Category: NMTCs

The types of transactions that are popular for New Markets Tax Credits (NMTC) investors have changed over time. For instance, five years ago, charter schools were an extremely lucrative and common form of NMTC investment. However, with significant increases in political regulations, charter schools as NMTC investments have become less popular in recent years. Here is a look ahead with what some investors believe may be popular types of transactions for NMTC investors in 2022.

Overall, investors are looking for community-driven, focused projects ready to begin at a moment’s notice. Projects should be able to articulate their goals and specifically explain how they are going to achieve those goals and how those goals will impact the surrounding community. Furthermore, since it is unclear when the next round of NMTC awards will occur, projects that are ready to go when the awards do occur may have an advantage for investors who are ready and willing to invest.

We Can Work Together to Develop Communities

Savage & Associates is an economic development law firm providing sophisticated legal and business advice to clients interested in making significant changes in their communities. We advise developers, investors, nonprofit organizations, entrepreneurs, and anyone looking to effectuate change. You can contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. to discuss your ideas with us. You can also find Savage & Associates online 24 hours a day, seven days a week, to get more information about the innovative financial tools that we can use to make your vision a reality. From New Markets Tax Credits to Historic Tax Credits, we can design the unique transaction best designed to achieve your objectives.

Measuring the true impact of New Markets Tax Credits (NMTCs) is not an easy task. However, the Community Development Financial Institutions Fund (CDFI), which administers the NMTCs program, requires that applicants explain how they will measure overall impact if they receive an NMTC allocation. Therefore, having specific and effective means to measure the impact of NMTC projects is critical, both as you prepare your application for NMTCs and carry out projects under existing NMTCs. Here are three ways to improve your impact assessment for NMTC program developments.

1. Conduct Pre- and Post-Development Assessments – One good measure of the success of a project is to utilize both pre-and post-development assessments. A pre-development assessment can help you determine your expectations for the project or what you hope to accomplish. By including data on existing economic, employment, and poverty conditions in the community, you can forecast how your project is expected to change those conditions. After your project is complete, you can then conduct a post-development assessment to measure the project’s actual outcome. Finally, you can compare the projected outcomes with the actual outcomes.
2. Supplement Quantitative Data with Qualitative Data – While quantitative data is easier to gather than qualitative data, gathering both types of data can give you a clearer picture of the true impact of an NMTC project. For instance, you can easily count the number of jobs created from a new development in a neighborhood. However, you also may be able to measure other indirect impacts of the development by interviewing neighborhood residents about other financial beneficial impacts that they have seen since the development has occurred.
3. Include Third-Party Data Along with Your Own Data – CDFI initially asked NMTC applicants to describe the methodology they would use to measure potential outcomes of their proposed projects. As time went on, CDFI now requires that applicants support each projected outcome with clear and sound methodologies and metrics. Starting in 2019, CDFI advised applicants that their applications would receive higher scores if they obtained metrics or data from third-party sources rather than relying on their own data.

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Savage & Associates is an economic development law firm designed to provide clients with the legal and business insights to grow, revitalize, and build their communities. We use individualized strategies for our clients, ranging from large public companies to burgeoning entrepreneurs, to determine the best strategy for achieving their goals.

We are experienced in using New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other investment options to help developers, investors, nonprofit organizations, and entrepreneurs change their communities. Our unique qualifications allow us to devise unique plans to carry out your objectives and work toward improving your communities. You can get started today by contacting our offices at 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. Set up a session with us to discuss your ideas and learn more about the opportunities that may be available to you. You can also find Savage & Associates online 24 hours a day, seven days a week, for more information about our services.

You may be able to use both New Markets Tax Credits (NMTCs) and Tax-Exempt Bonds (TEBs) as financial mechanisms for projects under certain circumstances. A combination of these programs may not be suitable for every project. However, if the project is suitable for these types of financing and meets the requirements of both programs, the combination can be successful.

In some ways, the two programs are similar. For instance, they both have some of the same permissible uses, including:

1. Construction
2. Land acquisition
3. Refinancing
4. Improvements
5. Equipment
6. Reimbursements

Likewise, both programs can offer interest-only periods. Beyond these similarities, the two programs have differences that complement one another and can make the transaction more attractive.

Benefits of NMTCs

NMTCs can be attractive because the tax credit buyer receives income by claiming the tax credits. In addition, loans funded from the tax credits may be “forgiven” at the end of the seven-year tax compliance period. Therefore, 20-25% of the loan may not have to be repaid.

The NMTC program is not subject to prevailing wage requirements of Davis-Bacon, which can lend more flexibility to construction management than TEBs.

Benefits of TEBs

One advantage of TEBs is that the loan period can stretch over 30 or 35 years with no required refinancing. Nonetheless, you can refinance TEBs at the end of the loan if it is economically beneficial. Conversely, NMTCs require refinancing at least a portion of the loan after seven years.

TEBs also can provide lower tax-exempt interest rates that are fixed for the duration of the financing. Furthermore, a well-established market of investors in TEBs already exists, including mutual funds, money managers, and insurance companies.

Combining NMTCs and TEBs

Transactions combining NMTCs and TEBs can result in significant savings to the qualified active low-income business and create successful developments. For instance, in one case, an equity investor received NMTCs on the debt and equity capital received by a community development entity (CDE), in which the debt was TEBs. The CDE then used the proceeds from the capital investment to finance a charter school. An investor provided an NMTC allocation to finance a new hotel in another situation. The proceeds of TEBs were used as leveraged debt in the NMTC transaction. This allowed the project to access capital at a lower cost under circumstances in which a conventional loan was unavailable.

Allow Savage & Associates to Help You Develop Your Vision

We are an economic development law firm dedicated to offering complex and innovative legal and transactional advice to developers, investors, nonprofit organizations, entrepreneurs, and changemakers in society. We are not a traditional law firm. Instead, we are a small boutique law firm that focuses on what you need to develop the strategies necessary to impact communities.

We have worked with clients to obtain all types of tax credits and other government programs to finance the revitalization of communities. Savage & Associates has handled over a billion dollars in New Markets Tax Credit financing transactions and more than 300 commercial real estate closings. As a result, we know how to leverage the available tax credit tools to transform your communities. You can contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. to discuss your ideas with us. You also can find out more about our services online. We look forward to working with you to build your communities through traditional and alternative investment mechanisms based on your individual needs.

When you should start work on a New Markets Tax Credit (NMTC) financial forecast entirely depends on your unique situation, although getting started is usually a positive thing. Typically, once you receive a commitment letter for NMTC allocation, one of the parties to the transaction will start asking for a financial forecast draft.

A financial forecast is critical to assure investors in community development entities (CDEs) of meeting the reasonable expectation test for each CDE in a potential qualified active low-income community business (QALICB). With the assurance of the reasonable expectation test, no recapture event occurs if a QALICB falls out of compliance within the seven-year recapture period. Without the reasonable expectation test, however, a QALICB falling out of compliance during the recapture period would lead to a recapture event, which would be disastrous for the investor.

As a result, you need to provide, at a minimum, a financial forecast or projection that covers the seven-year holding period to demonstrate the projected satisfaction of all elements of the reasonable expectation test.

However, there are some situations in which you may find it beneficial to begin working on a draft of a financial forecast earlier in the process or before another party even asks you for a draft. Under these circumstances, you might consider starting to draft a financial forecast as soon as you have the information available to do so.  

Your First NMTC Transaction

First, if this is your first NMTC transaction, and you are not working with experienced counsel, drafting a financial forecast is likely to be more challenging than you might expect. During your first transaction, you should make all efforts to include a party on your team who has extensive NMTC experience. This party can guide your team through the process, explain the process as you go along, and help properly structure the transaction. They also can ensure that you correctly draft a financial forecast concerning the transaction.

Your Transaction Involves More than One Type of Tax Credit

You can use more than one type of tax credit in your transaction in that you combine another type of tax credit with NMTCs. While using both types of tax credits is advantageous because it provides more funding for your project, it is also more complex. Drafting a financial forecast early in the process can help you determine how to best structure the transaction to make the most of both types of tax credits.

We Can Work Together to Develop Communities

Savage & Associates is an economic development law firm providing sophisticated legal and business advice to a wide range of clients interested in making significant changes in their communities. We advise developers, investors, nonprofit organizations, entrepreneurs, and anyone looking to effectuate change. You can contact our offices by calling 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. to discuss your ideas with us. You can also find Savage & Associates online 24 hours a day, seven days a week, to get more information about the innovative financial tools that we can use to make your vision a reality. From New Markets Tax Credits to Historic Tax Credits, we can design the unique transaction best designed to achieve your objectives.

The Community Development Financial Institutions (CDFI) Fund recently published a notice in the Federal Register of proposed revisions to a Certification of Material Events Form. This form is for use in CDFI Fund assistance, award, allocation, or bond loan agreements for various CDFI programs, including the New Markets Tax Credit program.

Participants in the relevant CDFI programs use this form to indicate a recipient’s or allocatee’s material event, explain the event, and describe the entity’s response to the event. Material events are those that may cause or lead to an entity violating the terms of its award, agreement, regulation, or law. With respect to Certified Community Development Entities (CDEs) and Community Development Financial Institutions (CDFIs), material events are conditions or events that cause an entity to no longer meet one or more certification criteria.

If participants in the relevant programs fail to use this form to report a material event within 30 days of its occurrence, they violate the terms of their agreement. This violation can constitute an event of default or noncompliance with the program. Since default or noncompliance can lead to the loss of program benefits, entities should be mindful of their responsibilities to report material events and comply with other program requirements.

Participants in the following programs, among others, must use this form:

1. New Markets Tax Credit (NMTC) program
2. CDFI Bond Guarantee program
3. Capital Magnet Fund program

The notice calls for public comment on the revisions. All comments are due by April 8, 2022. The CDFI Fund is inviting comments on the following issues:

1. Whether the collection of information is necessary for the proper performance of the functions of the CDFI Fund, including whether the information shall have practical utility
2. The accuracy of the CDFI Fund’s estimate of the burden of the collection of information
3. Ways to enhance the quality, utility, and clarity of the information to be collected
4. Ways to minimize the burden of the collection of information on respondents, including through the use of technology; and
5. Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Call Savage & Associates Today

If you want to find out more information about NMTCS and similar opportunities that may be available to you, call our offices at 215.880.9441 in Philadelphia or 202.817.3941 in Washington D.C. and schedule a time to speak with us today. You also can find Savage & Associates online 24 hours a day, seven days a week, to learn more about the extensive range of services that we can offer you. Dionne Savage is here to help you access the benefits of economic development tools such as New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, and Historic Tax Credits. These programs can give you the resources to revitalize and build up communities across the United States. With our legal advice and your ideas, we can work to achieve the dreams that you have for your community.

If you want to receive a New Markets Tax Credits (NMTC) allocation, your organization must be an eligible community development entity (CDE), which is a domestic corporation or partnership that is an intermediary vehicle for loans, investments, or financial counseling in low-income communities (“LICs”).

 The Community Development Financial Institutions (CDFI) Fund certifies domestic corporations or partnerships as CDEs if their applications meet the requirements. While only CDEs may apply for an NMTC allocation, CDEs or organizations with a pending CDE certification application are eligible to apply for an NMTC allocation.

Organizations may submit CDE Certification Applications at any time, except when specific deadlines apply to an open application period for the New Markets Tax Credit Program (”NMTC Program”). Entities designated as a Specialized Small Business Investment Company (SSBIC) by the Small Business Administration automatically qualify as CDEs.

A primary portion of the application determines whether an area served by the development is low-income, or underserved. Basic eligibility requires project development in a census tract with income at or lower than 80 percent area median income or poverty to be greater than 20 percent.

The application must demonstrate that the applicant meets each of the following requirements to become certified:

• *At the time of application, the organization is a legal entity;
• *The organization has a primary mission of serving low-income communities (LICs); and
• *The organization maintains accountability to its targeted LICs.

Once a certified CDE is awarded an allocation of NMTCs, it may offer these NMTCs for sale to investors.

An Example of How the Tax Credit Works

*The CDFI Fund awards a tax credit allocation of $1 million to a CDE.

*The CDE offers the tax credit to a single investor in exchange for a $1 million equity investment.

*This generates a $50,000 credit annually for the first three years and a $60,000 credit annually for the final four years. The total credit value over 7 years is $390,000.

Let’s Work Together to Develop our Communities

If you want to learn more about NMTCs, contact Savage & Associates at 215.880.9441 in Philadelphia, or 202.817.3941 in Washington D.C. to arrange a consultation. Dionne Savage can assist you to gain access to the benefits provided by the New Markets Tax Credits, Low-Income Housing Tax Credits, C-PACE, Historic Tax Credits, and other vital economic development tools that benefit local communities throughout the United States. Visit our website at Savage & Associates 24 hours a day, seven days a week for more information.