It's not easy closing a complicated affordable housing transaction. To help, several veteran developers and finance experts share their advice on how to smooth the path.
1. Start Early and Strong
It’s important to negotiate all major deal points early in the process, long before closing. If any key deal points are left until late in the process, you risk major bumps and delays in closing. “For example, we try to make sure all major deal points are addressed in an equity letter of intent (LOI), including guarantees, credit delivery, pay-ins and conversion requirements, permit status, and dates for final investment approval,” says developer Tom Capp, COO of Gorman & Co. “Our equity LOIs often look like a partnership operating agreement.”
Start with sound foundational documents, adds developer Beverly Bates, senior vice president at The Community Builders (TCB). “The business deal with each financial participant should be fully cooked and detailed in an LOI or funding commitment,” she says. “Negotiating the deal while trying to close it will only result in delays and circularity.”
2. Use a Checklist
“Prepare a detailed check list and schedule of events that is circulated to all interested parties and host regular conference calls to keep everyone accountable,” says Anthony Cinquini, senior vice president and head of the Affordable Housing Group at Berkadia. “This is true of any transaction.”
Bond attorney Wade Norris, a partner at Eichner, Norris & Neumann, agrees on the importance of having a complete list of the major items (documents, opinions, and certifications)required to close. But that’s not all.
It’s also critical that all the partners agree on the major documents to which they are a party. They key parties also need a statement or other evidence that all due diligence items needed to commit on the deal have been delivered and that their commitment is on the table and that subject to approval of post-pricing documents and final agreements, which have generally been agreed on prior to pricing, each party is ready to close, Norris says.
“The real key is before the deal is priced have all parties received what they need (including internal approvals, due diligence items, and agreement on all documents) to do the deal and committed to do the deal, subject to delivery of normal closing items,” he says.
3. Identify Waivers
“Try to identify potential loan waiver requirements with the lender early in the loan underwriting process,” says Nicholas A. Hamilton, managing director, RED Capital Group. “Work with your lender to identify potential deviations from programmatic requirements to determine whether precedent exists for waivers and to structure accordingly. This will minimize last-minute surprises, and can help ensure that the deal you sign up is the deal you close.”
He also suggests bringing in a title company weeks ahead of closing to participate in discussions on the timing of recordation and funding.
4. Know Your Partners
Choosing financial partners (equity and debt) that you have had previous positive experiences with is very helpful for smooth closings, says Capp and his team. “Those partners are more likely to allow for deviations from the standard should a last-minute issue come up,” he says.
If you are working through a low-income housing tax credit syndicator, know who the upper-tier investor is so you can assess your previous experiences with them.
5. Don’t Underestimate the Time Involved
“Closing a real estate deal, particularly an affordable housing development which can have many layers of complex financing, requires nothing more or less than great project management,” says TCB’s Bates. “Often, there are a dozen or more players at the table. On a few ‘layered’ deals, we have had as many as 30 people on a typical closing call.”
She says it’s important to not underestimate the time that must be devoted to managing the process. “The developer should assume that the person managing the closing will need to allocate an average of 24 to 40 hours per week to the closing process (or more),” Bates says. “It must be someone’s No.1 priority.”
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