8.8.7 Establishing a Profit-Motivated Borrower Entity

A. A nonprofit Sponsor may establish a profit-motivated Borrower entity for the purpose of owning a tax credit project or obtaining BSPRA. Distributions are limited to 75% of available surplus cash. Such a request may be approved provided:

1. The Borrower’s legal counsel’s opinion determines that there is no legal impediment that would prohibit approval of this relationship structure.

2. The profit-motivated Borrower entity agrees to be regulated by the terms and conditions of the regulatory agreement (form HUD-92466M, Regulatory Agreement Multifamily Housing Projects) applicable to a profit-motivated entity.

3. The nonprofit is subject to the mortgage limitations applicable to a profit-motivated entity.

4. A working capital deposit is required.

5. A nonprofit Developer’s Fee is not included in the mortgage; the nonprofit can include BSPRA.

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6. If the nonprofit provides evidence that it has obtained exemption from real estate taxes, the tax exemption must run with the real estate and not with the type of sponsorship.

7. The Borrower’s legal counsel’s opinion addresses any potential tax consequences and determines there will be no change in the nonprofit’s Section 501(c)(3) tax-exempt status with IRS.

8. The nonprofit Sponsor is the Section 50 signatory, see Section 8.3.6.G for guidance.