Presentation on theme: "Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8 Combining Historic Tax Credits and New Markets."— Presentation transcript:
Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8 Combining Historic Tax Credits and New Markets Tax Credits
New Markets Tax Credits and Historic Tax Credits
New Markets Tax Credit Fundamentals NMTC Synopsis A federal tax credit available to those that provide equity to certain certified community development entities (CDEs) that in turn lend or invest in qualified businesses located in low-income communities.
A partnership or corporation who: –Has a primary mission of community development; –Maintains accountability to residents of low-income communities through their representation on any governing board or advisory board; and –Is certified by the CDFI Fund division of the Treasury CDEs participate in national competition for allocations of NMTC authority New Markets Tax Credits What is a CDE?
New Markets Tax Credits What is a Qualified Business? Any corporation or partnership (including nonprofits) engaged in the active conduct of a qualified business; must meet requirements regarding gross income, tangible property, services performed, collectibles, and nonqualified financial property No financing of residential rental property –Mixed use okay Restrictions on certain types of business operations and tenants –E.g. massage parlor, hot tub facility, liquor store, gambling facility
New Markets Tax Credits What is a Low-Income Community? Generally, a census tract where –The poverty rate is at least 20%, or –The median family income is 80% or less of either statewide median family income, or the greater of statewide or metropolitan median family incomes. Special rules for Targeted Populations, low population areas, and high migration rural counties Go to: www.cdfifundhelp.gov and click on NMTC tab
New Markets Tax Credits How They Work Tax Credit Investor CDE (Subsidiary) QEI ($100) Tax Credits over 7 years ($39) and Cash Return QALICB Suballocation of Tax Credit Authority QLICI (85%+ of QEI) CDE (Allocatee)
Master Tenant/NMTC Structure Sub-Tenants/ End Users Rental Payments Tax Credit Investor LLC Construction/ Perm Lender Managing Member (Developer Affiliate) Managing Member (Developer Affiliate) 100% Credits, Profits & Losses, and Cash Flow Loan Proceeds Debt Service Payments.01% Credits, Profits & Losses, Fees and Cash Flow Developer Equity Historic Tax Credit Equity Master Tenant, LLC (Master Tenant) Master Tenant, LLC (Master Tenant) Landlord, LLC (Property Owner/Lessor) Landlord, LLC (Property Owner/Lessor) 99.99% Credits, Profits & Losses, Fees and Cash Flow Pass-through of Historic Tax Credits & Share of Residual Lease Payment & Equity Investment Tax Credit Investor CDE QLICI Single Member LLC (Disregarded Entity) Single Member LLC (Disregarded Entity) Non-Member Manager QALICB QLICI Tax Credit Investor QEI
Sample Transaction Calculating the HTC Equity Qualified Rehab Expenditures24,060,799 Credit Rate20.00% Total Calculated Credit4,812,160 Tax Credit Investor Allocation99.99% Total Credit to Investors4,811,679 Credit Price Per Each $1 of Credit Equity Contributions by Investors4,727,474 0.98
Sample Transaction Calculating the NMTC Equity Gross HTC Equity5,252,800 Credit Rate39.00% Total Calculated NMTC Credit2,048,592 Iterative Effect124.21% Total Credit to Investors2,544,556 Price per Each $1 of NMTC Credit0.65 Addl Equity Contributions by Investors1,653,961
Key Business Issues Pricing (e.g. $.9825 vs. $1.24+) Equity Pay-In Schedule (same or faster) Exit Strategy (unwind may be delayed 2-3 years) –Put Option –Call Option
Key Business Issues contd Guarantees (expanded – negotiable; adjuster gross up) Reserves (no change) Cash Flow Participation (3% industry standard) Operational limitations (subtenant mix)