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New Market Tax Credit Investment. By the Michigan Magnet Fund Prepared by Albert A. Bogdan Tuesday, June 10, 2014. Ted Rozeboom *, Chair, MSHDA Mark McDaniel *, Vice Chair, Great Lakes Capital Fund Mark Morante*, Sec’y/Treasurer MEDC David Blaszkiewicz*, Exec. Comm.

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New market tax credit investment

New Market Tax CreditInvestment

By the

Michigan Magnet FundPrepared by Albert A. Bogdan

Tuesday, June 10, 2014


Mmf board of directors

Ted Rozeboom *, Chair, MSHDA

Mark McDaniel *, Vice Chair, Great Lakes Capital Fund

Mark Morante*, Sec’y/Treasurer

MEDC

David Blaszkiewicz*, Exec. Comm.

Detroit Investment Fund

Tony Lentych*, Exec. Comm., CEDAM

Richard M. Buss*, National City Bank

JoAnn Crary, Saginaw Future, Inc.

William D. Johnston*,

The Greenleaf Companies

Donna Kelce, Key Bank

Tony McGhee*, Cornerstone Alliance

Greg Nicholas,

Flint Genesee Econ. GrowthAlliance

Dan Oegema, City of Grand Rapids

K. Michael Skytta

Wells Fargo Bank Michigan, N.A.

Donna Badgett*, Charter One Bank

Dennis J. West*,

Northern Initiatives

Annette Williams,

Fifth Third Bank CDC

James Bernacki,

Comerica Bank

Dick Tresize, EDC of Lansing

Investment Committee

Ted Rozeboom Chair

* = Investment Comm. members

MMF Board of Directors

Prepared by Albert A. Bogdan


Nmtc history
NMTC History

  • Bill Signed 12/21/2000

  • Purpose - Attract $15 Billion in Investment to Low-Income Communities

  • $2.5 Billion Allocated for 2001 and 2002

  • $3.5 Billion Allocated for 2003 and 2004

    • One In Michigan ($27 Million - Wayne County – Detroit CDE Inc.)

  • Value of Total Investment Targeted to Michigan

    • MI – 4 for $157.5 Million

  • $2.0 Billion Targeted for 2005

    • Michigan Magnet Fund Gets $60 Million Allocation

  • Prepared by Albert A. Bogdan


    Nmtc how it works
    NMTC - How it Works

    • 39% Investment Tax Credits to Investor for Over 7 Years

      • First Three Years = 5%/Year

      • Next Four Years = 6%/Year

      • Total = 39%

    • Funds Used to Invest Almost Any Businesses Located in a Low Income Census Tract

    • Tax Credits Allocated to a Community Development Entity (CDE) by US Treasury

    • Cash Flows to CDE as Qualified Equity Investment

      • Must Stay in Deal For 7 Years

      • Flows In as Equity, Flows Out as Equity, Loan or Loan Purchase

    • Deals May Be Pooled or Pass-Through Investments

    • Tax Credit Goes to Investor Regardless of Investment Success or Failure

    Prepared by Albert A. Bogdan


    New market tax credit flow chart
    New Market Tax Credit Flow Chart

    Prepared by Albert A. Bogdan


    Criteria for eligible location
    Criteria for Eligible Location

    • Census Tract with

      • Poverty Rate > 20% or

      • Greater of the Following Two:

        • Median Family Income < 80% of MSA Median Income or

        • Median Family Income < 80% of Statewide Median Family Income

      • 95% of Financing Must Have Additional Levels of Distress, Poverty Rate > 30%, Median Family Income < 70%, Brownfield, Urban Renewal Area, Enterprise Zone, etc.

        Go to AABDS.com / Michigan Magnet Fund to Verify Census Tract

    Prepared by Albert A. Bogdan


    What type of business can receive nmtc financing

    Almost Any Business Units Located In Low To Moderate Income Areas Can Qualify

    Definition Of Business Unit

    May Be Branch Or Division

    Investment Must Be Traced To The Facility

    Typical Businesses

    Shopping Center, LLC

    Small Technology Firm

    Hotel

    Manufacturer

    Retail Store

    Micro Entrepreneur

    Single Family Home Developer

    No Liquor Stores

    No Gambling Establishments

    No Golf Courses

    No Collectibles

    No Rental Residential – However, Residential Defined as Project Where More Than 80% of Income Comes from Residential Portion

    What Type of Business Can Receive NMTC Financing?

    Prepared by Albert A. Bogdan


    Mmf investment guidelines
    MMF Investment Guidelines Areas Can Qualify

    Finance Projects That

    • Real Estate Projects In Targeted Cities & Rural Areas

    • Create Job Opportunities in Low-income Communities,

    • Are Located In Traditional Downtowns And/Or Significant Development “Nodes”,

    • Are Needed To Support Low-income Community & Neighborhood Development Initiatives

    • Support GLCF and MSHDA Development Initiatives

    Prepared by Albert A. Bogdan


    Mmf investment guidelines1
    MMF Investment Guidelines Areas Can Qualify

    • Must Have Sufficient Financing Commitments Acceptable To MMF.

    • Must Have Site Control

    • An Acceptable Environmental Remediation Plan.

    • Minimum MMF Financing is $2 Million. Maximum is $10 Million.

    • Other NMTC Allocatees May Be Invited To Partner

    • A Long-term, Comprehensive Economic Develop. Strategy in Place.

    • Demonstrate Construction to Begin Within 6 Mos. of Commitment.

    • The Project Must Meet One of The Following “But For” Tests:

      • Costs Exceeding Value (Residuals putted to Owner);

      • Insufficient Equity (Residuals Loaned to Owner @ Zero interest);

      • Inadequate Cash Flow To Debt Service Coverage;

      • Need Low Income Community Vs. Non-low Income Community Location Incentive.

    • Preference Given To Financial Institutions And Investors Committed To Invest In The MMF As Evidenced In Its NMTC Application.

    • All Other NMTC Program Requirements Must Be Met.

    Prepared by Albert A. Bogdan


    Mmf contract requirements
    MMF Contract Requirements Areas Can Qualify

    MMF Subsidiaries Must Invest:

    • 100% of Its Investment In Real Estate Projects.

      • New Building For A Business Is Not Considered As A Real Estate Project, i.e., Factory For A Manufacturer, BuildingFor Nonprofit To Conduct Its Own Business.

    • 100% of Its Aggregate Investment In Unrelated Entities

    • 60% of Its Qualified Equity Investment Invested By 9/30/08.

    • 95% As Flexible, Non-conventional, Or Non-conforming To Standard Practice In The Marketplace.

    • 90% of the MMF Investments Must Be Made In Targeted Distressed Areas Which Have More Than Just 20% Poverty Or 80% Median Family Income,

      • i.e., Brownfield, Redevelopment Area, 30% Poverty, 70% Median Family Income, HOPE VI Area, Empowerment Zone, etc.

    Prepared by Albert A. Bogdan


    The procedures
    The Procedures Areas Can Qualify

    • Developers Invited to Submit Pre-application

      • Need Interest Letter from Investor

    • Investment Committee Reviews

      • Based on Its Guidelines

    • Best Projects Invited to Submit Full Application

      • Need Commitment Letter from Investor

      • $5,000 Fee Charged

    • MMF Makes Firm Offer

    • Deal Closed

    Prepared by Albert A. Bogdan


    Mmf fee structure
    MMF Fee Structure Areas Can Qualify

    • Origination Fee = 2.5%

    • Annual Service Fee = 50 Basis Points (0.4%)

    • Exit Fee = Zero

    • Total Fees = 6.0%

    • Plus Transactional Cost

      • Legal,

      • Accounting, &

      • Consulting Costs

      • Typical $150,000 to $300,000

    Prepared by Albert A. Bogdan


    Leveraged real estate investment
    Leveraged Real Estate Investment Areas Can Qualify

    Prepared by Albert A. Bogdan


    Doing the deal no repayment for 7 years
    Doing the Deal Areas Can QualifyNo Repayment for 7 Years

    • Assumptions

      • Lender Lends $7,000,000 to “Investment LLC”

        • 7 Years

        • Interest only

      • CDE Provides Tax Credit Allocation to ILLC

      • ILLC Sells Tax Credit for $3,000,000

      • CDE Invests $9.6 Million in Firm

        • 20 Year Amortization

        • Balloon Repayment in Year 8

    • Results

      • FirmRepays CDE $9,600,000

        • No National Consistency in Product

          – Each CDE Can Do Own Thing

        • The Tax Credit Portion is Easiest Part of the Deal

    Prepared by Albert A. Bogdan


    Leveraged real estate investment1
    Leveraged Real Estate Investment Areas Can Qualify

    • Commodity Market for NMTC Slowly Taking Shape

    • Tax Credit May Not Go to Principal Funder

    • Have Used HUD 108, HOME Funds as Debt – Can Use Pension Funds

    • CDE is Facilitator

      –Need Debt & Equity

      – Price & Deal Negotiable

      – Tax Credit Value Can Vary $100,000/Million

    Prepared by Albert A. Bogdan


    Who can be an eligible equity investor
    Who Can be an Eligible Equity Investor? Areas Can Qualify

    • Any Taxable Investor

      • Individual

      • Company

      • Investment Fund

      • Debt Investor Can Be Anyone – HUD, Bank, Pension Fund

      • Debt Investor Receives No Collateral – Nonrecourse Loan

      • MMF Investors are:

        • James Bernacki, Comerica Bank

        • Richard M. Buss, National City Bank

        • William D. Johnston, The Greenleaf Companies

        • Donna Kelce, Key CDC

        • K. Michael Skytta, Wells Fargo Bank Michigan, N.A.

        • Vince Tilford, Charter One CDC

        • Annette Williams, Fifth Third Bank CDC

        • Ashley Zwick, Standard Federal Bank

        • Janet Oller, Irwin Union Bank

        • Don Davis, First Independence National Bank

        • Joseph P. Molnar The Huntington Bank CDC

    Prepared by Albert A. Bogdan


    Negotiating the deal
    Negotiating the Deal Areas Can Qualify

    Points of Negotiation

    • Terms & Conditions of Debt to Investment LLC

      • No Collateral

      • Size of Interest Only (7 Year Balloon)

    • Internal Rate of Return for Tax Credit to Equity Investor

    • Term & Conditions of Qualified Equity Investment

      • No Collateral

      • 7 year Balloon Principal Repayment

    • Fees & Professional Charges

      • Try to Keep it Simple – Costs Add Up Quickly

      • MMF are Real Estate Deals – Prepare Application – Complete It

    • MMF Loan – Must Cover Above Commitments

      • Collateral

      • Interest on $9.6 Million Loan = Interest on $7.0 Million Loan + 50 Basis Pts

      • 7 Year Balloon Principal Repayment

      • May Include Up to 15% Principal Repayment (20+ Year Amortization)

      • Negotiate Residuals – Based on “But for” Need

        • Example - Principal Balloon Repayment Range = $9.6 Million to $7.0 Million

    Prepared by Albert A. Bogdan


    Contact info
    Contact Info Areas Can Qualify

    • Mr.. Albert A. Bogdan

    • Michigan Magnet Fund

    • 300 North Washington Square

    • Lansing, MI 48913

    • Phone (313) 445-1843

    • E-Mail [email protected]

    • Web page: http://www.aabds.com

    Prepared by Albert A. Bogdan


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