offs when a buyer must fund a purchase-price-to-assumable-debt gap by acquiring an existing tax-credit investor's limited partner interest rather than simply adding new debt.
- Reconcile a rent roll, T12 operating statement, and offering memorandum for internal numeric consistency before relying on them to underwrite an affordable-housing acquisition.