Security Properties Acquires Majority Interest in Denver Multifamily Asset

May 24, 2010
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Security Properties has acquired the general partner and majority interests in the ownership of Diamond at Prospect, a 140-unit multifamily property in Denver, Colo. Built in 2005 by an affiliate of Trammell Crow Residential and financed in part under the low-income housing tax credit (LIHTC) program, the property becomes the latest addition to the Seattle-based company’s diverse portfolio of multifamily assets.

“We are very pleased with the outcome of this deal, given the unique nature of the transaction,” commented Ilya Gamel, Security Properties’ director of special acquisitions. Under the LIHTC program, the ownership entity is restricted from transferring an LIHTC asset for 15 years from the date the property is placed into service and begins earning its tax credits. While the regulations restrict an outright sale of the placed-in-service property, they do not prohibit the various partners from presently transferring their ownership interests.

However, these types of transfers can be complicated. “The typical buyer,” explains Tim Overland, Securities’ managing director of affordable housing, “is an experienced affordable housing operator who knows the governing regulatory agencies and understands the rules of compliance.” In addition, the buyer must have the economic capacity to assume the general partner’s guarantees to the limited partner for successful delivery of the tax credits as well as for coverage for any operating debt. Security Properties had to balance the unique due diligence of the Colorado Housing Finance Authority, the lender, as well is the institutional limited partner.

Entering the affordable housing industry in 1969 as a syndicator, Security Properties invested in HUD-subsidized multifamily properties throughout the U.S. in the 1970s and 1980s. It began valuing and acquiring limited partnership interests within its own portfolio in 2000 and, more recently, embarked on a strategy to acquire general partner interests in LIHTC housing.