YOU CAN DO THIS! · EBALDC’S OFFICE BUILDING-NMTCS! Historic Swan’s Market in old town Oakland...
Transcript of YOU CAN DO THIS! · EBALDC’S OFFICE BUILDING-NMTCS! Historic Swan’s Market in old town Oakland...
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YOU CAN DO THIS! FINANCE PROJECTS WITH NEW
MARKETS TAX CREDITS
APRIL 12, 2017 CENTER FOR CREATIVE LAND RECYCLING
SAN JOSE WORKSHOP
1692993.1
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goldfarb lipman attorneys
WHAT ARE NEW MARKETS TAX CREDITS?
! A federal tax credit program designed to stimulate investment in low-income communities or to assist-low income “targeted populations”.
! Developed after the success of the Low Income Housing Tax Credit – though completely different!
! A 39% tax credit for every Qualified Equity Investment (QEI) to a Community Development Entities (CDEs).
! Part of the Community Renewal Tax Relief Act of 2000. ! Over $40 Billion of NMTCs awarded since the program
began. ! Administered by the CDFI Fund, part of the US Treasury
Department.
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“TYPICAL” STRUCTURE OF A NMTC DEAL
QEI N
MTC
QLI
CI
QALICB
CDE
Investment
Fund
CDFI Fund New Markets Tax
Credit Allocation
Leverage
Loan
Lender Leverage Loan
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Investor
Equity
HOW DOES THE PROGRAM WORK?
! CDEs annually apply for an allocation of NMTCs. ! If awarded an allocation, CDEs facilitate
investments (typically structured as low interest and forgivable loans) to qualifying projects with proceeds from investors that purchase the NMTCs from the CDEs.
! CDEs generally select projects that are real estate projects or operating businesses located in highly distressed low income areas, which result in high community impacts.
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NMTC FINANCING
! The NMTC financing facilitated by the CDE is generally a low interest loan, which is forgiven after 7 years.
! The loan typically is approximately 20% of the total financing necessary for a real estate project or operating business.
! The NMTC borrower is either a for-profit or nonprofit entity that is located in a “low-income census tract” as determined by the US Census or serves low income Targeted Populations.
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NMTC BENEFITS
! Benefit to Borrower/Project ! Low interest (approx. 1%), interest-only 7-year loan to help fund a
project. ! NMTC financing provides a net benefit of approximately 20% of the
funds necessary to finance the project. ! Ability to leverage existing project funds and prior incurred expenses
(within 24 months of closing) with NMTC financing through the “Leverage Structure”.
! Forgiveness of NMTC B Note (becomes equity after Year 7). ! Community Benefit
! Develop a community facility or commercial project which will provide services to low income areas.
! Retain and increase employment in low income areas. ! Spur economic development and act as a catalyst for more
development in economically challenged communities.
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NET BENEFIT TO PROJECT - FOR $10M PROJECT *
Sources & Uses CDE Level
Project Level at closing
Interest over 7 years used to
pay CDE Expenses
NMTC Equity from Investor Bank ($10M x 39% x $.85 purchase price) $3,300,000 $3,000,000 $2,630,000
- CDE Fee (3% of $10m QEI) ($300,000)
- Legal, Accounting, Consulting Fees ($370,000) - Annual Asset Mgmt. & Monitoring Fees (Spread over 7 years- 3.5% of QEI ($350,000)
Net Project Benefit (22% of $10M Budget) $3,000,000 $2,630,000 $2,280,000
*For illustration only: Actual fees will vary!
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Types of Projects Funded with NMTC Financing
! Examples of NMTC funded projects include: ! Community Centers
! Food Banks
! Health Clinics
! Recreational Facilities
! Senior Assisted Living
! Child Care Facilities ! Grocery Stores
! Commercial Buildings
! Mixed Use Developments
! NMTC financing cannot be used for: ! Golf Courses
! Race Tracks
! Gambling Facilities
! Liquor Stores
! Certain Farming Businesses
! Residential Rental Property
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2015-16 NMTC ALLOCATION ROUND
! Announcement for 2015-16 NMTC Allocation Round made November, 2016
! 120 CDEs Awarded NMTC Allocation (283 CDEs applied)—Several CDEs in California
! Essentially all CDEs agreed to fund 75% of their allocation in Highly Distressed Areas ! Highly Distressed = 30% or higher Poverty
Rate, below 60% AMI or more than 1.5 times the national unemployment rate
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THE FUTURE OF THE NMTC PROGRAM
! In December 2015 Congress and President Obama agreed to extend the NMTC for five years at $3.5 billion annually.
! Next awards announced late 2017. ! Future of program is uncertain due to Tax
Reform being discussed by Congress
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THE IDEAL TRANSACTION
! Project Readiness ! Site control agreement ! Architectural construction documents in progress ! All regulatory approvals defined and scheduled ! Contractor is selected and has draft contract ! Obtaining building permits in a timely manner ! Other financing tied down (sources of leverage)
! High Community Impact ! Jobs ! Services ! Assist Severely Distressed Areas
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CASE STUDY RUMRILL SOCCER PARK
Need for Project • High Obesity Rates (52% of students-3rd highest in
state) • Low Income, High Poverty Area • Shortage of open space • Positive activities for youth • Shortage of soccer fields throughout East Bay • Brownfield Cleanup • Michelle Obama would like this project (Few NMTCs
being used nationwide for Recreational Projects)
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PARTNERS
! City of San Pablo (Leverage Lender) ! NCCLF (CDE) ! Bank of America (Investor) ! Healthy Eating, Active Living (HEAL) new LLC
set up to own/develop the project affiliated with the San Pablo Economic Development Corporation
! HEAL contracts with City for management and operations
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CHALLENGES
! Site Control: Blighted, Brownfield Site formerly owned by City RDA.
! Had to be transferred back to City by (protracted) approval process by State Department of Finance.
! Remediation of Site to clean it up (unknowns).
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Equity = $2.5 MM $5.0 MM Investment Fund $7.5 MM
Upper Tier Fees: Legal, Annual Audit, Taxes
CDE Transaction Fees: Audit, taxes, CDFI reporting & Investment Fund admin.
Project Legal, CPA & Consulting Fees
Loan Interest
QALICB Payments= Loan Interest + CDE Fees
Grants &
Land
CASE STUDY RUMRILL SOCCER PARK
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LEVERAGED SOURCES
! Leveraged Public Funds: ! California Parks and Recreation Prop 84 Funds ! County Measure WW Funds ! EPA Brownfield Grant Funds ! Cal Recycle Funds (Turf) ! City Funds
! Leveraged Value of Land
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Total QEI (Tax Credit Allocation by NCCLF) $ 7,500,000
x Tax Credit over 7 year. x 39%
= Total Credits to Investor: Bank of America $ 2,925,000
x Price per credit x $ 0.86
= NMTC Gross Equity for Project $ 2,515,500
CASE STUDY RUMRILL SOCCER PARK
Tax Credit Breakdown 17
NMTC Equity $ 2,500,000
- CDE Fee (3% of QEI) - 225,000 - Legal, Accounting, Consulting Fees (2.9% of
QEI) - 390,000 - Annual Asset Mgmt. & Tax/Audit Fees
(Spread over 7 years) - 372,500
Net Project Benefit (17% of Project Cost)- varies with size of project $ 1,512,500
CASE STUDY RUMRILL SOCCER PARK
Leveraged NMTC Transaction Fees 18
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RUMRILL SOCCER PARK BEFORE
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RUMRILL SOCCER PARK DURING
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RUMRILL SOCCER PARK AFTER
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EAST OAKLAND YOUTH DEVELOPMENT CENTER-NMTCS
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EOYDC EXPANSION--NMTCS
" 5,300 SF expansion for additional programming; $11.0m project
" $8.2m NMTC allocation from NCCLF (CDE) and $1.2m allocation from US Bank (investor)
" The NMTCs generated $3.1 million for the project
" EOYDC’s capital campaign and a bridge loan from NCCLF provided remainder of money for project
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SWAN’S MARKET EXPANSION & EBALDC’S OFFICE BUILDING-NMTCS
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538 9th St. Oakland
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SWAN’S MARKET EXPANSION & EBALDC’S OFFICE BUILDING-NMTCS
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1825 San Pablo Blvd, Oakland
SWAN’S MARKET EXPANSION & EBALDC’S OFFICE BUILDING-NMTCS ! Historic Swan’s Market in old town Oakland needed
refinancing, refurbishing and improvements for the restaurant tenants; new small business opportunities and jobs paying living wage (Oakland requirement)
! EBALDC also refinanced and rehabbed a blighted building for its offices and new 1st floor tenants
! Oakland Renaissance CDE provided $6m in NMTCs and Statewide CDC (Walnut Creek) provided $10m in NMTCs; Chase Bank provided $5.3m in equity
! Refinanced with Transit-Oriented Affordable Housing (TOAH) Fund
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OTHER NMTC PROJECTS - NCCLF
! Ed Roberts Campus, Ashby BART, Berkeley ! Environmental Innovation Center, San Jose ! Maritime Children’s Center, Richmond ! Senior Transportation Center in Butte County ! Office Building & Child Care Center-F5 Fresno ! Health Clinic, Family House, Performing Art Centers
in San Francisco ! Interested in Food Hubs, Woody Biomass Energy in
Sierras, and other rural projects in N. California
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NMTCS-THINGS TO CONSIDER
! NMTCs add complexity to a transaction ! Leverage Lenders need to be educated
regarding debt security issues and remedies ! Guaranties and Indemnities ! Staff Capacity (project mgmt., accounting) ! End of compliance period arrangements ! What is the NET benefit for your project? (Typically about 20% of total project cost.)
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NMTC TERMINOLOGY
! QEI = Qualified Equity Investment ! CDE = Community Development Entity ! QLICI = Qualified Low-Income Community
Investment ! QALICB = Qualified Active Low-Income
Community Business ! QCT = Qualified Census Tract
(Low Income Community)
The Investor’s QEI to a CDE is used to make a QLICI to a QALICB in a QCT.
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! Goldfarb & Lipman is a law firm with special strengths in community economic development, affordable housing, real estate development and municipal law. Since the founding of Goldfarb & Lipman in 1971, we have developed an extensive practice focused on providing superior legal representation to both public entities and private developers in real estate developments and financing transactions. We have successful closed transactions involving the Low Income Housing Tax Credits, New Markets Tax Credits, Renewable Energy Credits, and Historic Rehabilitation Tax Credit.
! Goldfarb & Lipman has been involved in every stage of the New Markets Tax Credit Program. Since the beginning of the NMTC program, we have represented: (i) public agencies lending into a NMTC transaction, (ii) QALICBs utilizing NMTC financing and CDEs closing NMTC transactions. Some examples of projects we helped close utilizing NMTC financing include community facilities, historic live theater venues, child care centers, office buildings serving nonprofit organizations, and commercial mixed use buildings.
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GOLDFARB & LIPMAN LLP
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NCCLF promotes economic justice and alleviates poverty by increasing
the financial resilience and sustainability of nonprofits and
enterprises. Through flexible financial products and sound advice, we
create opportunities to make socially responsible investments that revitalize Northern California
communities.
Mission
NCCLF envisions financially strong and culturally vibrant communities where each person has access to decent jobs, homes, health care,
education, and economic opportunities. We work in partnership
with individuals and organizations who share our vision of sustainable
communities and social and economic justice.
Vision
OUR PROGRAMS
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Lending &
NMTC Consulting
Socially Responsible
Investing Policy
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AREAS SERVED
Alameda Alpine Amador Butte Calaveras Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Kern Kings Lake Lassen Madera Marin Mariposa
Mendocino Merced Modoc Monterey Napa Nevada Placer Plumas Sacramento San Benito San Francisco San Joaquin San Mateo Santa Clara Santa Cruz Shasta Sierra Siskiyou
47 Counties in Northern California Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Tuolumne Yolo Yuba
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MORE QUESTIONS? CALL US!
David Wilkinson NCCLF
Senior Real Estate Consultant 415-392-8215 ext 309 [email protected]
Luis A. Rodriguez Goldfarb & Lipman LLP
510-836-6336 [email protected]
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