Frequently Asked Questions

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OG&A Acquisitions LLC, an OG&A affiliate, purchases underperforming limited partnership interests in USDA 515 program multifamily complexes.  OG&A Acquisitions LLC has been acquiring limited partnership interests since 2014. The company has a long history of acquiring limited partnership interests for a fair price.

Call us at  (307) 222-3211  or email us at ogandacquisitions@gmail.com and we will let you know if your limited partnership interest holds a USDA 515 Program that we are interested in acquiring.

USDA RD 515 Program Distribution Restrictions

In accordance with the USDA 515 Program loan agreement(s), the maximum annual cash return to owners allowable under a partnership like 515 Multi-family complexes, which is bound by the USDA RD 515 Program restrictions, is limited to 8% of the borrowers' initial capital investment, which can only be distributed if the limited partnership is deemed to have both sufficient income and sufficient cash reserves. The 8% return allowable to the Limited Partnerships when the cash flow and cash reserves are found to be sufficient equates to 8% of the initial capital contribution of the partners, which is only 5% of the original purchase price of the multi-family projects back in the late 70s and early 80s. 

By way of example, if a Multifamily 515 Program complex cost $1.5 million in 1979, the required capital of the limited partners would have been $75,000, and an 8% return would equate to $6,000 per year, but only when profits were sufficient to make the distributions of available cash flows.

The limited partners generally have split ownership interests. By way of example, using a 23.75% of Profit and Loss interest and 11.25% of Capital interest, the annual amount of distribution for that share would be $1,425 per year when actually paid out, and for many of the limited partnerships, that payout has only been intermittent during the life of the limited partnership.

It is often the case after making payments against the complex mortgages, apartment complex management fees and costs, payments for repairs and required accumulating cash reserves for future repairs and capital improvements, there has been insufficient cash for making any distributions to the limited partners, or at least only intermittent distributions. 

Unfortunately, the limited partners are often hit with phantom income because according to the terms of the limited partnership agreement, they recognize 95% of the earned income, regardless of whether or not it is distributed.

Limited Partners are Burdened With Phantom Income on Equity Going to Others

What’s more, when the partnership makes monthly mortgage payments, and annually pays down and reduces the complex mortgage balance in increments of $27,000, that equity paydown equates to phantom income.

Unfortunately, because the limited partners often recognize 95% of the income, but only 50% or less of the capital, they end up receiving a phantom income each year equal to the mortgage paid down, but only receive about half of the benefit, because that principal payment reduction equates to a corresponding increase in the capital of the company. So, the limited partnership interest pays 95% of the principal reduction with phantom income and recognizes the taxable income on those payments, but loses out on 50% of the capital they paid for with their recognized phantom income because the partnership agreements are designated of others.

Due to the USDA restrictions, without intervention, those complexes continue to be rent restricted and substantially less valuable, and less marketable because of having to be sold subject to those USDA 515 Program restrictions.

One might ask why anyone would sign up for such an arrangement. Looking at that through today’s view, it makes no sense, but back in 1977 when this project was started, top tax rates were running at 78% to 81%, and these projects only required a 5% investment, but allowed the limited partners to depreciate on both the initial investment and the 95% loan, thus yielding to them a net of 95% of the partnership depreciation expense to offset their income at an 80% tax rate. In its simplest terms, the investment in a limited partnership interest allows a limited partner to invest $5, then with a $95 loan, allowed for depreciation of $100, and the limited took 95% of that depreciation, saving 80% on each dollar of depreciation. It was a wonderful tax haven at that time.

The initial limited partner investors never had any anticipation that the project would actually ever pay out anything other than the tax benefits associated with the depreciation; the prospectus was quite explicit about that, but that really did not matter to the limited partners because the then current tax benefits were so good and as a practical matter, that prospective look turned out to be true. Because these were subsidized housing projects under the USDA 515 Program, which provided for subsidized rents to low-income renters, the amounts of rental increases coming from the US government have been marginal at best, and sometimes downright deficient. Many of these USDA 515 Program projects went bankrupt.

Many of these projects are still solvent, but as it is, it has underperformed year after year, and now that the depreciation is nearly completed, and the tax rates have dropped, they no longer have the value and appeal to the limited partners that it once had.