FINANCE

NEW MARKETS TAX CREDITS

$3.9 Billion in NMTCs Announced

BY DONNA KIMURA

AFFORDABLE HOUSING FINANCE • NOVEMBER 2007

Sixty-one organizations have been selected to receive $3.9 billion in New Markets Tax Credits (NMTCs) this year in the fifth round of allocations. Eleven organizations received $400 million in tax credits for redevelopment efforts in the hurricane-damaged Gulf Coast, according to the Community Development Financial Institutions (CDFI) Fund, which made the awards announcement Oct. 5 in New Orleans.

Several prominent names in affordable housing, or their affiliates, are among the 2007 recipients, including Banc of America CDE, LLC; Capmark Community Development Fund, LLC; Enterprise; Habitat for Humanity International; JPMorgan Chase & Co.; Key Community Development New Markets, LLC; King County (Washington) Housing Authority; Local Initiatives Support Corp.; Low Income Investment Fund; MMA Financial Community Renewable Energy Initiative, LLC; Related Community Development Group, LLC; SunTrust Community Development Enterprises, LLC; U.S. Bank; Wachovia; and the Wisconsin Housing and Economic Development Authority.

The average award is about $64 million per allocatee.

A total of 258 applications were submitted this year. The applicants requested about $27.9 billion in NMTC authority. That’s seven times more than the $3.9 billion in available authority.

The NMTC program aims to attract private capital into low-income neighborhoods across the nation to help finance community development projects, stimulate economic growth, and create jobs. Established by Congress in 2000, the program permits individual and corporate taxpayers to receive a credit against federal income taxes for making qualified equity investments in community development entities (CDEs). Substantially all of the investment must be used by the CDE to make qualified investments in low-income communities.

The credit to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year period.

The 2007 round was originally scheduled to be the final round of allocations. However, Congress and President Bush extended the program for one year, providing another $3.5 billion in authority for 2008.

That move is important because it sets the stage for an even longer extension of the program.

NMTC supporters are campaigning to extend the program for even longer. Two extension bills (S. 1239 and H.R. 2075) were introduced this year to extend the program through 2013.

The Government Accountability Office (GAO) reported that as of January, the CDFI Fund had made 233 NMTC awards totaling $12.1 billion in allocation authority to 179 CDEs, which the CDEs have used to attract nearly $5.3 billion in investment.

As part of its report, the GAO surveyed investors. Nearly half of them reported that they also invest in the lowincome housing tax credit. However, less than half of the investors that also invest in the housing credit view it as an alternative to the NMTC. “One explanation for this is that these investors may be making other low-income community investments as a means for complying with government requirements such as the CRA (Community Reinvestment Act),” said the GAO.

City Sees NMTC Benefits

GREENVILLE, S.C.—New Markets Tax Credits (NMTC) are behind a mixed-use development here that is credited with helping turn around its neighborhood.

Park Place in the West End is a new 55,000-square-foot office and retail building developed by Centennial American Properties, which has also built a neighboring 41-unit condominium development.

These buildings are among the first new structures in the area in 20 years, according to Terry Bibleheimer, senior vice president and sales manager of the Atlantic region for Wachovia, the NMTC investor.

The West End neighborhood was once a prosperous African-American community but had fallen into disrepair, with poverty rates exceeding 30 percent.

Centennial CEO David Glenn called the NMTCs vital to his project.

Through the program, Wachovia was able to provide a $6 million senior loan and a $1.3 million supplemental loan, providing a majority of the project’s financing. The financing allowed the developer to cover the development costs and keep the rents lower in order to attract more tenants. New York Life is the anchor office tenant. There are also two restaurants.

The NMTCs allow Wachovia and other allocatees to provide loans at special rates and terms such as reduced interest rates, longer interest-only periods, and flexible amortization, explained Cathy Dolan, Wachovia’s director of Community Development Finance. This is because the investor, such as a bank, is receiving a stream of tax credits so it can be affordable to provide better terms.

The approximately $9 million development sits just beyond the outfield fence of a new baseball stadium that’s home to the Greenville Drive minor league baseball team. Other than the ballpark, there had been no new development in the neighborhood.

Park Place in the West End is a good example of a NMTC project that’s a catalyst for community revitalization, Dolan said. Centennial’s condominium development is nearly full, and other buildings are being rehabbed in the neighborhood.

Wachovia received $105 million in credits in the recent 2007 round to add to the $383 million from three earlier rounds. It has closed 59 transactions. About one-third of the work has been in rural areas.

Workforce Housing Under Way

SEATTLE—Construction has begun on a mixed-use development that will include 59 apartments in the central neighborhood of the city. The 17th & Jackson development will provide much-needed workforce housing in Seattle and help boost the economic activity in the area. About half of the apartments will be restricted to families earning no more than 70 percent and 80 percent of the area median income.

Developed by Central Area Development Association (CADA), with assistance from development consultant Tim Abell of Pacific Housing Northwest, the approximately $22.4 million project is rising on a vacant city-owned lot. The development will also include about 5,800 square feet of retail space, 3,200 square feet for offices, and a parking garage.

About $15.5 million in New Markets Tax Credits (NMTCs) from Enterprise Community Investment, Inc., is helping finance the project, according to John Ducey, director of originations for structured finance. The tax credits generated a $4.8 million equity investment and an $8.3 million loan on flexible terms from Washington Mutual. By attracting private capital to this community, creating jobs, and spurring other market-rate developments in this neighborhood, 17th and Jackson will provide the outcomes that were envisioned when the NMTC program was created, Ducey said.

NMTCs are allowing CADA to do workforce housing, said CEO George Staggers, who grew up in the Seattle neighborhood. “The project could have happened with private forces but it would have been a market-rate development,” he said.

The project is part of CADA’s overall revitalization strategy for an area that has not attracted any significant private investments in 30 years, according to Staggers.

This is the private community-based development organization’s first NMTC transaction. The development is scheduled to be completed at the end of 2008.

“We believe it is spurring other developments,” Ducey said, noting that another developer is working on a nearby market-rate condominium project.

Enterprise helped structure the financing, which included bridging a federal Sec. 108 loan from the city. Sec. 108 allows cities to borrow against future allocations of Community Development Block Grants.

Enterprise received $100 million in credits in the 2007 round.