Why Limited Partners Sell Interests in Affordable Housing

Established over 30 years ago, SP Investment Fund invests in and preserves government-subsidized affordable housing that serves very low income families, seniors and disabled persons. SP has invested in over 100 such affordable housing communities owning more than 10,000 affordable housing residences. SP Investment Fund, LLC invests in these communities by purchasing limited partner rights relating to the limited partnerships that own them.

There are several reasons why a limited partnership may want to sell its interests in an affordable property. The first is tax efficiency. Many partnerships were started as tax shelters and invested in these properties to accrue phantom taxable losses. However, today the properties may generate taxable income exceeding cash distributions, making holding them untenable.

Another reason the partnerships would want to sell their interests is for easier estate planning administration. Limited partner interests like these can burden estates with appraisal costs and professional administration fees for lawyers, accountants, and executors. The estate may also have to pay partnership fees to process a transfer. If the interest is split between heirs, their yearly tax returns will be affected, increasing administration costs.

Finally, limited partners may sell to pursue alternative investments, meet liquidity needs, or simplify their operations. SP Investment Fund buys the rights to these properties because it has more advantageous tax structures, no current yield requirements, and a long investment time frame. It also specializes in these properties, hence can achieve beneficial economies of scale.

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