Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009
This presentation is the property of its rightful owner.
Sponsored Links
1 / 37

TAX CREDITS An Overview ULI/BPA Young Leaders Tax Credit Seminar May 26, 2009 PowerPoint PPT Presentation


  • 39 Views
  • Uploaded on
  • Presentation posted in: General

TAX CREDITS An Overview ULI/BPA Young Leaders Tax Credit Seminar May 26, 2009. Peter Roth of New Atlantic Development Corporation Stephen Nolan of Nolan | Sheehan | Patton LLP. Urban Land Institute New Markets Tax Credits and Hibernian Hall – A Case Study May 26, 2009.

Download Presentation

TAX CREDITS An Overview ULI/BPA Young Leaders Tax Credit Seminar May 26, 2009

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

TAX CREDITSAn OverviewULI/BPA Young Leaders Tax Credit SeminarMay 26, 2009

Peter Roth of New Atlantic Development Corporation

Stephen Nolan of Nolan | Sheehan | Patton LLP


Urban land institute new markets tax credits and hibernian hall a case study may 26 2009

Urban Land InstituteNew Markets Tax Credits and Hibernian Hall – A Case StudyMay 26, 2009

Jeanne Pinado, Madison Park Development Corporation

Peter Roth, New Atlantic Development

Andrea Daskalakis, Massachusetts Housing Investment Corporation

Stephen Nolan, Nolan Sheehan Patten LLP


Types of tax credits

Types of Tax Credits

  • Historic Tax Credits (HTC)

    • 10% credits

    • 20% credits

  • State Historic Tax Credits (MA-HTC)

  • New Markets Tax Credits (NMTC)

  • Low Income Housing Tax Credits (LIHTC)

    • 4% credits

    • 9% credits


Overview of htc

Overview of HTC

  • Federal tax incentive program created in 1981

  • 20% credit for historic buildings

  • 10% credit for non-historic buildings built before 1936

  • Can be used for rental projects only

  • 10% credit for non-residential, rental only

  • Program is administered by the Department of Interior’sNational Park Service


Htc eligibility

HTC Eligibility

  • What buildings qualify?

    • For the 20% credit, a building must be a “Certified Historic Structure,” meaning it is listed individually on the National Register of Historic Places or is located in a historic district and considered a significant contributing building.

    • For the 10% credit, no certification is necessary.

    • The process of getting a building listed on the Register begins by submitting a National Register Nomination form to NPS


Htc eligibility1

HTC Eligibility

  • What does the Park Service look for?

  • In order to be listed on the Register, a building must demonstrate historical, cultural, architectural, or archeological significance that

  • 1) is associated with events that have made a contribution to our history;

    • 2) is associated with significant persons; or

    • 3) embodies a particular type, period, or style of construction or that represents the work of a master


Htc eligibility2

HTC Eligibility

  • The certification process:

  • The process of getting a Project certified for Historic Credits begins by submitting a “Part 1” Submission to the NPS, which documents existing building conditions prior to the rehabilitation, and documents its qualifications as an eligible structure

  • The “Part 1” is reviewed by the State’s Historic Preservation Officer, who forwards the Part 1 submission to the National Park Service if it is approved


Htc eligibility3

HTC Eligibility

  • The certification process:

  • A “Part 2” Submission is then prepared, which documents the proposed rehabilitation (usually the Architect’s Plans & Specifications), and details how the rehabilitation plans conform with the Secretary of the Interior’s “Standards for Treatment of Historic Structures”.


Htc eligibility4

HTC Eligibility

  • What rehabilitations qualify?

    • Rehab must be “substantial.”

    • Expenditures must exceed the greater of the “adjusted basis” or $ 5,000.

    • The plans for the rehab must conform to Dept. of the Interior standards

    • As with the Part I, it is first reviewed by the State Historic Preservation Officer and then forwarded to the National Park Service for final approval.


Htc eligibility5

HTC Eligibility

  • What does the Park Service look for?

  • In order to receive Part II approval, a project must

    • 1) make every effort to minimize changes to the appearance or use of the structure or site

    • 2) retain significant historical features

    • 3) recognize a building’s particular place in history by ensuring that alterations have a historical basis

    • 4) attempt to repair, rather than replace, deteriorated features


Htc eligibility6

HTC Eligibility

  • Final Steps

  • Once the project is completed, a Part 3 submission is made to SHPO & NPS, documenting that the completed rehabilitation conformed to plans approved in the Part 2 process.


Htc calculating the credit

HTC - Calculating the Credit

  • How is the HTC calculated?

    • The “eligible rehabilitation basis” is calculated, and multiplied by 10 or 20%, depending on the type of credit

    • Certain project costs are ineligible, including acquisition, equipment/fit-up and sitework, costs associated with permanent financing, marketing/lease up costs, and capitalized reserves.


Htc calculating the credit1

HTC – Calculating the Credit

Calculation of Eligible Basis

Budget Eligible Basis

Acquisition$500,000 $0

Construction $5,380,000 $5,000,000

A/E$350,000$350,000

Bond/Permit/Insurance/Taxes$150,000$150,000

Appraisal/Survey $12,000 $12,000

Clerk $60,000 $60,000

Legal $80,000 $60,000

Title & Recording $10,000 $10,000

Environmental/Traffic Consultants $15,000 $15,000

Cost Certification/Accounting $10,000 $10,000

Marketing $10,000 $0

Construction Loan Interest$150,000$110,000

Financing Fees $40,000 $20,000

Syndication Costs $33,000 $0

Developer Fee$750,000$750,000

Operating Reserve$150,000 $0

Subtotal $6,820,000 $6,567,000

Capitalized Interest of Soft Debt $60,000

Total $6,627,000


Htc calculating the credit2

HTC – Calculating the Credit

20% of Eligible Basis = Credit Amount

$6,627,000 x 20% = $1,325,400

Amount of equity to project depends on negotiated price investor pays for the credits (85-95%.)


Htc using the credit

HTC - Using the Credit

  • How is the HTC used?

    • The credit is typically sold to an investor, who gains an ownership position through the creation of a Limited Partnership or Limited Liability Company.

    • The investor pays a price per dollar of credit, between $ 0.85 and $ 0.95, depending on market conditions and underwriting criteria.

    • The investor takes the full amount of the credit in the first year the building is placed in service.


Htc selling the credit

HTC – Selling the Credit

  • Who buys tax credits?

    • Institutional lenders

    • Insurance companies

    • Large “C” corporations

    • Syndicators

    • Non-profit developers cannot use the credit because they have no tax liability to offset. Most for-profit developers cannot use tax credits on this level due to passive loss limitations and alternative minimum tax requirements.


Htc the partnership

HTC – The Partnership

  • The Owner–Investor Relationship

    • The investor must have an ownership interest in the project.

    • This is usually accomplished by setting up a Limited Partnership or Limited Liability Company where the Developer acts as the General Partner/Managing Member and the investor is the Limited Partner/Investor Member.

    • The Limited Partner/Investor Member typically owns 99.99% of the project to make full use of the credits and accompanying losses.

    • The General Partner/Managing Member manages the partnership and has day-to-day control of the project.


Htc using the credit1

HTC - Using the Credit

  • Can HTC be combined with other credits, such as LIHTC, or NMTC?

    • Yes, though with LIHTC, the amount of the HTC must be deducted from the eligible basis when computing the basis for LIHTC.

    • HTC equity can be used as part of the investment that forms the basis for New Markets Tax Credits, but complex structuring is usually required.


State historic credits

State Historic Credits

  • State tax incentive program created in 2000

  • Up to 20% credit for historic buildings

  • Generally same eligibility criteria as Federal HTC

  • Allocated competitively by MHC

  • Big difference is real estate “ownership” is not necessary

  • State issues “tax credit certificates” to investors

  • Certificates are generally not subject to ATM


Overview of nmtc

Overview of NMTC

  • Created by Congress in 2000

  • Administered by the U.S. Department of Treasury’s Community Development Financial Institutions Fund (CDFI Fund) and the IRS

  • Provides a 39% credit (5% for first 3 years and 6% for years 4-7) for equity investors in CDEs that receive an allocation of credits from the CDFI Fund

  • CDEs compete nationally for the NMTC in a highly competitive process

  • CDEs must in turn use the equity to make loans to or investments in QALICBs


Overview of nmtc1

Overview of NMTC

  • What is a “CDE”?

    • Community Development Entity that is accountable to a low income community and must apply to the CDFI fund for certification.

    • CDE may be either a non-profit or for-profit.

    • CDE must invest substantially all of its cash in “Qualified Low Income Community Investments.”

    • QLICIs can be equity investments in or loans to qualified active low-income community businesses (“QALICBs”), financial counseling or other assistance to QALICBs, or equity investments in or loans to another CDE.


Overview of nmtc2

Overview of NMTC

  • What is a “QALICB”?

    • A business must earn half of its gross revenue by conducting business in a low-income community, defined by census tract.

    • 40% of its property must be within that community.

    • 40% of the services its employees provide must be in that community.

    • QALICB cannot have more than 5% of its assets in nonqualified financial property or collectibles.

    • Qualified activities include development of rental real estate, including new construction or rehab.


Overview of nmtc3

Overview of NMTC

  • Types of Transactions

    • Development of “residential rental real estate” is excluded, but mixed-use projects where rent from apartments comprises less than 80% of the building’s revenue are not considered residential.

    • Can be combined with HTC, but usually requires use of a master lease pass-through structure.

    • Non-profits can be QALICBs.

    • Certain “sin” businesses are prohibited, such as sales of liquor for off-site consumption, massage parlors, tanning salons, hot tub facilities, racetracks.


Overview of nmtc4

Overview of NMTC

Lender

Leverage Loan

Investor

Entity

Credits and Return on Equity

Equity

CDE

Equity/Debt

Return on Equity/Debt

Qualified

Business


Overview of nmtc5

Overview of NMTC

NMTC

Investor

$2 Million

Credits of $3.9 Million

Investor

Entity

Lender

$8 Million

Credits of $3.9 Million

$10 Million

CDE

$9.5 Million Loans

Debt Service

Qualified

Business


Overview of nmtc6

Overview of NMTC

NMTC

Investor

NMTC Credits of $3.9 Million

HTC Credits of $1.8 Million

$3.5 Million

Investor

Entity

Lender

$6.5Million

$10 Million Equity

Credits of $5.7Million

$1.8MM HTC

Master Tenant

CDE

$1 Million Loan

$8.5 Million Loan

Debt Service

Master Lease and $2.8MM HTC

Qualified

Business


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

BRINGING BACK HIBERNIAN HALL


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Terminal Garage - 1999


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Joel Howe

Storefront


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Joel Howe

Main Stair


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Joel Howe

Second Floor


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Joel Howe

Dance Hall


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Hibernian Hall-2005


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Hibernian Hall


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Dance Hall Restored


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Robert Schoen

Second Floor - Offices


Tax credits an overview uli bpa young leaders tax credit seminar may 26 2009

Photo: Robert Schoen

Hibernian Hall


  • Login