SHARP-Massachusetts Investment LP (“SMILP”) holds limited partnership interests in seven partnerships which own 7 apartment complexes comprising a total of 969 units. The apartment communities are located throughout Massachusetts and were originally financed in the late 1980’s with government subsidy loans and mortgage loans from Massachusetts Housing Finance Agency (“MHFA”).

In May 2008, an affiliate of Farragut purchased SMILP from an institutional investor exiting the business. The acquisition was an off-market transaction negotiated as a result of the Farragut affiliate acting as general partner of SMILP for many years

The total value of the transaction was approximately $100 million.

Investment Highlights

• SMILP was originally created to facilitate a refinancing of MHFA debt when the properties had difficulty making debt service payments in 2007. Instead of providing equity capital itself, MHFA provided certain guarantees to the partners of SMILP in exchange for their equity capital injections into the underlying operating partnership.
• The affiliate of Farragut purchased SMILP at a discount from a motivated seller who was exiting the business, so its rate of return is substantially higher than the guaranteed return provided by MHFA.
• Pursuant to an MHFA Refinancing Initiative, beginning in September 2014, six of the seven operating partnerships in which SMILP is the limited partner have refinanced their first mortgage debt with debt insured by HUD. Proceeds were used to substantially reduce the MHFA mortgage debt (the remainder was subordinated to the new HUD loan) and to establish reserves for current and future (20 years) capital needs of the properties.
• As part of the refinancing, SMILP agreed to give up its guarantees from MHFA in exchange for a lump sum payment equal to 4.4 times its original investment. The refinancing reduced the operating partnerships’ interest rate on its first mortgage debt by a weighted average of 359 basis points and its MHFA subordinated debt by a weighted average of 429 basis points.
• After the refinancing, SMILP still expects the operating partnerships to generate tax losses for at least the next 20 years.       The present value of projected after-tax cash flow (including tax benefits) during this period exceeds $13 million.