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New Market Tax Credit
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  1. New Market Tax Credit Prepared by Albert A. Bogdan Wednesday, April 2, 2014

  2. NMTC Executive Summary • Bill Signed 12/21/2000 • Purpose - Attract $15 Billion 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 • Decision in May, 2005 Prepared by Albert A. Bogdan

  3. NMTC Executive Summary • 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 • A Nonprofit Must Set up For-Profit Subsidiary • Cash Flows to CDE as Equity Investment • Qualified Equity Investment • Must Stay in Deal For 7 Years • 85% Must be Invested in Business Within 1 Year • Flows Out as Equity, Loan or Loan Purchase • Deals May Be Pooled or Pass-Through Investments • Tax Credit to Investor Regardless of Investment Success or Failure Prepared by Albert A. Bogdan

  4. New Market Tax Credit Flow Chart Prepared by Albert A. Bogdan

  5. 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 • Additional Levels of Distress, Poverty Rate > 30%, Median Family Income < 70%, Brownfield, Urban Renewal Area, Enterprise Zone, etc. Go to AABDS.com to: Verify Census Tract Look at Wayne County Map Prepared by Albert A. Bogdan

  6. Potential Wayne County Locations • Place Map Here Prepared by Albert A. Bogdan

  7. 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 Rental Residential – However, Residential Defined as Project Where More Than 80% of Income Comes from Residential Portion Prepared by Albert A. Bogdan

  8. Who Can be an Eligible Equity Investor? • Any Taxable Investor • Individual • Company • Investment Fund • Examples • Banks • Insurance Company • Venture Capitalist & Other Investment Funds • Any Corporation • Individual • Debt Investor Can Be Anyone – HUD, Bank, Pension Fund • Debt Investor Receives No Collateral – Nonrecourse Loan Prepared by Albert A. Bogdan

  9. Leveraged Real Estate Investment • Commodity Market for NMTC Slowly Taking Shape • Tax Credit May Not Go to Principal Investor • Have Used HUD 108 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

  10. Doing the DealNo Repayment for 7 Years • Assumptions • Bank Lends $700,000 to “Investment LLC” for 7 Years • CDE Provides Tax Credit Allocation to ILLC • ILLC Sells Tax Credit for $300,000 • Interest 6.0%, • CDE Invests $1 Million in Firm • 25 Year Amortization • Balloon Repayment in Year 8 • Results • FirmRepays CDE $1,000,000 • Firm Receives $300,000 Incentive • Subtract up to $100,000 in Fees • Based on Wayne County Model • Not Much Consistency in Product – Each CDE Can Do Own Thing • The Tax Credit Portion is Easiest Part of the Deal Prepared by Albert A. Bogdan

  11. Negotiating the Deal • Points of Negotiation • The Term and Conditions of Investment Loan • No Collateral • Interest Only • Internal Rate of Return for Tax Credit • Fees & Professional Charges • Try to Keep it Simple – Costs Add Up Quickly • Normally Real Estate Deals – Prepare Check List – Complete It • CDE Loan – Must Cover Above Commitments • Negotiate Residuals Prepared by Albert A. Bogdan

  12. Nationwide 2001-02 NMTC Allocatees Prepared by Albert A. Bogdan

  13. Nationwide 2003-04 NMTC Allocatees Prepared by Albert A. Bogdan

  14. Nationwide 2003-04 NMTC Allocatees Prepared by Albert A. Bogdan

  15. Nationwide NMTC Allocatees • LISC CDE in Kalamazoo • First Deal in Detroit by SEEDCO • Go to AABDS.com to Link with CDFI FUND • Get name, address, • e-mail, and • Background Information • Bring Money & Deal to Table • Don’t Wait to Get Allocation • Do the Deal Now! • Next Round Only $2 Billion with 100 Repeaters – It is Going to be Tough!! Prepared by Albert A. Bogdan