Transcript New Market Tax Credit - Michigan Magnet Fund

New Market Tax Credit
Prepared by Albert A. Bogdan
Friday, July 17, 2015
NMTC Executive Summary
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Bill Signed 12/21/2000
Purpose - Attract $15 Billion to Low-Income
Communities
$2.5 Billion Allocated for 2001 and 2002
$3.5 Billion Allocated for 2003 and 2004
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Value of Total Investment Targeted to Michigan
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One In Michigan ($27 Million - Wayne County – Detroit CDE Inc.)
MI – 4 for $157.5 Million
$2.0 Billion Targeted for 2005
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Decision in May, 2005
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NMTC Executive Summary
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39% Investment Tax Credits to Investor for Over 7 Years
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Funds Used to Invest Almost Any Businesses Located in a Low Income
Census Tract
Tax Credits Allocated to a Community Development Entity (CDE) by
US Treasury
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A Nonprofit Must Set up For-Profit Subsidiary
Cash Flows to CDE as Equity Investment
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First Three Years = 5%/Year
Next Four Years = 6%/Year
Total = 39%
Qualified Equity Investment
Must Stay in Deal For 7 Years
85% Must be Invested in Business Within 1 Year
Flows Out as Equity, Loan or Loan Purchase
Deals May Be Pooled or Pass-Through Investments
Tax Credit to Investor Regardless of Investment Success or Failure
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New Market Tax Credit Flow Chart
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Criteria for Eligible Location
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Census Tract with
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Poverty Rate > 20% or
Greater of the Following Two:
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Median Family Income < 80% of MSA Median Income or
Median Family Income < 80% of Statewide Median Family
Income
Additional Levels of Distress, Poverty Rate > 30%,
Median Family Income < 70%, Brownfield, Urban
Renewal Area, Enterprise Zone, etc.
Go to AABDS.com to:
Verify Census Tract
Look at Wayne County Map
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Potential Wayne County Locations
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Place Map Here
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What Type of Business Can Receive
NMTC Financing?
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Almost Any Business Units Located In Low To Moderate
Income Areas Can Qualify
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Definition Of Business Unit
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Typical Businesses
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May Be Branch Or Division
Investment Must Be Traced To The Facility
Shopping Center, LLC
Small Technology Firm
Hotel
Manufacturer
Retail Store
Micro Entrepreneur
Single Family Home Developer
No Rental Residential – However, Residential Defined as Project
Where More Than 80% of Income Comes from Residential Portion
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Who Can be an Eligible Equity Investor?
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Any Taxable Investor
 Individual
 Company
 Investment Fund
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Examples
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Banks
Insurance Company
Venture Capitalist & Other Investment Funds
Any Corporation
Individual
Debt Investor Can Be Anyone – HUD, Bank, Pension Fund
Debt Investor Receives No Collateral – Nonrecourse Loan
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Leveraged Real Estate Investment
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Commodity Market for NMTC Slowly Taking Shape
Tax Credit May Not Go to Principal Investor
Have Used HUD 108 as Debt – Can Use Pension Funds
CDE is Facilitator – Need Debt & Equity – Price & Deal
Negotiable – Tax Credit Value Can Vary $100,000/Million
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Doing the Deal
No Repayment for 7 Years
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Assumptions
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Bank Lends $700,000 to “Investment LLC” for 7 Years
CDE Provides Tax Credit Allocation to ILLC
ILLC Sells Tax Credit for $300,000
Interest 6.0%,
CDE Invests $1 Million in Firm
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25 Year Amortization
Balloon Repayment in Year 8
Results
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Firm Repays CDE $1,000,000
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Firm Receives $300,000 Incentive
Subtract up to $100,000 in Fees
Based on Wayne County Model
Not Much Consistency in Product – Each CDE Can Do Own Thing
The Tax Credit Portion is Easiest Part of the Deal
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Negotiating the Deal
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Points of Negotiation
The Term and Conditions of Investment Loan
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Internal Rate of Return for Tax Credit
Fees & Professional Charges
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No Collateral
Interest Only
Try to Keep it Simple – Costs Add Up Quickly
Normally Real Estate Deals – Prepare Check List – Complete It
CDE Loan – Must Cover Above Commitments
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Negotiate Residuals
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Nationwide 2001-02 NMTC Allocatees
Subsidiary of
Headquarters
Key Community Development Corp
Goldman Sachs
National Development Council
Key Affordable Housing
National Trust for Historic Preservation
CBO Financial, Inc.
The Enterprise Social Investment Corp.
Community Reinvestment Fund, Inc.
LISC
Wachovia Corporation
National Community Capital (NCC)
Aries Capital (MI)
SEEDCO (MI)
GMAC Commercial Holding
Cleveland, OH
NY, NY
NY, NY
Carlsbad, CA
Washington, DC
Clarksville, MD
Columbia, MD
Minneapolis, MN
NY, NY
Charlotte, NC
Philadelphia, PA
Chicago, IL
NY, NY
Granville, OH
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Amt (M)
$150.0
$75.0
$30.0
$134.0
$127.0
$25.0
$90.0
$162.5
$65.0
$150.0
$8.0
$15.0
$10.0
$75.0
$1,116.5
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Nationwide 2003-04 NMTC Allocatees
Community Development Entity
Headquarters
HEDC New Markets, Inc
New York, NY
Johnson Community Development Co.
Racine, Wi
$52.0
National Community Investment Fund
Chicago, Il
$38.0
National New Markets Tax Credit Fund,
Minneapolis, Mn
$150.0
NCB Development Corporation (Mi)
Washington, DC
$75.0
Reinvestment Fund, Inc., The
Philadelphia, Pa
$38.5
Rural Development Partners LLC
Hanlontown, Io
$44.7
Stonehenge Community Development
Baton Rouge, Lo
$127.5
Great Lakes Region Sustainability Funds LLC
Chicago, Il
$15.0
TCG Community Enterprises, LLC
Rochester, NY
$125.0
Urban Development Fund, LLC (Mi)
Chicago, Il
Zions Community Investment Corporation
Salt Lake City, Ut
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Allocation
$135.0
$57.5
$100.0
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Nationwide 2003-04 NMTC Allocatees
Community Development Entity
Headquarters
Allocation
Banc of America CDE, LLC
Washington, DC
Boston Community Capital Inc.
Boston, Mass
$70.0
The Cordish Company
Baltimore, Md
$100.0
ABS School Services, LLC
Phoenix, Ar
$50.0
Commercial Federal Bank
Omaha, Ne
$23.0
GSA Management, LLC
Wilmington, De
$35.0
CBO Financial, Inc.
Clarksville, Md
$55.0
Community Revitalization Fund, Inc.
Hoffman Estates, Il
$73.0
Consortium America, LLC
Washington, DC
Empowerment Reinvestment Fund
New York, NY
$25.0
ESIC New Markets Partners LP
Columbia, Md
$140.0
$150.0
$110.0
$1,780
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Nationwide NMTC Allocatees
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LISC CDE in Kalamazoo
First Deal in Detroit by SEEDCO
Go to AABDS.com to Link with CDFI FUND
 Get name, address,
 e-mail, and
 Background Information
Bring Money & Deal to Table
Don’t Wait to Get Allocation
Do the Deal Now!
Next Round Only $2 Billion with 100 Repeaters – It is Going to be
Tough!!
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