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Tax Credits as an Alternative to Tax-Exempt Financing Vincent Lyles President M&I Community Development Corporation Philip Schultz Managing Partner Horizon.

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Presentation on theme: "Tax Credits as an Alternative to Tax-Exempt Financing Vincent Lyles President M&I Community Development Corporation Philip Schultz Managing Partner Horizon."— Presentation transcript:

1 Tax Credits as an Alternative to Tax-Exempt Financing Vincent Lyles President M&I Community Development Corporation Philip Schultz Managing Partner Horizon Development Group, Inc. John Vitek Shareholder Mallery & Zimmerman, S.C.

2 Financing Using Tax Credits

3 Tax Credit Types Low Income Housing Tax Credits (LIHTC) Historic/Rehabilitation Tax Credits (HTC) New Markets Tax Credits (NMTC)

4 Low-Income Housing Tax Credits Funds construction/rehabilitation of affordable housing for low income population 9% annual LIHTC for state housing authority allocation projects 4% annual credits for qualifying exempt bond financed projects

5 Low-Income Housing Tax Credits LIHTC taken ratably over 10 years Project must continue to meet LIHTC requirements for 15 years such as to tenant income and rent levels Subject to recapture during 15 years for disposition and/or compliance failure

6 Historic/Rehabilitation Tax Credits Funds rehabilitation of historic buildings –Certified Historic buildings (20%) –Buildings in Historic Districts (20%) –Buildings older than 1936 (10%)

7 Historic/Rehabilitation Tax Credits HTC taken in year rehabilitation is placed in service Requirements for approval of rehabilitation by National Park Service (NPS) Subject to recapture for disposition during 5 year period

8 New Markets Tax Credits Funds, investment in CDEs that provide loans to qualifying borrowers in Qualified Census Tracts (QCTs) NMTC is 39% of investment amount, taken over 7 year period Subject of loss of credits if amount of qualifying loans not maintained

9 Structure of LIHTC/HTC Sponsor Subsidiary Sponsor Subsidiary Credit Investors Credit Investors Project LP/LLC Project LP/LLC.01% % Lenders Developer Property Manager Contractor

10 Structure of NMTC (Basic Model) CDE Credit Investors Credit Investors Sub Allocatee (LP/LLC) Sub Allocatee (LP/LLC) Equity Investment Qualified Borrower

11 Equity Investment Structure of NMTC (Leverage Model) CDE Lender Sub Allocatee (LP/LLC) Sub Allocatee (LP/LLC) Loan Qualified Borrower Credit Investor Credit Investor Contributions Investment LLC/LP Investment LLC/LP Loan Equity Investment Donor

12 Why Consider Housing Tax Credits?

13 Community and Mission Benefits Furthers the Nonprofit Mission Serve moderate income families and seniors Bring employees and customers closer Strengthen neighborhoods surrounding operations Provide affordable assisted living Address spend down issue for seniors

14 Financial Benefits Sale or lease of vacant land Bring in investor equity Jumpstart other projects Development fee revenue Operational revenue Control in year 15

15 80 Unit Senior Community Sources of Funds First Mortgage$ 1,900,00017% HOME Mortgage$ 550,0005% Developer Equity$ 1000% Investor Equity$ 8,592,32478% Total$ 11,042,424 Use of Funds Land$ 800,000 New Construction$ 7,566,936 Soft Costs$ 2,675,488 Total$ 11,042,424

16 Watertown Regional Medical Center Highland Village Campus

17 Franciscan Sisters of St. Clare Clare Meadows of Franklin

18 Woodland Ridge of Greenfield Southeast Wisconsin Deaf Senior Citizens

19 Housing Credit Application $12 Million in credits available annually Applications due February 3, 2012 Highest scoring projects get credits 2011: 59 applicants requesting $38 Million Extremely competitive

20 Why All The Hard Work? Mission Vision and Values Financial benefits

21 Why Consider New Markets Tax Credits ?

22 Mission Benefits Job creation and/or retention Rehabilitation or new construction development within eligible census tracts Leveraging of resources

23 Financial Benefits Public private partnerships Patient, flexible and low cost capital Equity infusion

24 Structure of NMTC (Basic Model) CDE Credit Investors Credit Investors Sub Allocatee (LP/LLC) Sub Allocatee (LP/LLC) Equity Investment Qualified Borrower

25 Lad Lake Education and Life Skills Development Center The Center, located in central Milwaukee, focuses on helping youth who are at risk of school failure, who are struggling with emotional or behavioral problems, who lack independent living skills, or who are experiencing crises.

26 Hope Family Services Hope Family Services, located in west Florida, offers free and confidential services, including safe shelter, hot-line, referral services, and counseling to victims of domestic violence. Construction of this project has allowed HFS to double the number of women and children it serves.

27 Equity Investment Structure of NMTC (Leverage Model) CDE Lender Sub Allocatee (LP/LLC) Sub Allocatee (LP/LLC) Loan Qualified Borrower Credit Investor Credit Investor Contributions Investment LLC/LP Investment LLC/LP Loan Equity Investment Donor

28 Discovery World Located on Milwaukees Lakefront, Discovery World is dedicated to developing a better understanding of the environment and technology, and fostering innovation and creativity.

29 Tax Credits as an Alternative to Tax-Exempt Financing Philip Schultz Managing Partner Horizon Development Group, Inc East Terrace Drive Suite 300 Madison, WI x 222 Vincent Lyles President M&I Community Development Corporation 250 East Wisconsin Avenue Suite 1610 Milwaukee, WI John Vitek Shareholder Mallery & Zimmerman, S.C. 731 North Jackson Street Suite 900 Milwaukee, WI


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