Tax Credit Equity

41 out of 208 applicants receive NMTC awards

By Donna Kimura

(Affordable Housing Finance, June 2005) – More than half of the New Markets Tax Credit (NMTC) proceeds from the 2005 round will go to finance and support real estate projects in low-income communities.

The rest of the proceeds will go to support businesses or to capitalize community development entities (CDEs) in those communities.

Overall, 41 organizations were selected to receive $2 billion in NMTCs in the third funding round of the program in May.

“If there’s a trend, it’s toward deeper targeting of money and more mission-driven awardees,” said Herb Stevens, a partner at the Nixon Peabody law firm and a NMTC authority.

Allocatees are required to invest substantially all of the qualified equity investments that they receive in low-income communities. Most applicants said that at least 75% of their activities will be in areas that have higher poverty rates and lower median family incomes than required under the program.

 Stevens also said that more than half of the awardees are nonprofits or government-controlled entities. Seventeen of the 41 winners are nonprofits. Four are government-controlled entities. Another 11 are Community Development Financial Institutions (CDFIs), which are financial institutions with a community development focus. Seven are banks or publicly traded companies.

The surprise, he said, was that many good applicants did not receive an award. This was attributed to the strong demand for credits and the limited amount of authority available each year.

Approximately $1.18 billion, or 59%, of the NMTC proceeds will go toward real estate projects in low-income areas. Several of the CDEs that were selected to receive credits are proposing to finance mixed-use projects.

This includes the Colorado Growth and Revitalization Fund, LLC, a subsidiary of the Colorado Housing and Finance Authority, which received a $40 million award. The fund will administer a specialized capital pool to provide community and economic development financing to businesses and real estate projects in low-income neighborhoods throughout the state.

Another winner, National Cities Fund, LLC, is a start-up owned by Historic Restoration, Inc., a firm headquartered in New Orleans. This group will use its allocation to expand the number and scope of redevelopment projects in low-income neighborhoods.

ESIC Realty Partners, Inc. (ERP), a subsidiary of The Enterprise Social Investment Corp., was awarded $80 million in investment authority. Combined with two other awards, ERP has received a total of $310 million in investment authority through the NMTC program.

“The program is hitting its stride now, and we’re starting to see the positive effects it’s having on communities across America,” said Charles Werhane, ERP president. ERP has used its allocations to help fund community revitalization projects in Baltimore; Cleveland; Columbus, Ohio; Madison, Wis.; Monnessen, Pa.; Omaha, Neb.; St. Louis; and northern Maine.

The Local Initiatives Support Corp. received a $90 million award.

In the latest round, $494 million, or 25%, of the NMTC proceeds is expected to be used to support loans to or investments in businesses in low-income communities, reported the Treasury Department’s CDFI Fund.

The Biotech Research Center, LLC, received a $28 million award to finance the development of a 300,000-square-foot life sciences research facility in Hawaii.

About $326 million, or 16%, of the NMTC proceeds is planned to help capitalize other CDEs.

Key statistics from this year’s round include:

• The 41 winners were selected from a field of 208 CDEs that requested $22.9 billion in NMTC allocations.
• The average allocation award is about $48.8 million per allocatee.
• Awards range in size from $5 million to $100 million. The median award is $50 million.
• The 41 allocatees are headquartered in 20 different states and the District of Columbia, but anticipate making investments in at least 33 different states and the District of Columbia.

Created by Congress in 2000, the NMTC program aims to increase private investment in neglected areas by authorizing tax credits to investors in exchange for equity contributions in CDEs. The credit to the taxpayer totals 39% of the investment and is claimed over a seven-year period. The total tax credit authority under the program represents $15 billion in potential equity investments through 2007.

In three rounds to date, the CDFI Fund has made 170 awards totaling $8 billion in tax credit authority.

The prior recipients have already leveraged their credits into more than $2 billion in equity from investors, according to CDFI Fund Director Art Garcia.

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