United States District Court, N.D. Illinois, Eastern Division
URBAN 8 FOX LAKE CORPORATION, an Illinois corporation, and Urban 8 Zion Corporation, an Illinois corporation, Plaintiffs,
NATIONWIDE AFFORDABLE HOUSING FUND 4, LLC, an Ohio limited liability company, SCDC, LLC, an Ohio limited liability company, and Wentwood Capital Advisors, L.P., a Texas limited partnership, Defendants.
Allan Davenport, Pro Hac Vice, Christina Rieck Loukas, Pro
Hac Vice, Winthrop & Weinstine, Minneapolis, MN, Caitlin
Martini Mika, Arnold & Porter Kaye Scholer LLP, Chicago,
IL, for Plaintiffs.
Andre Al, Stoel Rives LLP, Minneapolis, MN, Stephen Donald
Koslow, Koslow Law LLC, Rolling Meadows, IL, for Defendants.
OPINION & ORDER
ROWLAND, United States District Judge.
the Court are cross motions for summary judgment by
Plaintiffs, Urban 8 Fox Lake Corporation and Urban 8 Zion
Corporation ("Urban 8"), and Defendants, Nationwide
Affordable Housing Fund 4, LLC ("Nationwide") and
SCDC, LLC ("SCDC"). [55; 66] For the reasons set
forth below, the Court grants Plaintiffs' motion for
partial summary judgment  and denies Defendants'
motion for partial summary judgment .
The LIHTC Program
these limited partnerships were formed for the purpose of
participating in the Low Income Housing Tax Credit
("LIHTC") program, we begin by describing the
LIHTC program is a federal subsidy program designed to
promote the construction and rehabilitation of affordable
rental housing for low and moderate income households. 26
U.S.C. § 42 (2012). The program allocates tax credits to
each State based on population; the States then allocate the
tax credits to "qualified low-income housing
projects." 26 U.S.C. § 42(g), (h)(3).
"Qualified low-income housing projects" are
residential rental properties that are rent-restricted and
have a certain minimum share of rental units set aside for
low and moderate income households. Id.
owners of these properties can claim these tax credits
annually over a period of ten years, thereby offsetting their
tax liability, but must continue to comply with rent
affordability restrictions for a period of fifteen years,
known as the compliance period, to avoid recapture of those
credits." Homeowner's Rehab, Inc. v. Related
Corporate V SLP, L.P., 479 Mass. 741, 99 N.E.3d 744, 749
(Mass. 2018); 26 U.S.C. § 42(a), (c)(2), (f)(1), (i)(1),
(j). For LIHTC projects allocated tax credits after 1989, the
owner must agree to comply with the affordability
restrictions for another fifteen years in addition to the
first fifteen-year compliance period, so the affordability
restrictions remain in place for a total of thirty years.
U.S.C. § 42(h)(6).
developers frequently rely on the tax credits available under
the LIHTC program as an incentive to attract capital from
private investors. "Because these projects rarely
generate enough tax liability for the developers to claim the
full value of the credits themselves ... the tax credits are
of little value to them." Homeowner's
Rehab, 479 Mass. at 744, 99 N.E.3d 744. By syndicating
the project, these developers can "sell" the tax
credits to private investors—usually corporations with
substantial and predictable tax liability —in exchange
for an investment of equity in the project. See J.
Khadduri, C. Climaco, & K. Burnett, United States
Department of Housing and Urban Development, What happens
to Low-Income Housing Tax Credit Properties at Year 15 and
Beyond?, at 2 (2012).
typical LIHTC project, the property is owned by a limited
partnership, formed solely for that purpose, in which the
general partners hold only a nominal equity interest and the
limited partners are private investors who hold almost all of
the equity (ninety-nine percent or more). Homeowner's
Rehab, 479 Mass. at 744, 99 N.E.3d 744 (citing Khadduri
et al., supra at 11, 25). The general partner is
responsible for the day-to-day management of the property.
Id. "The investor limited partners contribute
capital and, in return, are allocated the tax benefits
flowing from the project, including the LIHTC tax credits,
deductions for depreciation, and other tax losses."
end of the first fifteen year compliance period, when all tax
credits have been claimed and are no longer subject to
recapture, most investor limited partners will seek to leave
the project—usually by selling their interests to the
general partner. See Khadduri et al., supra
The Parties' Dispute
parties are partners in two limited partnerships created in
2000 to rehabilitate and operate an affordable housing
development for elderly low-income residents in accordance
with the ...