In the world of Low-Income Housing Tax Credit (LIHTC) deals, year 15 is like graduation day. It marks the end of the federal compliance period, and the limited partner has generally received the full value of their tax benefits. The general partner faces the big decision: what happens next, and how is that transaction structured? I recently took part in an insightful panel, “Year 15 Exits: Strategies and Trends,” at the Texas Affiliation of Affordable Housing Providers (TAAHP) Texas Housing Conference 2025, which has given me the opportunity to pull together some thoughts on how partnerships should approach this milestone.
Plan early, revisit often
Many investors, sponsors, and developers see year 15 as the “end of the story” — the moment when the deal is over, the tax credits are done, and there’s nothing major left to do. In fact, year 15 is a time that often triggers complex negotiations, planning, and, sometimes, conflict. One reason for this is that partnerships are often not focused on exit planning upfront, which can lead to complications later.
That’s why it’s so important to incorporate exit planning into initial partnership negotiations. Structuring terms, defining waterfall provisions, and setting valuation protocols from the outset can dramatically reduce conflict when the compliance period ends.
Know your deal, inside and out
It’s very common for owners to be uncertain about their exit rights. Some developers, for example, arrive at year 15 without a clear understanding of whether the sale/refinance waterfall or liquidation waterfall applies — or how the investor interest must be valued. This lack of clarity can lead to major valuation disputes and unnecessary delays.
The best-prepared operators approach the limited partnership agreement as a living document, thereby ensuring that their teams know which provisions govern key exit decisions. Identifying who has buyout rights, when those rights can be exercised, and how proceeds are to be distributed is, therefore, critical.
Get the value right
Determining the value of a year-15 asset is often as much about methodology as it is about math. For instance, while broker opinions of value (BOVs) and appraisals serve related purposes, their underlying assumptions often diverge. This divergence can open lucrative opportunities.
With BOVs, for instance, brokers tend to consider more forward-looking elements, such as future AMI (area median income) increases, rent caps set to expire, and anticipated tax exemptions. These factors, in turn, often lead to higher projected values — particularly in cases where future income potential is strong.
Appraisals, by contrast, are typically grounded in current operations and historical performance. While this may yield a more conservative valuation, many stakeholders view appraisals as more objective, especially in contested negotiations.
It’s also true that the reason why you’re getting a valuation — and who is asking for it — can significantly affect the way the valuation is done, as well as how it should be interpreted.
For example, if you’re valuing the property to buy out your investor and you use an inflated number, it can work against you. The bottom line: pick your valuation experts carefully and make sure both sides are on the same page about the process.
Negotiate and document the exit mechanism at the start of the deal
A frequently contentious topic is the distinction between the sale/refinance waterfall and the liquidation waterfall — and which should be applied during a year-15 exit. In some deals, applying the liquidation waterfall can shift the economics dramatically in favor of the investor, even when the general partner believes the sale waterfall governs.
When it comes to buying out the investor is, do you follow sale, or do you follow liquidation? The answer can mean the difference between a multi-million-dollar distribution to the general partner and a scenario where the general partner must bring money to the table. To avoid such disputes, it’s essential to negotiate and clearly document the exit mechanism at the start of the deal.
Evaluate your options carefully
While direct buyouts remain the most common path, interest is growing in alternative exit strategies, as operating costs increase, and margins narrow. Panelists estimated that 20% to 30% of BOV exercises now involve consideration of a third-party sale.
Re-syndication remains a desired goal for many owners but continues to face headwinds. In the current market, only about 10% of properties under contract are tied to re-syndication plans, according to a panelist.
Meanwhile, more general partners—especially those lacking scale or institutional backing—are exploring sales of their stakes. Given today’s constrained development climate, transactions are often driven less by long-term strategic planning and more by immediate capital needs.
Focus on market fundamentals
Across many Texas markets, the rent advantage that once served as a cushion for affordable housing properties has eroded. The large supply of market rate units has put downward pressure on market rents putting them under 60% AMI rents in some markets. It is not uncommon to see eight to 10 weeks of rent concessions in new Austin properties.
This dynamic has made lease-up and retention more challenging, particularly in high-delivery markets. For year-15 deals, the dynamic also affects both valuation and strategy. For instance, if market rents are flat or even below affordable rents, the rationale for re-syndication weakens. On the other hand, in areas with a strong rent advantage, long-term hold strategies remain viable.
Pay attention to the capital account
Perhaps the single most overlooked factor in year-15 negotiations is the capital account. Investors, for their part, track these balances closely, since they form the basis of many liquidation waterfalls. A dwindling capital account is certainly an attention grabber. As such, general partners who fail to monitor capital accounts may find themselves at a significant disadvantage when buyout talks begin.
The good news for general partners is they’re not stuck with whatever their capital account balance happens to be at year 15. Tools such as cost segregation studies — which can accelerate depreciation and reduce investor capital — can be used to shape how the account looks by the time a buyout happens.
Prepare to negotiate, but set the table early
The year-15 process is, in short, far from a formality. Instead, it’s a negotiation — one that carries meaningful financial implications for both general and limited partners. The best outcomes occur when expectations are set early, documentation is clear, and parties approach the process with a realistic understanding of market conditions.
