16.2 Background

A. Master Leases maximize the benefits of combining Federal or State Historic Tax Credits and New Markets Tax Credits. The projects may or may not use Low Income Housing Tax Credits as well. Investors and Developers participating in these programs benefit from increased leverage for project financing and premium pricing for equity while reducing the need for additional debt.

B. Typically, these leases are structured to permit a combination of investments by one or more investors under one or more tax credit programs in a single development project. A sample organization chart for a master lease ownership structure is included in Appendix 16. Generally, the Master Lease structure involves the following parties, which often have total or partial identities of interest and common ownership:

1. FHA Borrower – the Single Asset Entity (the Lessor for the Master Lease);

2. Master Tenant – the lessee; and

3. Master Lease Sub-lessees for Residential units, and for Commercial space.

C. The Master Tenant must pay the Borrower/Lessor rent that equals or exceeds the amount necessary to satisfy all financial obligations required under the insured mortgage and to operate the property in accordance with all HUD directives, regulations and contracts. The Master Tenant and all Master Sublessees (but not the individual residential and commercial tenants) will execute HUD Regulatory Agreements and submit financial reports to HUD.

D. The HUD Multifamily Regional Center or Satellite Office will be responsible for approving Master Lease ownership structures in accordance with this chapter’s requirements. The Regional Center Director retains waiver authority, but waivers of any provisions of this chapter should be discussed with and reviewed by Headquarters (HQ) Office of Multifamily Production prior to approval.

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Chapter 16 Master Leases with Market Tax Credits 16.3 General Programmatic Requirements

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