Detroit
Housing Commission
Replacement Housing Factor Program
New
Market Tax Credit Program
ü 39%
Investment Tax Credit to Investor in a CDE for Over 7 Years
Ø First
Three Years = 5%/Year
Ø Next
Four Years = 6%/Year
Ø Total
= 39%
ü Funds
Used to Invest Almost Any Businesses Located in a Low Income Census Tract
ü Tax
Credits Allocated to a Community Development Entity (CDE) by US Treasury
Ø If
A Nonprofit, Must Set up For-Profit Subsidiary
ü Cash
Flows to CDE as Equity Investment
Ø Qualified
Equity Investment
Ø Must
Stay in Deal For 7 Years
Ø 85%
or More Must be Invested in Business Within 1 Year
Ø Flows
Out as Equity, Loan or Loan Purchase
ü Deals
May Be Pooled or Pass-Through Investments
ü Tax
Credit to Investor Regardless of Investment Success or Failure
Criteria For Eligible Location
ü Census
Tract with
Ø Poverty
Rate > 20% or
Ø Greater
of the Following Two:
l Median
Family Income < 80% of MSA Median
Income or
l Median
Family Income < 80% of Statewide Median Family Income
Ø Additional
Levels of Distress, Poverty Rate > 30%, Median Family Income < 70%,
Brownfield, Urban Renewal Area
Go to AABDS.com to Verify Census Tract
Type of Business that Can Receive
NMTC Financing
ü
Almost Any Business Units Located In
Low To Moderate Income Areas Can Qualify
ü Definition
Of Business Unit
Ø May
Be Branch Or Division
Ø Investment
Must Be Traced To The Facility
ü Typical
Businesses
Ø Shopping
Center, LLC
Ø Small
Technology Firm
Ø Hotel
Ø Manufacturer
Ø Retail
Store
Ø Micro
Entrepreneur
Ø Single
Family Home Developer
ü No
Rental Residential – However, Residential Defined as Project Where
More Than 80% of Income Comes from Residential Portion
Leveraged Structure
ü Commodity
Market for NMTC Slowly Taking Shape
ü Tax
Credit May Not Go to Principal Investor
ü Have
Used HUD 108 as Debt – Can Use Pension Funds
ü CDE
is Facilitator – Need Debt & Equity – Price & Deal
Negotiable – Tax Credit Value Can Vary $100,000/Million
Rule of Thumb
ü
NMTC
Equity in Leveraged Arrangement = 28% of Qualified Equity Investment
ü
Debt
= 72% of QEI
ü
Every
CDE Has Different Criteria
ü
The
NMTC May be Putted to Qualified Low Income Community Business After 7 Years
ü
Typical
Fees
o
Origination
Fee = 2.5% to 5.0%
o
Asset
Management Fee = 0.5% to 1.0%/year
o
Exit
Fee = 0% to 5.0%
o
Transaction
Cost = $150,000 to $300,000
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