PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus.  It does not contain all of the information you should consider before making an investment decision.  Before you decide to invest in our securities, you should read the entire prospectus carefully, including the risk factors and financial statements and related notes included or incorporated by reference herein and therein.

 

Partnership Overview

 

The Partnership was formed in 1998 for the primary purpose of acquiring a portfolio of mortgage revenue bonds (“MRBs”) that are issued by state and local housing authorities to provide construction and/or permanent financing for affordable multifamily housing, seniors housing and commercial properties.  We also invest in governmental issuer loans (“GILs”), which are similar to MRBs, to provide construction financing for affordable multifamily properties.  We expect and believe the interest received on our MRBs and GILs is excludable from gross income for federal income tax purposes. The Partnership may also invest in other types of securities that may or may not be secured by real estate and may make property loans to multifamily properties which may or may not be financed by MRBs or GILs held by the Partnership, to the extent permitted under the terms of the Partnership’s First Amended and Restated Agreement of Limited Partnership dated September 15, 2015, as further amended (the “Partnership Agreement”). In addition, we may acquire interests in multifamily, student, and senior citizen residential properties (“MF Properties”).  We expect that a majority of all assets held by us are and will continue to be considered eligible for regulatory credit under the Community Reinvestment Act of 1977 (the “CRA”).

 

Our general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or the “General Partner”).  The general partner of AFCA 2 is Greystone AF Manager LLC (“Greystone Manager”), which is an affiliate of Greystone & Co. II LLC (“Greystone & Co.”).  Greystone & Co., together with its affiliated companies (collectively “Greystone”), is a real estate lending, investment, and advisory company with an established reputation as a leader in multifamily and healthcare finance, having ranked as a top Federal Housing Administration (“FHA”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Mortgage Corporation (“Freddie Mac”) lender in these sectors. The holders of the Partnership’s beneficial unit certificates representing assigned limited partnership interests in the Partnership (“BUCs”), the existing Series A Preferred Units, the Series A-1 Preferred Units, and the Series B Preferred Units are collectively referred to herein as “Unitholders.”

 

On April 1, 2022, the Partnership effected a one-for-three reverse unit split of its outstanding BUCs.  The BUCs commenced trading on a split-adjusted basis on April 4, 2022.

 

The Partnership has been in operation since 1998 and will continue in existence until dissolved in accordance with the terms of the Partnership Agreement.  Our principal executive office is located at 14301 FNB Parkway, Suite 211, Omaha, NE, 68154, and our telephone number is (402) 952-1235.

 

We maintain a website at www.ataxfund.com, where certain information about us is available.  The information found on, or accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the SEC.

 

Overview of the Offering

 

We will use the proceeds of the offering of Series B Preferred Units received from each investor to acquire mortgage revenue bonds that are issued by state and local housing authorities to provide construction and/or permanent financing for affordable multifamily, student housing, senior citizen and commercial properties that are likely to receive consideration as “qualified investments” under the CRA.  In addition, we will use the proceeds to acquire other allowable investments as provided for in the Partnership Agreement.  We will allocate the proceeds received from each investor in the CRA assessment area specified by the investor.  If no CRA investment is available in a requested CRA assessment area at the time of the closing of the investor’s subscription, we will have 24 months to identify a matching CRA investment and will draw the investor’s capital at that time.

 

 

As part of an investor’s subscription agreement to purchase Series B Preferred Units, each investor must designate a state, multi-state region, metropolitan area, the entire United States, or some other region(s) (such as census tracts) as the preferred geographic focus for its allocations (the “Designated Target Region”).  Investors may designate more than one Designated Target Region.  In the subscription agreement, the investor also may specify the amount of the investor’s investment proceeds to be allocated to one or more specific Partnership assets located in the investor’s Designated Target Region.  The General Partner will honor such allocation requests pursuant to the CRA allocation methodology described in “– Community Investments – CRA Credit Allocation Methodology” beginning on page 11 below.

 

Our Business Objectives and Strategy

 

Investment Strategy

Our primary business objective is to manage our portfolio of investment to achieve the following:

 

We are pursuing a business strategy of acquiring additional MRBs, GILs and other investments, as permitted by the Partnership Agreement, on a leveraged basis to achieve our business objectives. In allocating our capital and executing our strategy, we seek to balance the risks of owning specific investments with the earnings opportunity on the investments.

 

We believe there continues to be a significant unmet demand for affordable multifamily and senior citizen residential housing in the United States. Government programs that provide direct rental support to residents have not kept up with demand. Therefore, investment programs such as those pursued by the Partnership, which promote private sector development and support for affordable housing through MRBs, GILs, tax credits and grant funding to developers, have become more prominent. The types of MRBs and GILs in which we invest offer developers of affordable housing a low-cost source of construction and/or permanent debt financing. We plan to continue to invest in additional MRBs and GILs issued to finance affordable multifamily and senior residential rental housing properties.

 

We continue to evaluate opportunities for MRB investments to fund senior citizen housing projects or skilled nursing facilities issued as private activity or 501(c)(3) bonds similar in legal structure to those issued for traditional affordable multifamily housing projects. We will continue to leverage the expertise of Greystone and other reputable third parties in evaluating independent living, assisted living, memory care and skilled nursing properties prior to our MRB acquisitions. During 2021, we acquired our first senior citizen housing MRB, Meadow Valley, that will finance the construction and stabilization of a combined independent living, assisted living and memory care facility in Traverse City, MI. Furthermore, in 2021 we funded a property loan secured by a 128-bed skilled nursing facility, Magnolia Crossing in Houston, TX, to a 501(c)(3) in order to position ourselves for a future MRB investment.

 

We continually assess opportunities to expand and/or reposition our existing portfolio of MRBs and GILs. Our principal objective is to improve the quality and performance of our portfolio of MRBs and GILs and, ultimately, increase the amount of cash available for distribution to our Unitholders. In certain circumstances, we may allow the borrowers of our MRBs to redeem the MRBs prior to the final maturity date. Such MRB redemptions will usually require a sale or refinancing of the underlying property. We may also elect to sell MRBs that have experienced significant appreciation in value. In other cases, we may elect to sell MRBs on properties that are in stagnant or declining real estate markets. The proceeds received from these transactions would be redeployed into

other investments consistent with our investment objectives. We anticipate holding our GILs until maturity as the terms are typically for two to four years and have defined forward purchase commitments from Freddie Mac, acting through a servicer.

 

We will also continue to make strategic equity investments in market-rate multifamily residential properties (“JV Equity Investments”) through noncontrolling membership interests in unconsolidated entities. We believe such equity investments diversify our investment portfolio while also providing attractive risk-adjusted returns for our Unitholders.

 

Financing Strategy

 

We finance our assets with what we believe to be a prudent amount of leverage, the level of which varies from time to time based upon the characteristics of our portfolio, availability of financing, and market conditions. This leverage strategy allows us to generate enhanced returns and lowers our net capital investment, allowing us to make additional investments. We currently obtain leverage on our investments and assets through:

 

We may utilize other types of secured or unsecured borrowings in the future, including more complex financing structures and diversification of our leverage sources and counterparties.

 

We refer to our TEBS, TOB Trust, and Term TOB Trust securitizations and our Secured Notes as our debt financings. The TEBS, TOB Trust and Term TOB Trust securitizations are consolidated VIEs for financial reporting purposes. These arrangements are structured such that we transfer our assets to an entity, such as a trust or special purpose entity, which then issues senior and residual beneficial interests. The senior beneficial interests are sold to third-party investors in exchange for debt proceeds. We retain the residual beneficial interest which entitles us to certain rights to the securitized assets and to residual cash proceeds. We generally structure our debt financings such that principal, interest, and any trust expenses are payable from the cash flows of the secured assets and we are generally entitled to all residual cash flows for our general use. As the residual interest holder, we may be required to make certain payments or contribute certain assets to the VIEs if certain events occur. Such events include, but are not limited to, a downgrade in the investment rating of the senior securities issued by the VIEs, a ratings downgrade of the liquidity provider for the VIEs, increases in short term interest rates beyond pre-set maximums, an inability to re-market the senior securities or an inability to obtain liquidity support for the senior securities. If such an event occurs in an individual VIE, we may be required to deleverage the VIE by repurchasing some or all of the senior securities. Otherwise, the underlying collateral will be sold and, if the proceeds are not sufficient to pay the principal amount of the senior securities plus accrued interest and other trust expenses, the Partnership will be required to fund any such shortfall. If we do not fund the shortfall, the default and liquidation provisions will be invoked against us. For each TEBS securitization, our shortfall funding is limited to the stated amount of our residual interest.

 

The TOB Trusts with Mizuho and Barclays are subject to covenants and requirements under the respective master agreements, primarily related to maintenance of certain levels of partners’ capital, maximum leverage, and the continued listing of our BUCs on the Nasdaq Stock Market (the “NASDAQ”). The TOB Trusts are also subject to margin collateral requirements. We may also be required to post collateral, typically in cash, related to the TOB Trusts with Mizuho and Barclays. The amount of collateral posting required is dependent on the aggregate valuation

of the underlying MRBs, taxable MRB, GILs, taxable GIL and property loans in relation to thresholds set by Mizuho and Barclays.

 

The willingness of leverage providers to extend financing is dependent on various factors such as their underwriting standards, regulatory requirements, available lending capacity, and existing credit exposure to the Partnership. An inability to access debt financing at an acceptable cost may result in adverse effects on our financial condition and results of operations. There can be no assurance that we will be able to finance additional acquisitions of MRBs, GILs or other investments through additional debt financings. Although the consequences of market and economic conditions and their impact on our ability to pursue our plan to grow through investments in additional MRBs and GILs are not fully known, we do not anticipate that our existing assets will be adversely affected in the long-term. 

 

We set target constraints for each type of financing utilized by us. Those constraints are dependent upon several factors, including the assets being leveraged, the tenor of the leverage program, whether the financing is subject to margin or collateral calls, and the liquidity and marketability of the financed collateral. We use target constraints for each type of financing to manage to an overall maximum 75% leverage level (the “Leverage Ratio”), as established by the Board of Managers of Greystone Manager. The Board of Managers of Greystone Manager retains the right to change the maximum Leverage Ratio in the future based on the consideration of factors the Board of Managers considers relevant. We calculate our Leverage Ratio as total outstanding debt divided by total assets using cost adjusted for paydowns for MRBs, GILs, property loans, taxable MRBs and taxable GILs, and initial cost for deferred financing costs and real estate assets. As of December 31, 2021, our overall Leverage Ratio was approximately 69%.

 

We actively manage both our fixed and variable rate debt financings and our exposure to changes in market interest rates. Certain leverage sources, such as our TOB Trusts, Secured Notes and one TEBS financing, currently bear interest at variable rates. We may enter into derivative instruments in connection with our risk management activities to guard against rising interest rates, which may include interest rate caps, interest rate swaps, total return swaps, swaptions, futures, options or other available hedging instruments. When possible, we will obtain variable-rate debt financing for our variable-rate investment assets such that we are at least partially hedged against rising interest rates without the need for separate derivative instruments.

 

Preferred Units and BUCs Issuances

 

In addition to leverage, we may obtain additional capital through the issuance of one or more additional series of preferred units and/or BUCs. We may issue additional series of preferred equity in private placements or public offerings which are registered with the SEC.

We may also obtain capital through the issuance of additional BUCs pursuant to our Registration Statement on Form S-3 (“Registration Statement”), which was declared effective by the SEC in December 2019.  Under the Registration Statement we may offer up to $225.0 million of BUCs for sale from time to time. The Registration Statement will expire in December 2022.

 

In September 2021, we completed an underwritten public offering of 5,462,500 BUCs (on a pre-split basis) for gross proceeds of $33.3 million. In July 2021, the Partnership entered into a Capital on Demand^TM Sales Agreement to offer and sell, from time to time at market prices on the date of sale, BUCs up to an aggregate offering price of $30 million via an “at the market offering.” As of December 31, 2021, we have not sold any BUCs under this program. We will continue to assess if and when to issue BUCs under this program going forward.

 

Reportable Segments

 

As of December 31, 2021, we have five reportable segments: (1) Affordable Multifamily MRB Investments, (2) Seniors and Skilled Nursing MRB Investments, (3) MF Properties, (4) Market-Rate Joint Venture Investments, and (5) Public Housing Capital Fund Trusts. All activity in the Public Housing Capital Fund Trusts segment ceased with the sale of the PHC Certificates in January 2020, as described further below. The Partnership separately reports its consolidation and elimination information because it does not allocate certain items to the segments.

Community Investments

 

Community Reinvestment Act of 1977

 

The CRA requires the three federal bank supervisory agencies, the Federal Reserve Board (“FRB”), the Office of the Comptroller of the Currency (“OCC”), and the Federal Deposit Insurance Corporation (“FDIC”), to encourage the institutions they regulate to help meet the credit needs of their local communities, including low- to moderate-income neighborhoods.  Each agency has promulgated rules for evaluating and rating an institution’s CRA performance which, as the following summary indicates, vary according to an institution’s asset size and business lines.  An institution’s CRA performance can also be adversely affected by evidence of discriminatory credit practices regardless of its asset size.

In June 2020, the OCC adopted amendments to its CRA regulations that resulted in the financial institutions for which it is the primary federal regulator (i.e., national banks and federal savings associations) to be subject to different CRA standards than those that apply to the state-chartered banks for which either the FDIC or FRB is the primary federal regulator. Parts of this June 2020 amendment to the OCC’s CRA regulations became effective on October 1, 2020, but the more material provisions would not have taken effect until January 1, 2023 or January 1, 2024. On September 8, 2021, the OCC issued a proposal to rescind its June 2020 final rule and replace it with a rule largely based on its CRA regulations that existed prior to the adoption of its June 2020 amendments. The OCC stated in the preamble to this proposal that it intended to align its CRA rules with the FRB’s and FDIC’s CRA rules, and thereby reinstitute the regulatory uniformity for all insured depository institutions that existed prior to the OCC’s adoption of its June 2020 rule. On December 14, 2021, the OCC adopted a final rule implementing these changes to its CRA regulations, which became effective on January 1, 2022.

 

CRA Qualified Investments and Community Development Investments

 

The Partnership has invested and intends to invest in assets which are and will be purchased in order to support underlying community development activities targeted to low- and moderate-income individuals, such as affordable housing, small business lending, and job creating activities in areas of the United States.  In this regard, the General Partner expects that a majority of the assets held by the Partnership will be considered eligible for regulatory credit under the CRA.  In most cases, “qualified investments” are required to be responsive to the community development needs of a financial institution’s delineated CRA assessment area or a broader statewide or regional area that includes the institution’s assessment area.  The OCC’s 2020 amendment to its CRA regulations replaced the term “qualified investments” with “community development investments” which the regulation defined to include lawful investments or legally binding commitments to invest that are reported on the Call Report, Schedule RC–L, that meet the expanded community development “qualifying activities” criteria in the rule.

 

For this purpose, the amended OCC regulation defines a “qualifying activity,” in part, as a retail loan, a community development loan, a community development investment, or a community development service that helps to meet the credit needs of a bank’s entire community, including low-and moderate-income communities, and that meets the specific additional criteria set forth in the rule. The rule sets forth “qualifying activity” criteria designed to capture activities that currently receive CRA consideration and that are widely recognized by stakeholders as supporting community reinvestment and development. In this respect, community reinvestment and development activities that qualify for positive CRA consideration under the OCC’s former regulation are expected to qualify for positive CRA consideration under the new regulation as well.  The “qualifying activity” criteria also capture activities that are consistent with the statutory purpose of the CRA but that generally may not have previously received credit, including certain activities in identified areas of need beyond low- and moderate-income areas (i.e., underserved areas, distressed areas, disaster areas, Indian country and other tribal and native lands). The criteria also include a limited set of activities that benefit a whole community, while maintaining a focus on low- and moderate-income neighborhoods. The final rule requires the OCC to periodically publish a non-exhaustive,

illustrative list of examples of qualifying activities. The final rule also establishes a process for banks to seek agency confirmation that an activity is a qualifying activity.

 

The amended OCC CRA regulations also revise the process for establishing a national bank or federal savings association’s assessment area for purposes of determining its compliance with the CRA. The final rule changes the current reliance on a financial institution’s physical branch footprint to a framework that utilizes both

the traditional branch-based assessment areas and, for banks that gather deposits through the Internet and other non-branch-based channels, broader assessment areas delineated based upon the areas from which they draw more than a specified percentage of assets. Under the final rule, financial institutions that collect above 50% of their total retail domestic deposits from outside of their physical branch footprint must delineate additional assessment areas in those areas where they draw more than 5% of retail domestic deposits. Banks may delineate these additional assessment areas as broadly as statewide.

In certain cases, investments outside an institution’s assessment area may be eligible for CRA credit (for example, certain investments that serve designated disaster areas).  For an institution to receive CRA credit with respect to the Partnership’s Series A-1 Preferred Units, the Partnership must hold CRA qualifying investments that relate to the institution’s assessment area.  As defined in the CRA, qualified investments are any lawful investments, deposits, membership shares, or grants that have as their primary purpose community development.  The term “community development” is defined in the CRA as: (1) affordable housing (including multifamily rental housing) for low- to moderate-income individuals; (2) community services targeted to low- or moderate-income individuals; (3) activities that promote economic development by financing businesses or farms that meet the size eligibility standards of 13 C.F.R. §121.802(a)(2) and (3) or have gross annual revenues of $1 million or less; or (4) activities that revitalize or stabilize low- or moderate-income geographies, designated disaster areas, or distressed or underserved non-metropolitan middle-income geographies designated by the federal banking regulators.  In this connection, in the Interagency Questions and Answers Regarding Community Reinvestment published in 2009, the federal bank supervisory agencies stated that nationwide funds are important sources of investments for low- and moderate-income and underserved communities throughout the country and can be an efficient vehicle for institutions in making qualified investments that help meet community development needs.  We consider the Partnership to be similar to the funds referenced in this interagency guidance.

 

Investments are not typically designated as qualifying investments by the OCC, FRB or FDIC, at the time of issuance.  Accordingly, the General Partner must evaluate whether each potential investment may be a qualifying investment with respect to a specific Unitholder.  The final determinations that Partnership units are qualifying investments are made by the OCC, FRB or FDIC and, where applicable, state bank supervisory agencies during their periodic examinations of financial institutions.  There is no assurance that the agencies will concur with the General Partner’s determinations.

 

In determining whether a particular investment is qualified, the General Partner will assess whether the investment has as its primary purpose community development.  The General Partner will consider whether the investment: (i) provides affordable housing for low- to moderate-income individuals; (ii) provides community services targeted to low- to moderate-income individuals; (iii) funds activities that (a) finance businesses or farms that meet the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company programs or have annual revenues of $1 million or less and (b) promote economic development; or (iv) funds activities that revitalize or stabilize low- to moderate-income areas.  

 

For institutions whose primary regulator is the FRB or FDIC, the General Partner may also consider whether an investment revitalizes or stabilizes a designated disaster area or an area designated by those agencies as a distressed or underserved non-metropolitan middle-income area.  For institutions whose primary regulator is the OCC, the General Partner may consider whether an investment is consistent with a bona fide government revitalization, stabilization, or recovery plan for a low- or moderate-income census tract, a distressed area, an underserved area, a disaster area, or Indian country or other tribal and native lands.  The General Partner will also assess whether the investment supports, enables, or facilitates certain projects or activities that meet the “eligible uses” criteria described in the Housing and Income Recovery Act of 2008.  The “eligible uses” include: (i) establishing financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as cash flow contingent loans, loan loss reserves, and shared-equity loans for low- to moderate-income homebuyers; (ii) purchasing and rehabilitating homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties; (iii) establishing land banks for homes that have been foreclosed upon; (iv) demolishing blighted structures; and (v) redeveloping demolished or vacant properties.

 

An activity may be deemed to promote economic development if it supports permanent job creation, retention, and/or improvement for persons who are currently low- to moderate-income, or supports permanent job

creation, retention, and/or improvement in low- to moderate-income areas targeted for redevelopment by federal, state, local, or tribal governments.  Activities that revitalize or stabilize a low- to moderate-income geography are activities that help attract and retain businesses and residents.  The General Partner maintains documentation, readily available to a financial institution or a CRA examiner, supporting its determination that a Partnership asset is a qualifying investment for CRA purposes.

 

There may be a time lag between a purchase of Series B Preferred Units by an investor and the Partnership’s acquisition of a significant volume of investments in a particular geographic area.  The length of time will depend upon the depth of the market for CRA qualified investments in the relevant areas.  In some cases, the General Partner expects that CRA qualified investments will be immediately available.  In others, it may take weeks or months to acquire a significant volume of CRA qualified investments in a particular area.  The General Partner believes that investments in the Series B Preferred Units during these time periods will be considered CRA qualified investments, provided the purpose of the Partnership includes serving the investing institution’s assessment area(s) and the Partnership is likely to achieve a significant volume of investments in the region after a reasonable period of time.  As the Partnership continues to operate, it may dispose of assets that were acquired for CRA qualifying purposes, in which case the General Partner will normally attempt to acquire a replacement asset that would be a qualifying investment.

 

So that the Series A-1 Preferred Units of the Partnership may be considered a qualified investment, the General Partner will not, on behalf of the Partnership, invest in any asset that would result in the percentage of the assets held by the Partnership which we believe are eligible for regulatory credit under the CRA (the “CRA Assets”) to fall below a majority of the Partnership’s total assets.  The ratio is calculated as the Partnership’s initial investment in CRA Assets divided by the initial investment of the Partnership’s investments held as of the last day of the quarter.  In addition, each investor’s returns will be based on the investment performance of the Partnership’s blended overall portfolio of investments, not just on the performance of the assets in the Designated Target Region(s) selected by that investor.

 

The following table sets forth the assets of the Partnership the General Partner believes are eligible for regulatory credit under the CRA and are available for allocation according to the CRA Credit Allocation Methodology as of December 31, 2021:

 

 

 

 

 

 

 

 

It is the General Partner’s belief and expectation that a financial institution subject to CRA may receive investment credit for its investments in the Series B Preferred Units.  In this regard, federal CRA regulations, and their counterparts in many states with their own CRA requirements, require financial institutions subject to these provisions to focus upon community development in making investments.  The General Partner believes that federal and state banking regulators (in those states with their own CRA requirements) will recognize an investment in the

Series B Preferred Units as a qualified community development investment.  However, there is no guarantee that an investor will receive CRA credit for its investment in the Series B Preferred Units.

 

As described above, a principal objective of the Partnership’s investment activities is to provide investors a competitive return on investment from a high credit quality fixed-income portfolio that supports underlying community development activities in distinct parts of the United States.  However, some of the investors in the Series B Preferred Units may not be subject to CRA requirements, but rather may be investors seeking a fixed-income investment with high credit quality to assist in their asset allocation program.  Investors also may be seeking to make investments in underserved communities or fulfilling other socially responsible or mission-related investment objectives.  Those investors that are not subject to CRA requirements will not receive CRA credit for their investments.

 

The discussion of CRA credit contained in this prospectus is general and may be affected by future regulations and rulings.  Potential investors contemplating a purchase of Series B Preferred Units are urged to consult with counsel regarding the qualification of such purchase for CRA credit.   

 

CRA Credit Allocation Methodology

 

If a potential investor decides to invest in the Series B Preferred Units, the investor’s agreement to purchase units will be evidenced by a subscription agreement and other related documents as described below in “Plan of Distribution – Subscription Procedures.”  The potential investor will be required to pay the full amount of the purchase price for the Series B Preferred Units being purchased in immediately available funds.  

 

As part of a potential investor’s subscription agreement, each investor must designate a Designated Target Region as the preferred geographic focus for its investment.  Investors may designate more than one Designated Target Region.  If, at the time a potential investor submits an executed subscription agreement, the Partnership holds CRA Assets in the Designated Target Region(s) set forth in the investor’s subscription agreement, the investor may specify the amount of the investor’s investment proceeds to be allocated to one or more such CRA Assets (the “Specified CRA Assets”).  The total amount of the allocations requested by the potential investor cannot be greater than the aggregate purchase price of the Series B Preferred Units purchased by the investor, as set forth in the investor’s subscription agreement.  Allocation requests to Specified CRA Assets will be honored by the General Partner on a first come, first serve basis, prioritized based on the date the General Partner receives a potential investor’s completed and executed subscription agreement and related subscription documents.  If the General Partner receives completed and executed subscription documents from two or more potential investors on the same date, and the subscription agreements for the investors request an allocation to one or more of the same Specified CRA Assets, and the total amount of the requested allocations exceeds the aggregate amount available to be allocated for those Specified CRA Assets, then the General Partner will allocate such investors’ investment proceeds among the Specified CRA Assets, pro rata, based on the relative amount of the allocations requested by the investors for the Specified CRA Assets.

 

If a potential investor does not request that its investment proceeds be allocated to any Specified CRA Assets, then the General Partner will allocate, in its discretion, such investor’s investment proceeds among CRA Assets located within the Designated Target Region set forth in the investor’s subscription agreement.

  

Finally, if a CRA Asset held by the Partnership at the time the General Partner receives completed and executed subscription documents from a potential investor is no longer held by the Partnership upon the date of the closing of the investor’s subscription, the General Partner will notify the potential investor and (i) if such investor requested allocations to Specified CRA Assets in its subscription agreement, the General Partner will request the investor to specify in writing, no later than three business days after the receipt of the General Partner’s notice, other Specified CRA Assets then held by the Partnership to which the investor’s investment proceeds should be allocated, and (ii) if such investor did not originally request an allocation to any Specified CRA Assets in its subscription agreement or, after receiving the notification from the General Partner described in this paragraph, declines to specify other Specified CRA Assets to which its investment proceeds should be allocated, then the General Partner will allocate, in its discretion, such investor’s investment proceeds among CRA Assets located within the Designated Target Region set forth in the investor’s subscription agreement.  For purposes of the reallocations

described in this paragraph, the General Partner will adhere to the pro rata allocation methodology described above to the extent pro ration of requested allocations is applicable.

 

Investment Types

 

Mortgage Revenue Bonds (“MRBs”)

We invest in MRBs that are issued by state and local governments, their agencies, and authorities to finance the construction or acquisition and rehabilitation of income-producing multifamily rental properties. An MRB does not constitute an obligation of any state or local government, agency or authority and no state or local government, agency or authority is liable on them, nor is the taxing power of any state or local government pledged to the payment of principal or interest on an MRB.  An MRB is a non-recourse obligation of the property owner. Each MRB is collateralized by a mortgage on all real and personal property of the secured property. The sole source of the funds to pay principal and interest on an MRB is the net cash flow or the sale or refinancing proceeds from the secured property. We may commit to provide funding for MRBs on a draw-down basis during construction and/or rehabilitation of the secured property.

We expect and believe that the interest received on our MRBs is excludable from gross income for federal income tax purposes. We primarily invest in MRBs that are senior obligations of the secured properties, though we may also invest in subordinate MRBs. The MRBs predominantly bear interest at fixed interest rates and require regular principal and interest payments on either a monthly or semi-annual basis. The majority of our MRBs have initial contractual terms of 15 years or more. MRBs may have optional call dates that may be exercised by the borrower or the Partnership that are earlier than the contractual maturity at either par or premiums to par.

As of December 31, 2021, we own 75 MRBs with an aggregate outstanding principal amount of approximately $697.7 million. Our MRBs are owned either directly by the Partnership or by consolidated variable interest entities (“VIEs”) associated with our debt financing facilities. Our 75 MRBs are secured by 68 multifamily residential properties containing a total of 10,906 rental units located in 14 states in the United States. One MRB is secured by a mortgage on the ground, facilities, and equipment of a commercial ancillary health care facility in Tennessee. One MRB is secured by a mortgage on the ground, facilities, and equipment of a to-be-constructed seniors housing property in Michigan.

 

The four types of MRBs which we may acquire as investments are as follows:

 

 

Each of these structures permit the issuance of MRBs under the IRC to finance the construction or acquisition and rehabilitation of affordable rental housing or other not-for-profit commercial property. Under applicable Treasury Regulations, any affordable multifamily residential project financed with tax-exempt MRBs (other than essential function bonds as described in the third bullet above) must set aside a percentage of its total rental units for occupancy by tenants whose incomes do not exceed stated percentages of the median income in the local area. Those rental units of the multifamily residential project not subject to tenant income restrictions may be rented at market rates (unless there are restrictions otherwise imposed by the bond issuer or a governmental entity). With respect to private activity bonds issued under Section 142(d) of the IRC, the owner of the multifamily residential project may elect, at the time the MRBs are issued, whether to set aside a minimum of 20% of the units for tenants making less than 50% of area median income (as adjusted for household size) or 40% of the units for tenants making less than 60% of the area median income (as adjusted for household size). State and local housing authorities may require additional tenant income or rent restrictions more restrictive than those required by Treasury

Regulations. There are no Treasury Regulations related to MRBs that are secured by a commercial property owned by a non-profit sponsor.

 

The borrowers associated with our MRBs are either syndicated partnerships formed to receive allocations of LIHTCs or not-for-profit entities. LIHTC eligible projects are attractive to developers of affordable housing because it helps them raise equity and debt financing. Under the LIHTC program, developers that receive an allocation of private activity bonds will also receive an allocation of federal LIHTCs as a method to encourage the development of affordable multifamily housing. We do not invest in LIHTCs but are attracted to MRBs that are issued in association with federal LIHTC allocations because they bear interest that we expect and believe is exempt from federal income taxes.  To be eligible for federal LIHTCs, a property must either be newly constructed or substantially rehabilitated, and therefore, may be less likely to become functionally obsolete in the near term as compared to an older property. There are various requirements to be eligible for federal LIHTCs, including rent and tenant income restrictions, which vary by property. Our borrowers that are owned by not-for-profit entities typically have missions to provide affordable multifamily rental units to underserved populations in their market areas. The affordable housing properties securing 501(c)(3) bonds also must comply with the IRS safe harbors for tenant incomes and rents.

 

Governmental Issuer Loans (“GILs”)

We invest in GILs that are issued by state or local governmental authorities to finance the construction of affordable multifamily properties. A GIL does not constitute an obligation of any state or local government, agency or authority and no state or local government, agency or authority is liable for them, nor is the taxing power of any state or local government pledged to the payment of principal or interest on a GIL. Each GIL is secured by a mortgage on all real and personal property of the secured property. The GILs may share first mortgage lien positions with taxable property loans and/or taxable GILs also owned by the Partnership. Sources of the funds to pay principal and interest on a GIL consist of the net cash flow or the sale or refinancing proceeds from the secured property and limited-to-full payment guarantees provided by affiliates of the GIL’s borrower. We may commit to provide funding for GILs on a draw-down basis during construction of the secured properties.

We expect and believe the interest received on our GILs is excludable from gross income for federal income tax purposes. The GILs are senior obligations of the secured properties and bear interest at variable interest rates. The GILs have initial terms of two to four years, though the borrower may prepay all amounts due at any time without penalty. At the closing of each GIL, Freddie Mac, through a servicer, has forward committed to purchase the GIL at maturity at par if the property has reached stabilization and other conditions are met. As of December 31, 2021, an affiliate of Greystone, Greystone Servicing Company LLC, has provided a forward commitment to purchase seven of the Partnership’s GILs. Greystone Servicing Company LLC will then immediately sell the GILs to Freddie Mac pursuant to a financing commitment between Greystone Servicing Company LLC and Freddie Mac.

 

As of December 31, 2021, we own nine GILs with an aggregate outstanding principal amount of approximately $184.8 million. Our GILs are owned by our consolidated VIEs associated with our debt financing facilities. Such GILs are related to nine affordable multifamily properties containing a total of 1,832 rental units located in six states in the United States.

 

The GILs have been issued under Section 142(d) of the Internal Revenue Code (“IRC”) and are subject to the same set aside and tenant income restrictions noted in the “Mortgage Revenue Bonds” description above. The borrowers associated with our GILs are syndicated partnerships formed to receive allocations of LIHTCs.

 

Investments in Unconsolidated Entities

 

We invest in membership interests in unconsolidated entities, also referred to as JV Equity Investments, for the construction of market-rate multifamily real estate properties. We do not have controlling interests in the JV Equity Investments and account for the membership interests using the equity method of accounting.  The Partnership earns a return on its membership interests accruing immediately on its contributed capital, which is guaranteed by an unrelated third party through the fifth anniversary of construction commencement. The membership interests entitle the Partnership to shares of certain cash flows generated by the JV Equity Investments from operations and upon the occurrence of certain capital transactions, such as a refinancing or sale. As of

December 31, 2021, we owned membership interests in 12 unconsolidated entities located in four states in the United States. Eight of the 12 JV Equity Investments are located in Texas. In addition, one JV Equity Investment in San Marcos, Texas is reported as a consolidated VIE.

 

MF Properties

 

We have and may acquire controlling interests in multifamily, student or senior citizen residential properties. We plan to operate the MF Properties in order to position ourselves for a future investment in MRBs issued to finance the acquisition and/or rehabilitation of the properties by new owners or until the opportunity arises to sell the MF Properties at what we believe is their optimal fair value.  

 

As of December 31, 2021, we owned two MF Properties containing a total of 859 rental units located in Nebraska and California.

 

Property Loans

 

We have made and may make in the future, property loans to finance capital improvements, otherwise support property operations, or fund the construction of properties securing our MRBs and GILs or other property. We may also make taxable property loans that are unsecured.

 

PHC Certificates

 

We previously invested in three Public Housing Capital Fund Trusts’ Certificates (“PHC Certificates”). The PHC Certificates consisted of custodial receipts evidencing loans made to numerous public housing authorities, with principal and interest on these loans payable by the respective public housing authorities out of annual appropriations to the public housing authorities by HUD under HUD’s Capital Fund Program established under the Quality Housing and Work Responsibility Act of 1998 (the “Capital Fund Program”). In January 2020, we sold the PHC Certificates to an unrelated third party and paid off all amounts due on the related debt financing facilities.

 

General Investment Matters

Our investments in unconsolidated entities and MF Properties are considered “Other Investments” under the terms of our Partnership Agreement. Property loans to properties not securing our MRBs and GILs are also considered Other Investments. We may invest in other types of securities and investments that may or may not be secured by real estate that are also considered Other Investments. We may also invest in “Tax Exempt Investments,” other than our MRBs and GILs, such as the PHC Certificates, under the terms of our Partnership Agreement. Such Tax Exempt Investments must be rated in one of the four highest rating categories by at least one nationally recognized securities rating agency. Under the terms of the Partnership Agreement, the aggregate value of our Other Investments and Tax-Exempt Investments cannot exceed 25% of our assets at the time of acquisition.

 

We rely on an exemption from registration under the Investment Company Act of 1940, which has certain restrictions on the types and amounts of securities owned by the Partnership.  

 

Cash Distributions

 

We currently make quarterly cash distributions to our BUC holders.  The Partnership Agreement allows the General Partner to elect to make cash distributions on a more or less frequent basis, provided that distributions are made at least semi-annually.  Regardless of the distribution period selected, cash distributions to BUC holders must be made within 60 days of the end of each such period.  The amount of any cash distribution is determined by the General Partner and depends on the amount of interest received on our MRBs, GILs and other investments, our financing costs which are affected by the interest rates we pay on our debt financing, the amount of cash held in our reserves, and other factors. Most recently we declared our first quarter 2022 distribution of $0.11 per BUC ($0.33 per BUC on a post-split basis) to be paid on April 29, 2022 to BUC holders of record as of March 31, 2022.

 

The holders of our Series A Preferred Units are entitled to receive, when, as, and if declared by the General Partner out of funds legally available for the payment of distributions, non-cumulative cash distributions at the rate

of 3.00% per annum of the $10.00 per unit purchase price of the Series A Preferred Units, payable quarterly.  The Series A Preferred Units rank senior to our BUCs and our Series B Preferred Units, and rank on parity with our Series A-1 Preferred Units, with respect to the payment of distributions and to any other class or series of Partnership interests or securities expressly designated as ranking junior to the Series A Preferred Units, and junior to any other class or series of Partnership interests or securities expressly designated as ranking senior to the Series A Preferred Units.  Distributions declared on the Series A Preferred Units are payable quarterly in arrears.

 

The holders of our Series A-1 Preferred Units will be entitled to receive, when, as, and if declared by the General Partner out of funds legally available for the payment of distributions, non-cumulative cash distributions at the rate of 3.00% per annum of the $10.00 per unit purchase price of the Series A-1 Preferred Units, payable quarterly.  The Series A-1 Preferred Units rank senior to our BUCs and our Series B Preferred Units, and rank on parity with our Series A Preferred Units, with respect to the payment of distributions and to any other class or series of Partnership interests or securities expressly designated as ranking junior to the Series A-1 Preferred Units, and junior to any other class or series of Partnership interests or securities expressly designated as ranking senior to the Series A-1 Preferred Units.  Distributions declared on the Series A-1 Preferred Units will be payable quarterly in arrears.  There are no Series A-1 Preferred Units issued and outstanding as of the date of this prospectus supplement.   

 

 

Recent Developments

 

Recent Investment Activities

 

The following table presents information regarding the investment activities of the Partnership for the years ended December 31, 2021 and 2020:

 

 

 

 

Recent Financing Activities

 

The following table presents information regarding the debt financing, derivatives, Series A Preferred Units, and partners’ capital activities of the Partnership for the years ended December 31, 2021 and 2020, exclusive of retired debt amounts listed in the recent investment activities table above:

 

 

 

THE OFFERING

 

 

 

 

 

 

 

 

SUMMARY HISTORICAL FINANCIAL DATA

Summary Financial Data

The following summary historical financial data is derived from the Partnership’s audited consolidated financial statements as of December 31, 2021 and 2020 and for the two years ended December 31, 2021.  The Partnership includes the assets, liabilities, and results of operations of the Partnership, our wholly owned subsidiaries and consolidated variable interest entities (“VIEs”).  All significant transactions and accounts between the Partnership and the consolidated VIEs have been eliminated in consolidation.

You should read this summary financial data along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2021, which are incorporated by reference herein.

On April 1, 2022, the Partnership effected a one-for-three reverse unit split of its outstanding BUCs.  The consolidated financial statements of the Partnership included in its Annual Report on Form 10-K for the year ended December 31, 2021 that are incorporated by reference into this prospectus are presented without giving effect to the Reverse Unit Split.  The summary historical financial data set forth below is presented as if the Reverse Unit Split was effective as of and for the dates indicated.

 

 

 

The following selected financial data has been derived from our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021.  This selected financial data includes relevant per BUC information for the periods indicated, and presents such amounts as reported in our Annual Report on Form 10-K for the year ended December 31, 2021, and as adjusted for the Reverse Unit Split.

 

As Reported

 

As Adjusted for 1-for-3 Reverse Unit Split

 

Cash Available for Distribution

 

The Partnership believes that Cash Available for Distribution (“CAD”) provides relevant information about the Partnership’s operations and is necessary, along with net income, for understanding its operating results.  To calculate CAD, the Partnership begins with net income as computed in accordance with GAAP and adjusts for non-cash expenses consisting of depreciation expense, amortization expense related to deferred financing costs, amortization of premiums and discounts, non-cash interest rate derivative expense or income, provisions for credit and loan losses, impairments on MRBs, GILs, PHC Certificates, real estate assets and property loans, deferred income tax expense (benefit) and restricted unit compensation expense. The Partnership also deducts Tier 2 income (see Note 3 to the Partnership’s consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 2021) distributable to the General Partner as defined in the Partnership Agreement and Series A Preferred Unit distributions and accretion.  Furthermore, the Partnership will deduct from net income distributions