Settlement in an appeal regarding the low-income housing tax credit


In May 2021, I wrote about New York Attorney General Letitia James, who is best known for being a thorn in Donald Trump’s side, weighing in on a dispute over affordable housing in Brooklyn. This is part of a larger issue that I have been covering since early 2021. The dispute is commonly referred to as Year 15, a critical point in the lifecycle of projects funded by the Low-Low Housing Tax Credit. revenue.

The big picture

The Low Income Housing Tax Credit (Section 42) is probably the biggest federal support for affordable housing. Global credit is divided among states based on population and allocated to projects by state housing agencies. There is a preference for non-profit sponsors (NPOs). Typically, an NFP-controlled entity will have a general partnership interest with a tiny share of credit and loss allocations and an investor entity that is allocated substantially all of the credits and losses. The credit is distributed over ten years and there are five additional years where it is subject to recovery.

Projects are committed to an additional fifteen years of affordability, but this is enforced by state housing agencies. Credit is no longer at risk. This makes year 15 a logical exit point for the investor entity. Section 42 gives a small nudge in this direction by allowing an NFP sponsor to have a “right of first refusal” (ROFR) to acquire the project for the outstanding debt plus any exit taxes from the investor. The view of the NFP sponsors is that investors should settle for this on the theory that the deal is guaranteed to provide sufficient value from the tax benefits.

In recent years, the investing entities, sometimes second-hand holders of the interests, have not played the game of the ROFR strategy. The argument is that an ROFR is not the same thing, it is an option. Sponsors generally do well in state courts and the court of public opinion, as far as anyone outside the LIHTC bubble pays attention, but not so well in federal courts until recently.


The mission of Riseboro Community Partnership (RCP) is to “smeet the needs of older residents in the community and contains a commitment to eliminate or reduce poverty in Brooklyn and Queens by engaging in the planning, creation, coordination, initiation, evaluation and oversight of community action programsAmong the projects directed to the mission was Stockholm Manor 35 LIHTC affordable housing units at 420 Stockholm Street in the Bushwick neighborhood.

RCP wished to exercise the ROFR in order to become the owner of the property at the end of the fifteen-year period. The sponsoring investor, then an affiliate of AIG, objected. They argued that ROFR could not be exercised until they indicated they wanted to sell and a third party made a good faith offer.

The problem with the ROFR model is that no third party bothers to make a good faith offer knowing that an ROFR holder is expecting to buy the property at a bargain price. Nonetheless, Judge Raymond Dearie of the U.S. District of the Eastern District of New York ruled against RCP on August 28, 2020 in Riseboro Comunity Partnership Inc v SunAmerica Housing Fund 662:

Nothing in 41(i)(7), its legislative history, or any provision of the May 1999 agreement shows that the partners intended Riseboro to be able to exercise its ROFR absent the common law prerequisites.

RCP appealed to the Second Circuit who drafted AG Letitia James’ amicus brief. There was also an amicus brief on behalf of 42 non-profit organizations focused on affordable housing

The happy ending

On July 1, 2022, RCP announced that it had reached an agreement with Blackstone
through its affordable housing holding company April Housing. (According to this story, Blackstone acquired a housing portfolio from AIG comprising approximately 80,000 units. Presumably Stockholm Manor’s 35 units were among them.) RCB will acquire a majority stake in the properties and Blackstone has committed to do a gift of $1.2 million over 15 years to fund resident support services.

RCB CEO Scott Short’s statement was

RiseBoro and Blackstone share a commitment to preserving affordable housing and providing residents with the services they need to thrive. We are pleased to have reached a resolution that puts residents first and ensures that our communities will remain affordable for decades to come. Responsible investors play a vital role in our country’s affordable housing ecosystem and we are pleased to establish a new model of partnership between nonprofit organizations and private investors.

Kathleen McCarthy, Global Co-Head of Blackstone Real Estate commented:

We have been impressed with RiseBoro’s deep commitment as stewards of the communities they serve and are proud to deepen our relationship for the benefit of residents. This agreement is another example of our commitment to maintaining and developing affordable housing.

Alice Carr, CEO of April Housing, said:

We are delighted to enter into an agreement with RiseBoro that will allow us to continue our shared mission of preserving affordable housing. We greatly appreciate the expertise and dedication of the RiseBoro team, and we welcome the opportunity to provide them with resources to enhance their exceptional resident services program as we continue to work together to support residents and local communities.

The other development

Besides the change in ownership, the other development that may have influenced the settlement was the Sixth Circuit’s decision in SunAmerica Housing Fund 1050 vs. Pathway of Pontiac Inc.

When interpreting such a ROFR provision, we must consider the goals of Congress expressed in LIHTC, including its intent to make it easier for nonprofit organizations to retake ownership of the property and to maintain the availability low-income housing. Thus, these congressional intentions confirm that the general common law understanding of a bona fide offer cannot substitute for the ROFR mechanism created by Congress in LIHTC.

The settlement was also a good break for the nonprofit community, as they would surely prefer the Sixth Circuit to have the final say on this issue.

Other coverage

Jessy Edwards has Bushwick Non-Profit Takes on Billion-Dollar Investment Firm and Wins Affordable Housing Settlement on BKReaderComment.

A Bushwick nonprofit that took a billion-dollar finance company to court said it had reached a deal that would allow it to keep 190 Brooklyn homes affordable “forever.”

Kirstyn Brendlen has Bk nonprofit RiseBoro strikes affordable housing deal with private equity giant Blackstone in Brooklyn paper.

RiseBoro now owns a majority stake in Stockholm Manor and two other affordable housing developments formerly under LIHTC deals, Renaissance Estates and Rheingold Gardens, both in Bushwick. Neither was part of the original lawsuit, but Blackstone wanted to find a solution on all three properties, Short said.


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