Investment in a Portfolio of Promissory Notes
MCAP acquired a 50% interest in a portfolio of promissory notes secured by twelve affordable housing developments in December 2001. The total investment, as of the Second Quarter of 2012, is $13.9 million.
- Purchase 50% interest in a portfolio of Promissory Notes and other assets secured by partnerships that own twelve low-to-moderate income housing developments.
- A bulk purchase diversifies risk and lowers transaction costs and lead time
- Sell or refinance underlying properties prior to the maturity dates of each Promissory Note.
- If not fully repaid by maturity date, foreclose and seek to enforce general partner financial guarantees
- Acquired 12 Promissory Notes (i.e., the “original” 12 Promissory Notes)
- Negotiated preferred return secured by partner’s assets
- Made a follow-on investment of $3 million
- In return, MCAP received higher guaranteed preferred return and options to purchase interests in 5 additional properties
- Played key role in obtaining tax credit allocations
- Sold all of the original 12 Promissory Notes profitably
- Five properties were awarded Low Income Housing Tax Credits, which contributed to higher sale prices
- Acquired five additional Promissory Notes for $1.7 million
- Sold each of these additional Promissory Notes profitably
- One remaining asset remains, which is the general partner interest in a defaulted multifamily tax credit property and a majority holder of the defaulted bonds. MCAP expects to restructure the holding through the resyndication of the property with new tax credits (or the sale to a developer who resyndicates new tax credits on the property).