What is Resyndication?
Resyndication is the process of obtaining a new allocation of Low-Income Housing Tax Credits (LIHTC) for an existing affordable housing property that has reached the end of its initial compliance period. Effectively, it allows the property to “start over” with a fresh stream of private equity.
How It Works
Property owners can resyndicate by either refinancing a single large property or combining several smaller, older properties into a single new partnership. This new partnership then applies to the state Housing Finance Agency (HFA) for either 9% competitive credits or 4% credits paired with tax-exempt bonds.
The Primary Goal: Capital for Rehabilitation
The main driver behind resyndication is the need for significant capital. While every property maintains a replacement reserve, those funds are rarely sufficient for the “gut-rehabs” required after decades of use. Resyndication provides the equity necessary for major upgrades, such as new HVAC systems, roof replacements, and energy-efficiency retrofits, that go far beyond routine maintenance.
The Critical “Year 15” Milestone
In the world of LIHTC, “Year 15” is the magic number. This is the point where the initial 15-year tax credit compliance period ends.
- Investor Exit: Most institutional investors seek to exit the partnership after Year 15 because they have already claimed the full 10 years of tax credits and the 15-year compliance window has closed, meaning there is no longer a risk of “recapture” by the IRS.
- Trigger for Change: At this milestone, general partners must decide: sell the property, convert it to market-rate (if permitted), or resyndicate to preserve its affordability for another 30+ years.
- Non-Tax Credit Properties: Interestingly, resyndication isn’t just for old LIHTC deals. Owners of aging HUD-assisted or rural housing properties can also use the resyndication process to tap into the LIHTC market for the first time to fund essential repairs.
The Strategic Benefits of Pursuing Resyndication
Securing New Capital and Attracting Investors
Resyndication is a powerful tool for attracting fresh private equity. New investors are often looking for the stability that comes with an established property that has a proven track record of high occupancy and stable operations. For the owner, this means an infusion of cash that protects the long-term viability of the housing stock.
A Complex but Valuable Alternative to New Construction
While building new is often seen as “simpler,” resyndication is frequently more cost-effective. Research suggests that acquisition-rehab projects can be 25% to 45% cheaper per unit than new construction.
- The Complexity: You are dealing with “old” debt, existing residents, and layers of previous funding requirements (like HOME or CDBG funds).
- The Benefit: Preserving existing units is a top priority for state agencies. Many Qualified Allocation Plans (QAPs) offer “preservation points” that make resyndication applications more competitive than new construction in crowded markets.
The Resyndication Process: A Step-by-Step Guide to Due Diligence
Phase 1: Assembling Your Team and Initial Planning
- Engage Stakeholders Early: Start planning by Year 11 or 12. You need your HFA, tax attorneys, and CPAs at the table early to navigate the complex exit of original partners.
- Physical Needs Assessment (PNA): You must conduct a professional PNA to determine the remaining useful life of building components. This isn’t just a “to-do” list; it forms the basis of your new development budget.
- Market Demand: A resyndicated property must demonstrate it is still relevant. High current occupancy is the best proof of market demand to future investors.
Phase 2: Navigating Regulatory and Funding Requirements
- Review the QAP: State rules change every year. Your “old” property may now need to meet new green building standards or accessibility codes to qualify for new credits.
- Coordinate Funding: You must gain consent from all existing lenders to refinance. If the property has HOME program funds, you must ensure the new deal doesn’t trigger a “repayment” requirement.
- Compliance Conflicts: Ensure that new income limits (like the Average Income Test) don’t conflict with existing restrictive covenants that may still be in effect from the original 30-year “extended use” agreement.
Phase 3: Managing Investor and Resident Interests
- The Exit Plan: Negotiating the “buyout” price for original limited partners is often the most contentious part of the process.
- Resident Strategy: You must budget for relocation costs. If residents need to move out during construction, federal “Uniform Relocation Act” (URA) rules may apply, adding significant cost and complexity to the budget.
- Continuing Compliance: You must keep original files and current certifications in perfect order during the transition to avoid a compliance gap that could jeopardize both the old and new credits.
Phase 4: Finalizing the Deal and Execution
- BIN Integrity: The IRS requires that Building Identification Numbers (BINs) remain consistent. If you are merging properties, tracking which BIN belongs to which physical structure is critical for future audits.
- Local Approvals: Don’t forget the “local” in affordable housing. Even if the building is already there, significant rehab may require new city planning approvals or updated permits.
Financial and Auditing Complexities in Resyndication
The Cost Certification Audit
Unlike new construction, a resyndication audit must account for the costs of maintaining an occupied building. Costs like tenant relocation, temporary security, and interest on loans for units that are “out-of-service” during rehab must be meticulously tracked to be included in the “eligible basis” for credits.
Managing Property Reserves
A common hurdle is the “Reserve Dispute.” Exiting investors may believe the property’s replacement reserves are “cash” that should be distributed to them, while lenders often insist those reserves stay with the property to ensure its future health.
Budgeting for Success
The fixed costs of resyndication, legal fees, HFA application fees, and CPA audits, are high. Owners must conduct a thorough cost-benefit analysis to ensure the new equity infusion outweighs these costs and the burden of a brand-new 30-year compliance period.
Conclusion: Is Resyndication the Right Strategy for Your Portfolio?
Resyndication is the ultimate preservation tool. It protects the value of your portfolio, attracts new capital, and, most importantly, ensures that low-income families have a high-quality place to call home for decades to come. However, the complexity and high fixed costs mean it isn’t the right choice for every property. Owners should also explore alternatives like cash-out refinances or state gap-funding grants if the rehabilitation needs are moderate. Successful resyndication requires a “compliance-first” mindset and early engagement with experts.