Battle Between South End Housing Group And Investor Goes to Court

Federal appeals court judges in Boston heard arguments Thursday in a fight between a nonprofit that wants to buy and maintain the affordable housing it’s managed for South End residents for decades and an investor that aims to stop the purchase.

It’s the latest chapter in the battle between nonprofit Tenants’ Development Corp. and Alden Torch Financial of Denver, which is challenging TDC’s contractual right to acquire the properties.

WBUR reported on the dispute in April, one of many cases across the country where investors are looking to wring additional profits from a federal low-income housing tax credit program — beyond benefits envisioned by Congress.

The question before the judges Thursday was whether the case should be heard in federal court, as Alden Torch is seeking in its appeal. The firm’s Washington, D.C.-based lawyer, Louis Dolan, argued during the session that “this case cannot be fully adjudicated without an interpretation” under the federal tax code that guides the “Low-Income Housing Tax Credit” program.

As originally conceived, these tax credits were meant as incentives for large banks to put money into affordable housing. A group like TDC would partner with a bank or other large financier, which would provide funding in exchange for 15 years of tax breaks. At the end of the 15 years, the bank would turn over the property to the nonprofit for well below market value.

But in recent years, firms like Alden Torch and SunAmerica, a unit of New York-based American International Group, have sought additional payouts when the deals expire. In some cases, they are looking to gain control of the properties to sell them. This is  happening particularly in cities where property values have soared, as in Boston, Seattle, New York City and Miami.

State officials and Boston’s housing chief have decried these tactics, as has U.S. Sen. Ron Wyden, an Oregon Democrat and chair of the Senate Finance Committee.

Housing advocates are pushing Congress to provide clarity on the rules, to head off legal disputes and profiteering by investors. But in the meantime, Alden Torch and other investors have had success challenging housing groups in federal courts in Washington, New York and Michigan.

Alden Torch in its appeal noted that in the next 10 years, some 274 properties in Massachusetts will see their tax-credit deals expire, citing federal housing data. Nearly half of those are run by nonprofits, the firm said, and could face the same issues around the exit as TDC.

TDC would prefer to see the case play out in state court. Massachusetts’ highest court ruled against Alden Torch in a 2018 tax credit case in Cambridge.

The judges on Thursday seemed skeptical that the case required a federal ruling on the tax law. Rather, their questions and remarks indicated they see this as a contract matter that should be decided in state court.

TDC attorney David Davenport says the nonprofit is eager to move forward in either venue.

“What today meant for TDC was progress. We’re very anxious to have our case resolved on the merits,” he said.

Alden Torch’s lawyer declined to comment after the court session. A decision should come within 30 to 60 days.