CDFI Allocates $3.5 Billion in 2012 NMTCs

by Baker Donelson
Contact

Recently, the Community Development Financial Institutions Fund (CDFI) announced its allocation of $3.5 billion in 2012 new market tax credits (NMTC) to 85 community development entities (CDEs) nationwide. In the next 10 – 12 months, CDEs will be allocating their NMTCs to qualifying developments, but now is an important time in pairing deals with the credits. Our Firm has worked closely with many of these CDEs and maintains relationships with their principals and counsel.

Background

The New Markets Tax Credit Program, created by Congress in 2000, is an important and growing alternative financing complement to conventional financing sources. The Program, which is authorized by section 45D of the Internal Revenue Code and administered by the CDFI, operates to attract private sector investment to spur economic growth in low-income communities that have traditionally had inadequate access to capital. Since the Program's inception, the CDFI has allocated over $36.5 billion in tax credit authority to CDEs. CDEs apply, annually, to the CDFI for an allocation of new market tax credits. If awarded, the CDEs, through single-purpose affiliates, will utilize investor funds and other funds to make qualified equity investments in qualified active low income businesses in low income communities.

Qualifying Developments

A more detailed definition of a qualified active low income business is provided in the Code, but generally it must:

  • be serving a low income community (typically by location in a qualified census tract);
  • be an "active business";
  • not be an excluded business, such as golf courses, race tracks, gambling facilities, spa/suntan facilities, stores where the principal business is the sale of alcoholic beverages, development of or holding of intangibles for sale or license, certain farming activities, and a development that derives 80 percent or more of its income from residential dwelling units.

Real estate developments have been the biggest beneficiaries of the program to date, but CDEs each have different targets. CDEs often focus their investments geographically, by business type, or both. For example, a CDE might commit to only fund inner city redevelopment projects or rural development projects, or it may prefer an operating business over a real estate development. Examples of recently funded businesses include rural health care facilities, nursing homes, assisted living facilities, modular housing manufacturing facilities, museums, restaurants and hotels.

Investor and Developer Benefits

In exchange for their investment, investors receive a federal income tax credit equal to 39 percent of the qualified equity investment, which is taken incrementally over a 7-year period. Typically, the investors have little concern with the development’s ongoing business operations because the NMTC structure is often leveraged in a way that provides the investor more tax credit value than its investment cost.

From the developer standpoint, NMTCs bring equity to the project. Results vary based on deal size and structure, but generally NMTCs can add equity of 20 – 25 percent of the project's cost. NMTCs can also be stacked with other incentives that in the aggregate bring significant value to developers. Several states have enacted new markets tax credit programs. These state credits can be stacked with the federal credits.   Developers in those states with new markets programs should consider this funding option because many state programs follow the federal program in substance, thus minimizing the transaction costs associated with the addition of state credits.

Summary

CDEs have received a new allocation of $3.5 billion in new markets tax credits. This is an important time in pairing qualifying developments with those credits. Over the next 10 – 12 months, CDEs will be looking for opportunities to invest in qualifying businesses. NMTCs bring bottom line value to developers and should be carefully considered in developing project financing.

If you would like to discuss the New Markets Tax Credit Program, please contact one of the attorneys associated with the Firm's Tax Department.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson
Contact
more
less

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.