Transcript Slide 1

NNMR
NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
Rural Nebraska Funding
Opportunities Workshop
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
Presentation Roadmap
• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business Loan
• Overview of New Markets Tax Credit program
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C O M M UN IT Y D E V E L O P M E N T R E S O UR C ES
Community Development
Resources (CDR)
Rick Wallace, Ex. Dir
Nebraska Community
Capital Fund (NCCF)
Nebraska New Market
Resources, LLC (NNMR)
Mark Koller, Ex. Dir.
Mark Koller, Ex. Dir.
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C O M M UN IT Y D E V E L O P M E N T R E S O UR C ES
Community Development Resources (CDR)
• 1994 – Started as Self Employment Loan Fund (SELF)
• 2001 – Re-formed as an independent 501(c)(3) non-profit
• 2002 – Achieved Community Development Financial
Institution (CDFI) certification by the U.S. Treasury
• 2003 – Name changed to Community Development
Resources
• 2006 – Formed two subsidiaries:
 Nebraska Community Capital Fund.
 Certified Community Development Entity (CDE) &
Formed Nebraska New Markets Resources, LLC
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C O M M UN IT Y D E V E L O P M E N T R E S O UR C ES
What We Do
CDR is introducing three new financial products to Nebraska:
Nebraska Community Capital Fund:
(1st Qrtr 2007)
NMTC Business Loans
(Immediate)
New Markets Tax Credit (NMTC) Program
(Immediate)
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
Presentation Roadmap
• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business Loan
• Overview of New Markets Tax Credit program
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Nebraska Community Capital Fund
Nebraska Community Capital Fund
(NCCF)
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A ‘Community Collaboration Model’ for Nebraska
In process of being formed, with expected roll-out date in 1st
quarter of 2007.
Based on Minnesota Community Capital Fund.
NCCF members will include cities, counties, electric utilities, and
regional development organizations.
Members pool their limited local development financing resources
together to access significantly more loan capital through a
specialized national community development finance secondary
market, which is operated by the Minneapolis-based Community
Reinvestment Fund, USA (CRF).
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Nebraska Community Capital Fund
Why Build a Statewide
Community Capital Fund?
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Unequal distribution of ED resources.
Undercapitalized & idle revolving loan funds.
No mechanism to pool limited local resources.
Lack of cooperation among communities.
Limited local commercial lending expertise.
Inefficient access to national capital markets.
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Nebraska Community Capital Fund
Fund Design Features
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Member escrow deposits capitalize loan fund.
Any economic development organization can join.
Gap financing source for business developments.
3 membership levels: $25,000, $50,000, $100,000.
3 year commitment with money back guarantee.
Interest income assigned to fund manager for administration.
• No annual or any additional fees paid by members.
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Nebraska Community Capital Fund
Fund Design Features
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10-1 leveraging of member funds.
Minimum loan: $50,000.
Maximum loan: $1,000,000.
No limit on number of loans.
Fixed rate, subordinated loans with flexible terms.
Local financial institution participation required.
All loans sold to secondary market on same day as loan closing—
continuous loan fund recapitalization.
• We always have money to lend!
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Nebraska Community Capital Fund
Allowable use of Loan proceeds
• Real Estate.
– Purchase of land, buildings, and business assets.
– Building construction and renovations.
• Machinery and equipment.
– Acquisition, renovation or moving.
• Working capital loans.
– Secured by fixed assets with fixed repayment schedule.
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Nebraska Community Capital Fund
Financing Example
Manufacturing Building Expansion
Project Value
$1,200,000
Bank
$600,000
1st REM—20 year
amortization with 10 year
balloon
NCCF
$420,000
2nd REM (same terms)
Equity
$ 50,000
In NCCF Pool
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Nebraska Community Capital Fund
Financing Example
Grocery Store Building Purchase
Project Value
$360,000
Bank
$150,000
1st REM (20 / 10)
NCCF
$156,000
2nd REM (20 / 10)
Equity
$ 25,000
In NCCF Pool
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Nebraska Community Capital Fund
What’s in it for your community?
• 10 to 1 leveraging of your funds.
• No limit on the number of loans you can sponsor.
• Source of subordinated, fixed-rate financing to support local
economic development.
• Reduced or no risk.
• Professional fund manager and loan officer services at no additional
cost.
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Nebraska Community Capital Fund
Next Steps
• Goals:
– Reach membership pool of $1,000,000
– Make first loan before end of 1st quarter 2007
We are currently seeking ‘Letters of Interest’ from organizations that are
interested in joining the Nebraska Community Capital Fund. Our contact
information is included at the end of this presentation.
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NNMR
NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
Presentation Roadmap
• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business Loan
• Overview of New Markets Tax Credit program
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
The New Markets Tax Credit Business Loan offers qualifying
borrowers yet another business financing option that may be the
best financial choice. Eligible borrowers can obtain loans with lower
interest rates and terms up to 25 years, creating a lower monthly
payment and allowing borrowers to keep more cash in their
businesses. The New Markets loan enables borrowers to expand
and renovate their existing properties, buy the properties outright, or
purchase additional property for business expansion.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
• Term sheet for the NMTC
Business Loan that can be
found on our web site:
www.cdr-nebraska.org
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
• NNMR Loan Size:
– Minimum: $50,000.
– Maximum: $1,500,000 unless otherwise specified with NNMR.
• Loan Interest Rate: Minimum initial rate to the borrower must be
based on 7-year Treasury plus 240 basis points. Actual loan rate to
the borrower will typically be set two days prior to loan closing. Rate
is reset at 7-year anniversary, based on 10-year Treasury plus 300
basis points plus any additional servicing fee.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
• Loan Fees:
– A 1.00% origination fee.
– Loan Documentation fee of $250 for loans of $250,000 or less.
– Loan Documentation fee of $500 for loans greater than
$250,000.
• Transaction costs may include accountant, legal and/or appraisal
fees reflecting the complex structure and compliance requirements
of the program and/or the transaction.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
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Prepayment Penalty: No partial prepayments are allowed. Upon a
full prepayment prior to the seventh anniversary date, a prepayment
penalty will be due which will be calculated as follows:
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The then current principal balance of the note times initial rate times
[(one hundred twenty minus number of months from note date to
date of prepayment) divided by twelve] times 0.10.
Example of Pre-Payment Penalty:
• $500,000 loan – 25 yr. term – 7.00% rate.
• Pre-Pay in 20th month
• (($442,375.29 x 0.07 x (120-20)) / 12) x 0.10 = $25,805.23
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
• Payments: All borrowers must agree to remit loan payments by
automated payment/debit.
• Security: Loan must be secured by a first or second lien on the real
estate or equipment being financed.
• Owner-Occupancy: Operating Company must occupy at least 51%
of the real estate financed.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
Presentation Roadmap
• Brief Overview of Community Development Resources
• Overview of the Nebraska Community Capital Fund
• Overview of the New Markets Tax Credit Business Loan
• Overview of New Markets Tax Credit program
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
NMTC Program Background
• Enacted on December 21, 2000
• Part of the Community Renewal Tax Relief Act of 2000
• June 10, 2002 – First issue of Notice of Allocation Availability
• March 14, 2003 – The Fund announces that 66 organizations were
selected to receive $2.5 billion of tax credit allocations under the 1st
round.
• Final original Act allocation application period is 2007.
• Act was extended another year (through 2008) on Dec-8-06.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Overview of NMTC Program
• Provides a credit against Federal income taxes for investors that
make Qualified Equity Investments (OEIs) into Community
Development Entities (CDEs)
• CDEs in turn use the proceeds of these investments to make
Qualified Low-Income Community Investments (QLICIs)
• QLICIs include, among other things, investments in businesses and
real estate projects in low-income communities.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Credit Amount
• The credit is taken over a 7-year period
• The credit rate is:
– In each of the first three years, 5% of the original investment
amount
– In each of the final four years, 6% of the original investment
amount
• Equals 39% of amount of original investment
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Example
The Fund awards an allocation of $1 million to a CDE. The CDE offers
the tax credit to a single investor in exchange for a $1 million equity
investment. How much can the investor claim as a credit on its Federal
taxes?
Years 1 – 3
Tax credit at 5%
Value $50,000 per year
Years 4 – 7
Tax credit at 6%
Value $60,000 per year
TOTAL VALUE OVER 7 YEARS
$390,000
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
What is a CDE?
• A domestic corporation or partnership that is an intermediary vehicle
for the provision of loans, investments or financial counseling in
“Low-Income Communities” (LICs)
• CDEs are required to demonstrate that they:
– Have a primary mission of serving, or providing investment
capital for LICs or Low-Income Persons, and
– Are accountable to residents of the LICs that they serve
 Community Development Resources is a certified CDE
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
What is a “Low-Income Community?”
1.
With at least 20% poverty rate; or
2.
Where the median family income does not exceed 80% of the
area median family income; or
3.
That have a population of less than 2,000, are contained within a
Federally designated Empowerment Zone, and are contiguous to
at least one other LIC; or
4.
Where the median family income does not exceed 85% of the
area median family income, provided the census tract is located in
a high migration rural county.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Low-Income Communities (cont’d)
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Projects not located within LICs, but that otherwise serve Targeted
Populations, may also qualify for NMTC investments.
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Targeted Populations include:
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1.
Low-income persons, to the extent the project is located in a census
tract with a median family income at or below 120% of the applicable
area median family income; or
2.
For Gulf Opportunity (GO) Zone allocations, individuals that have
been displaced from their homes and/or have lost their principal
source of employment in the wake of Hurricane Katrina.
Refer to IRS and CDFI Fund guidance for additional details.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit Business Loan
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Equity Investment (QEI)
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NMTCs are offered to investors for “Qualified Equity Investments”
(QEIs) in the CDE.
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QEI is:
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An equity investment in a CDE – an equity investment is stock in a
corporation or any capital interest in a partnership.
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The equity investment must be acquired by the investor at its original
issue solely in exchange for cash.
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The equity investment must meet the substantially-all requirement,
and
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The equity investment must be designated by the CDE.
QEIs must remain invested in the CDE during a 7-year credit
period – Investors claim credits as of the date a QEI is initially
made.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Timing of Investments
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CDEs must offer NMTCs to investors within 5 years of receiving an
allocation.
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CDEs have 12 months to invest their QEI proceeds into Qualified
Low-Income Community Investments (QLICIs).
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Generally, CDEs that receive returns of capital will have 12 months
to reinvest those funds in QLICIs.
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Reinvestment is not required in the final year of the 7-year credit
period.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
CDE Use of NMTC Proceeds
“Substantially All” of the QEI proceeds must be invested in
QLICIs within 12 months.
Years 1 – 6: Substantially All = 85% of the amount paid
by investor at original issue
Year 7: Substantially All = 75%
At all times, 5% of the original QEI issue amount may be used for
certain reserves by the CDE and count towards meeting the
substantially all requirement.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
CDE Use of NMTC Proceeds (Cont’d)
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A CDE may demonstrate that it has satisfied the Substantially-All
requirement in 2 ways:
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Direct tracing:
• Under direct tracing, CDE is required to trace at least
85% of the QEI proceeds to specified QLICIs.
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Safe harbor:
• Under a safe harbor, a CDE must demonstrate that
85% of its aggregate gross assets are invested in
QLICIs.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Low-Income Community Investments (QLICIs)
Eligible Investments (QLICIs):
1.
Any capital or equity investment in, or loan to, any “Qualified
Active Low-Income Community Business” (QALICB)
2.
Purchase of a loan from another CDE if the loan is a QLICI
3.
“Financial Counseling and Other Services” (FCOS) to
businesses located in, or residents of, LICs; and
4.
Any equity investment in, or loan to, any CDE.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Low-Income Community Investments (cont’d)
Requirements:
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QEI proceeds must be invested in QLICIs through out the 7year credit period.
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CDE reinvestment requirement:
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Years 1 – 6:
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Generally, returns of equity, capital or principal must be
reinvested within 12 months.
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Periodic loan repayments may be aggregated for up to 24
months before reinvestment is required.
No reinvestment required in year 7
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Active Low Income Community Business
(QALICB)
What is a typical QALICB?
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Loans to or investments in operating businesses located in
LICs.
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Development of commercial, industrial, retail and mixed-use
real estate projects in LICs.
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Development of community facilities, such as charter schools
and health care centers, in LICs.
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Development of for-sale housing located in LICs.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Active Low Income Community Business
(QALICB)
To be a QALICB
1.
At least 50% of the total gross income is from the active
conduct of a qualified business in Low-Income Communities
(LICs);
2.
At least 40% of the use of tangible property of the business
is within LICs; and
3.
At least 40% of the services performed by the business’
employees are performed in LICs;
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Active Low Income Community Business
(QALICB)
To be a QALICB (cont’d)
4. Less than 5% of the average of the aggregate unadjusted
bases of the property is attributable to collectibles (e.g. art
and antiques), other than those held for sale in the ordinary
course of business (e.g., inventory); and
5. Less than 5% of the average of the aggregate unadjusted
bases of the property is attributable to nonqualified financial
property (e.g., debt instruments with a term in excess of 18
months).
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
Qualified Active Low Income Community Business
(QALICB)
To be a QALICB (cont’d)
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The gross income test is deemed to be met if either the use of
tangible property or the use of services performed test is met
at 50% or higher.
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If a business has no employees, it can meet both the services
performed and gross income tests if it meets the use of
tangible property test at 85% or higher.
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New Markets Tax Credit
Ineligible Activities
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Residential rental property:
– Buildings or structures which derive 80% or more of its
gross rental income from renting dwelling units
Certain types of businesses:
Golf Courses
Massage Parlors
Race Tracks
Hot Tub facilities
Gambling facilities
Suntan facilities
Certain farming businesses
Stores where the principal business is the sale of
alcoholic beverages for consumption off premises
Country Clubs
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Refer to IRS regulations for additional details.
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New Markets Tax Credit
Recapture
NMTCs may be recaptured from investors during the 7-year credit
period if:
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The QEI fails the Substantially-All requirement
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Failure to invest 85% as allowed
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Failure to meet QALICB requirements; or
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Failure to meet one-year investment requirement
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The CDE ceases to qualify as a CDE;
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The CDE redeems the investment.
It is not an event of recapture – and an investor may continue to claim
NMTCs – if a CDE files for bankruptcy.
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
New Markets Tax Credit
CDEs must make QLICIs
within 12 months of receipt
of Investor QEIs
Summary Graphic
Allocates Tax Credits
Investing in
or Lending to
QALICBs
$
CDFI Fund
CDE must offer
credits to investors
within 5 years
Private
Investors
Community
Development
Entity
(CDR)
$
Purchasing
Loans from
CDEs
$
TC
$
QEI must stay
invested in CDE
for 7 years
$
Financial
Counseling
Investing in
or Lending to
CDEs
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NEBRA SKA NEW MA RKE T RE SOU RCE S, L LC
How to contact us:
?
Rick Wallace, Ex. Dir. CDR
Mark A. Koller, Ex. Dir. NCCF,
NNMR
285 S. 68th Street Place
Suite 520
Lincoln, NE 68510
Office: 402.436.2387
Fax: 402.436.2439
www.cdr-nebraska.org
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