New Markets Tax Credit (NMTC) Program
New Markets Tax Credits (NMTCs) are a relatively new financing tool, primarily used for commercial, industrial and nonprofit sponsored development projects in Low-Income Census tracts. NMTCs can also be used to support financing for operating businesses in these areas. In aggregate, the NMTC benefit generally ranges from 15-25% of total project costs, provided the deal is structured efficiently and enough NMTC credit allocation can be identified.
We have served a range of private clients on NMTC-related issues, including deal structuring, community impact assessment, setting/evaluation of CDE fees and pursuing NMTC allocations. Overall, we have assisted our public and private clients in obtaining a combined total of $445 million in NMTC allocation. In the past two years, we have been instrumental in structuring and closing over $100 million of NMTC transactions for multiple types of community development projects.
Since 2005, SB Friedman has provided extensive NMTC-related services to the Chicago Development Fund, the City of Chicago’s NMTC entity. These include authoring successful NMTC applications to US Treasury, resulting in $100 million and $55 million NMTC allocations, and subsequently providing extensive management, deal structuring and deal closing support.
In 2009, we worked with the City of Dallas to successfully obtain a $55 million NMTC allocation for the Dallas Development Fund. We are now the City’s advisor for deploying this entire allocation.
We have also exhibited particular leadership in combining NMTC with other community development finance tools such as TIF, tax-exempt bonds, HUD 108 loans, EB-5 equity and others. In addition, our expertise in municipal public-private development finance allows us to help municipalities nest NMTCs into their other financing programs.
On October 30, 2009, Treasury Secretary Timothy Geithner held a press conference on Chicago’s West Side to announce $5 billion in NMTC allocation awards. The location that Treasury selected for this announcement was the training headquarters of the Greater West Town Community Development Project—an organization that provides vocational/job training in woodworking and shipping/receiving for adults and high school students that have dropped out of the Chicago Public School system. This choice was of special significance to SB Friedman. Just six weeks earlier, Greater West Town, with extensive help from our firm and the Chicago Development Fund, had closed on a multi-layered NMTC transaction to finance a new and larger home. Treasury selected this location because of the high-impact nature of job training and its importance in the current economic climate. Treasury officials also appreciated the exceptional partnership between city, state and local governments that made the project possible. The project was financed using equity from both federal and State of Illinois NMTC investments, as well as tax increment financing (TIF) from the City of Chicago, which was monetized up-front to provide additional NMTC leverage. Ultimately, the project benefited from a combined total of about $7 million in total subsidy out of a total $10.5 million project cost.
Our firm was instrumental in facilitating this transaction by:
- Structuring the financing layers optimally to generate the maximum amount of NMTC leverage
- Bringing the appropriate lender and NMTC investor entities into the transaction
- Working with City staff to configure the TIF for compatibility with NMTC while protecting the City’s interests
- Obtaining/structuring state NMTC allocation
- Keeping the six individual entities participating in the transaction on schedule and in sync