In Re Creekside Senior Apartments, LP

US Bankruptcy Appellate Panel, 6th Circuit, No. 11-8072, June 29, 2012: Tax credits and reductions in real estate taxes relevant in valuing real property for bankruptcy.

The Debtors in the bankruptcy case own several apartment properties that have the benefit of federal low-income housing tax credits. The lower bankruptcy court determined the fair market value of the apartments included consideration of the remaining tax credits. Debtors and their general partners challenge the bankruptcy court’s valuation of the real property.

In upholding the lower court’s order setting the market value of the Debtors’ low-income housing tax credit properties, the Appellate Panel wrote, “just as the property tax rate can affect the value of real property, so too can the availability of tax credits. Indeed, in using an income analysis to value real property, it would be incongruous to consider the limitations imposed by land use restrictions but not consider the associated benefits of tax credits made available to the property’s owners. For example, real property may be owned subject to certain restrictions in furtherance of historic preservation that limit its value, while at the same time providing the owner with a reduced property tax rate or even complete tax abatement. In such a situation, it would be inconsistent to consider the limitations imposed by the historic preservation restrictions without also considering the effect that a reduced or zero tax rate would have on the net income generated by the property. Ultimately, both the benefits and the burdens associated with property ownership are relevant in valuing the real property.”

Decision available at http://www.ca6.uscourts.gov/BAP/isysquery/a8d7662e-6375-40fa-8f4e-369dfdecfd28/1/doc/12b0008p-06.pdf#xml=http://www.ca6.uscourts.gov/BAP/isysquery/a8d7662e-6375-40fa-8f4e-369dfdecfd28/1/hilite/.

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