1. Dia:Beacon A Case Study of Tax Credits & the Arts Steven Evans, Dia Art Foundation Al Shehadi, National Trust Community Investment Corp June 24, 2009

2. Dia: Beacon - Before

3. Underwriting Issues Developer capacity Financing Coordination of multiple funding sources Construction oversight Property tax exemption Developer fees

4. Developer Capacity Organizational Capacity  Staff  Board  Financial  Consultants Functional Capacity  Legal/Real Estate  Construction oversight  Internal controls & reporting

5. Developer Capacity: Dia Organizational Capacity  Experienced construction & financial management staff  Hired outside construction manager  Sophisticated fundraising board  Large endowment/strong balance sheet Functional Capacity  Legal/Real Estate  Construction management staff on-site at all times  Strong internal controls & experience with grants reporting

6. Funding Sources Arts & cultural facilities are not “profitable” Development costs funded largely with “free” money  Private fundraising  Public grants  Tax credit equity Funds should be available during construction  Closed or committed at start of construction?  Funds available up-front?  Benchmark-based pay-ins?  Fundraising “pledges” over time?  Cash flow projections & need for bridge financing

7. Funding Sources: Dia $25.6 mmFundraising $2,100,000Empire State Dev Corp $ 250,000Dutchess County IDA $ 250,000City of Beacon $ 125,000NYS OPR & HP $ 85,000NYS Council on the Arts $5.96 mmHTC & NMTC Equity from BoA & NTCIC

8. Funding Sources: Dia Historic Tax Credit Issues Site remediation Permanent art installation Buyout reserve NMTC Issues 1 st QEI recorded Enhanced only HTC equity (a “simple” structure) NMTC equity funded a generous operating reserve

9. Coordinating Funding Sources “Free” money comes with strings  Use restrictions  Lien or deed to enforce  Performance requirements  Compliance & reporting requirements? Understand restrictions & requirements of each funding source Requirements can conflict: be prepared to negotiate Properly budget resources to be able to meet compliance and reporting requirements

10. Construction Oversight Typical construction oversight functions  Pre-closing “constructability” review  Monthly site visits & reports  Review and approve draw requests  Check title/liens  Disburse funds Need 3 rd party to perform oversight role  Public agency  Bridge lender (equity; pledges)  Consultant hired by investor Dia construction oversight  NTCIC hired a construction consultant to perform construction oversight

11. Property Tax Exemption Nonprofit organizations are typically exempt from local property taxes Does property tax exemption extend to taxable entities controlled by nonprofits? Beacon tax exemption did not extend to taxable entity created by Dia to syndicate tax credits Solution : Complicated, long-term ground lease where Dia retained ownership of land for local property tax purposes but taxable entity owned the “improvements” for federal tax credit purposes

12. Development Fee Development fee  Increases HTC basis and equity  Pays nonprofit for staff and time invested to develop project  Deferred portion of fee ensures “excess” cash flow goes to nonprofit and not tax credit investor  Property needs to be owned by taxable entity Nonprofits can earn a development fee for undertaking a tax credit transaction.

13. Development Fee: Dia Dia retained direct ownership of project until syndication (approximately 75% complete) Could only earn development fee on work done after property transferred to LLC Had to forego development fee on work completed prior to syndication

14. Al Shehadi Acquisitions Manager National Trust Community Investment Corp 27 Byram Shore Road Greenwich, CT 06830 (203) 531-5999 al_shehadi@ntcicfunds.com Steven Evans Assistant Director for Beacon Dia Art Foundation 3 Beekman Street Beacon, NY 12508 (845) 440-0166 sevans@diaart.org