Courts are handing setbacks to Nixon Peabody clients seeking control of affordable housing

Judges in two states have handed high-profile defeats to Boston law firm Nixon Peabody and its corporate clients, in cases involving investors trying to take control of affordable housing.

Both cases involve a federal program that provides tax benefits to investors in low-income housing. Historically, at the end of a 15-year investment period, investors have moved on, and the nonprofits running the housing could buy the properties at a low price — and keep rents affordable for residents.

But in recent years, some investors have taken a different, more aggressive approach, refusing to let nonprofits acquire properties as Congress intended, and fighting them in court in order to reap real estate gains. One of the companies engaging in these battles is Nixon Peabody client SunAmerica, part of the New York private equity giant Blackstone.

In a widely watched case, the U.S. Court of Appeals in Cincinnati ruled against SunAmerica on Tuesday, finding in favor of a Michigan nonprofit housing group for seniors, Presbyterian Village. In the decision, a three-judge panel reversed a lower court’s decision that would have let SunAmerica block Presbyterian from acquiring the property.

Circuit Judge Jane B. Stranch wrote that the case is being sent back to a lower court for the two sides to fight out the details of their agreement. But she weighed in on Congress's intent for the program.

The tax-credit law was enacted, Stranch wrote, “to create a mechanism through which properties could be transferred to nonprofit organizations to ensure that the housing remains affordable over the long term.”

“The court has said this was the aim of Congress,” said David Davenport, a lawyer for Presbyterian Village. “The court is sending a really clear message on how this is supposed to work.”

A spokesman for Nixon Peabody had no immediate comment. A Blackstone spokesman, in a statement, said, "Our priority is, and will always be, doing right by our residents and preserving the affordability of our [tax credit] properties for the long-term. This case that we inherited from the prior owner has no impact on our commitment to maintain affordability." The company also said it was "committed to resolving these issues and supporting our nonprofit partners.”

It's the second recent setback for a Nixon Peabody client trying to wrest control of affordable housing from nonprofits. Earlier this month, a Delaware state judge ruled against Nixon Peabody client DLE Investors, for a different method of trying to force the sale of a low-income property.

DLE Investors, an affiliate of Los Angeles-based Hunt Capital Partners, wanted the general partner in a deal to sell a Virginia property at market value, instead of offering it to a nonprofit at a lower price. When the general partner refused to go along with that plan, DLE claimed that was a breach of fiduciary duty and tried to have the general partner removed.

So the general partner, JER Hudson, sued. In a 100-page ruling on this complex case, the judge found for JER on all counts and wrote that DLE Investors failed to demonstrate a breach of fiduciary duty or contractual duties.

A spokeswoman for Hunt had no immediate comment. It’s not yet known whether the firm will appeal.

A third Nixon Peabody case that’s being watched in the industry is in negotiations for a settlement. RiseBoro Community Partnership, a nonprofit housing developer in Brooklyn, was planning to buy a 34-unit, low-income property at the end of its tax credit deal with SunAmerica. When SunAmerica indicated it planned to block the purchase, RiseBoro sued.

SunAmerica won the first round of the case, and Riseboro filed an appeal. The two sides agreed to settle the matter, and the talks have been underway for two months.