Tax Exempt Bonds for Mobilehome Park Purchases

I am occasionally asked, “Why can’t my resident group get tax-exempt bond financing to purchase our park?”

Resident groups leaders are referring to the fact that commercial funding for resident groups trying to buy their park is hard to come by.  But so-called Non-Profit Corporations (NPC) can get local government sponsored tax-exempt bond money to buy parks, which seems to be easier.  

But then the NPCs end up owning the park, NOT the resident group.

What everyone is actually taking about are Municipal Bonds, which are financing deals sponsored by local and State governments, as opposed to the Federal Government.   The primary reason municipal bonds exist is to finance local government projects (sewer, water, roads, schools, etc.)  These original reasons have been expanded over the years for other projects, such as affordable housing (including manufactured home parks), sports stadiums, etc., all of which are supposed to have some public purpose.

Local government bonds are usually paid for by property taxes or usage fees.   Mobile home park purchase bonds are paid for by rents paid by mobilehome park tenants.

Investors buy these bonds because their interest payments are exempt from Federal (and sometimes, State) Taxes.  Since the Internal Revenue Service does not like to lose tax money, they make rules and regulations that limit such financing to specific circumstances.

Usually, a project must have a qualified sponsor (that’s the NPC), be a project approved under the IRS regulations, have some local entity (that’s either the city or a similar local government group) act as “issuer”, and usually have some form of credit enhancement (bond insurance) since no investor really wants to trust that the fees or rents will be enough to pay off the debt .  Finally, there have to be lots (lots) of participants (all getting fees) to bless the process.  (I use the all encompassing terms “Pigs in the Trough” (“PITT”).)

Generally, resident groups themselves CANNOT get bond financing because they are NOT (even if they are a 501c3) a qualified group under the IRS regulations.  Non-Profit (501c3) Affordable Housing Providers (NPC) DO qualify and thus, CAN get bond financing.   Since there are lots of attorneys involved (PITTs), it’s more complex than that, but you get the idea.

Doesn’t seem fair does it?  Some outside corporation can get attractive financing to buy YOUR park, but your group CAN”T.   So you end up with a different landlord but still it is still a crap-shoot as to whether the new NPC landlord is better than the old landlord.

Note, however, that the resident group still has some say in the process, and they can influence the outcome if they can play their cards properly.

Stay tuned for “How do Tax Exempt Bond Deals work?” in a future BLOG.

Deane

 

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