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Introduction by:
Mark Cooter, Managing Partner, Cherry Bekaert, LLP
Panelists:
Harry Huntley, Executive Director, SC Jobs & Economic Development Authority
Nancy Whitworth, Deputy City Manager, City of Greenville
William Turner, New Market Tax Credit East Coast Team Leader, Wells Fargo\
Moderated by: Toby Rittner, Executive Director, CFDA
Innovative Financing Strategies
New Markets Tax Credits
Community Lending & Investment
Program Overview
2013 ULI Conference
© 2011 Wells Fargo Bank, N.A. All rights reserved.
Discussion Topics
What are NMTCs
How/When We Use Them To Benefit Borrowers
Basic Deal Structures
“Cost” of a NMTC Deal
Representative Deals
NMTC Resources & Contacts
2
The New Markets Tax Credit (NMTC) Program was established with support from a
bi-partisan Congress in 2000
The NMTC Program is administered by the CDFI Fund, a department of the U.S. Treasury. The CDFI Fund was created in 1994 for the purpose of promoting economic revitalization and community development through investment in and assistance to community development financial institutions (CDFIs)
Program based on his vision of using the power of capitalism to improve areas experiencing economic distress
▪ Program enacted through legislation sponsored by Republican leaders ▪ Signed in to law 2000 ▪ 1st allocations made 2003
▪ Supported in proposed budget ▪ Signed into law special allocation for the Go Zone ▪ Renewed 2007 ▪ Renewed 2008
▪ Supported in proposed budget ▪ Signed into law special allocation for economic recovery ▪ Renewed 2009 ▪ Renewed 2010 ▪ Renewed 2013
The NMTC Program is authorized by section 45D of the Internal Revenue Code.
New Markets Tax Credits (NMTCs) Federal Stimulus Program to Attract Private Capital to LICs
Primarily used for commercial real estate or operating businesses in qualified low-income communities (LICs)
Investors receive a 39% tax credit of invested capital over seven years ~ approximate NPV of 20%+
Tax credits awarded annually subject to Congressional approval – typically $3 to $5 billion per year in allocation (tax credits = allocation * 39%)
Investor market driven primarily by CRA-motivated banks
$33 billion in tax credit authority issued (~ $12.9 billion in actual tax credits) since program inception ~ WF/Wachovia has received $775MM in allocation
Well-structured deals result in lower cost of capital on more favorable terms than conventional financing
Finite resource ~ tax credits allocated to qualified projects on a competitive basis
4
What Can NMTCs Be Used For? Typical Uses: Com’l RE, Community Facilities & CDFI Lending
Qualified Investments
Eligible:
For-profit and non-profits
Commercial real estate
Operating businesses
Mixed-use rental housing where
com’l NOI > 20% of the total
NOI
Non Eligible:
Golf courses
Gaming facilities
Race tracks
Liquor stores
Some farming businesses
Location Eligibility
“Highly Distressed” Test:
(must satisfy at least one criteria)
Median income < 60% of AMI
Poverty rate > 30% of the
national average
Unemployment rate > 1.5 times
national average
5
Real Estate Investments are eligible under both the Federal NMTC program
regulations
NMTCs are excluded from being used in financing residential rental housing; however, if more than 20% of the gross income is generated from the rental of commercial space, then the building is not residential rental property
NMTC investments can be used to finance commercial, retail, industrial, mixed-use and community facilities
Capital that Complements
Real Estate
QLICI proceeds are typically required to be spent by the QALICB within 12 months of the investment
Construction timeline should be discussed in detail with CDE representatives and legal counsel
Capital that Compliments
Operating Businesses
Through 2010, CDEs have disbursed $20.9B in QEI proceeds to 3,060 QALICBs
Real estate QALICBs received $12.5B in NTMC financing (60%)
Principal activity is the development or leasing of real estate
Operating Business QALICBs received $7.6B in NMTC financing (37%)
Investments in or loans to Operating Businesses are eligible under the Federal NMTC program regulations
Investments in or loans to Operating Businesses can be used for but are not limited to the following:
• Plant expansion
• Capital Equipment purchase (any tangible assets – parts, inventory, FF&E)
• Satisfy short term working capital needs
Solar components Plywood Wood pellets
Typical NMTC Financing Uses NMTCs support a wide variety of financing activities
Commercial Real Estate
Redevelopment projects ~ public/private partnerships
Transit-oriented development(TOD)
Mixed-use and/or adaptive re-use developments including residential < 20% of
NOI
Neighborhood serving retail
Community Facilities
Charter schools
Medical clinics
Museums and public venues
Homeless and domestic violence shelters and other community assets
Other
Operating businesses ~ “widget” makers and sellers
Solar and other alternative energy
8
$20.9 billion
$257MM in South Carolina
2003-2010 YE Qualified low income
community Investment by state Source: CDFI Fund QALICBs financed by CDEs
through 2010
Investment Fund, LLC (SPE created on behalf of transaction)
Total fund = $10,000,000 Tax Credit Equity = $2,730,000
Leverage loan = $7,270,000
Leverage Lender $7,270,000 non-recourse loan with
market or below market rates
Tax Credit Investor Assume – $0.70 per credit
Receives - $3,900,000 in tax credits Provides - $2,730,000 in TC equity
Community Development Entity, LLC
Bank
loan
Cash
A Loan ▪ Reflection of leveraged loan ▪ $7,270,000 with market or below market rates ▪ 1st Mortgage
B Loan ▪ Reflects monetization of TC equity ▪ $2,730,000 with a below market
rate (typically 1-2%) ▪ Subordinate debt or equity
QALICB
▪ $3.9 million NMTC ▪ Annual interest payments (or cash flow)
▪ QEI - $10 million equity
▪ Annual interest payments (or cash flow)
▪ QLICI A = $7,270,000 ▪ QLICI B = $2,730,000
▪ $2,730,000 NMTC equity
▪ $3,900,000 in tax credits
▪ $7,270,000 leverage loan
▪ Debt service
No “Free Lunch” Technical, Regulatory & Tax Restrictions Dictate Structures
Complicated deal structures
Extended closing periods of 90-120+ days
High transaction costs ~ typical minimum deal size of $7.5+ million
Credit risks ~ typical RE credit risks for hard debt transactions
“Shallow” tax credit subsidy ~ project must be economically feasible
Program compliance risks ~ non-compliance can jeopardize ability to apply for
future credits
Tax/IRS risks ~ Substantially-all test requires 85% of invested capital remain
continuously invested for 7-years otherwise onerous recapture of tax credits
11
Questions?
Wells Fargo NMTC & Other Industry Resources
William Turner
East Coast Team Manager
(804) 697-7372
Industry Resources
http://cdfifund.gov
www.novoco.com
www.nmtccoaltion.org
12
Greenville, SC
Build Partnerships
Focus on mixed-use development: RiverPlace
Public Participation Principles
Consistent with Strategic Plan
Potential to Serve as Catalyst
Economic Feasibility of the Private Project
Adds to the Vibrancy of Downtown
Addresses an Underutilized Asset
High Quality of Design and Construction
Authentic to Greenville
Prefer Mixed-Use in Downtown
Project ONE
Project ONE
Private Development:
Tower One:
179,000 SF of office/retail/restaurants
Certus Bank Headquarters
Clemson University
Anthropologie, Brooks Brothers, Tupelo Honey Café
Tower Two:
200,000 SF of office
Tower Three:
Aloft Hotel and mixed-use
Other:
Renovation of existing office building
Project ONE Plan
Public Participation
• Property Acquisition
• Building Demolition
• Public Plaza Renovation
Public Participation
Streetscape Improvements
Utility Upgrades
New Parking Garage
Parking Agreements for New and Existing Garages
FIFTH ANNUAL URBAN LAND INSTITUTE
CAPITAL MARKETS PROGRAM Innovative Public/Private Partnerships & Capital Markets
September 30, 2013
Kiawah Island, South Carolina
Harry A. Huntley, CPA Executive Director
SC Jobs-Economic Development Authority
1983
JEDA was created by Act of the General Assembly
(Act 145 of 1983) SC Code Sec. 43-41-10
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Purpose – Retain & expand job opportunities
– Meet the financial & capital needs of the small & middle market business community
– Target areas of SC that have the greatest need for private & public investment
– Focus on projects which offer the most economic growth & diversity for SC and its citizens
Statewide conduit issuer of tax-exempt bonds
JEDA as a Conduit Issuer
JEDA acts as a conduit by passing payments from the borrower
to the bondholder to reduce the borrower’s financing costs
JEDA issues bonds on behalf of the borrower, allowing the
borrower to benefit from a tax-exempt borrowing
Bonds issued by JEDA are payable solely by the underlying
borrower from the funds and assets pledged for each individual
bond issue. JEDA does not enhance the credit for the underlying
borrower
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Under State Constitution, revenue bonds are payable solely
from a revenue producing project or special source
No pledge of revenues from tax or license
JEDA does not assume the responsibility of determining the
creditworthiness of a project or borrower, nor does it
assume the resulting legal liability from making such a
determination
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Industrial Revenue Bonds
Qualifying Enterprises
- Manufacturing
Facilities
- Healthcare
Facilities
- Educational
Facilities
- Non-Profits
- Solid Waste
Disposal
Facilities CareAlliance Health Services
Roper St. Francis
Charleston, SC
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Supermetal Plant
Eight-Torch Laser Cutter
Rock Hill, SC
Viva Recycling of S.C.
Moncks Corner, SC
JEDA…Then and Now
Prior to recession
Primarily a conduit issuer for stand alone
tax-exempt projects
Now
Partner on projects
State Small Business Credit Initiative
Financial Advisory Services
Energy Efficiency Revolving Loan Fund
ARRA
• Recovery Zone Bonds
• Qualified Energy Conservation Bonds
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
State Small Credit Business Initiative
SSBCI supports state-level, small business lending programs and is a
vital component of the Small Business Jobs Act of 2010
• South Carolina was awarded $18M and JEDA was designated as
implementing agency for the SSBCI program
• JEDA partnered with Business Development Corporation (BDC) to
serve as program administrator
• South Carolina was the first state in the Nation to commit its full
allocation for its loan participation program and is often cited by the
Department of Treasury as example of the succcess of the SSBCI
program
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Lander University- $15.5 million Revenue Bond
Creative public-private collaboration between…
•Lander University
•City and County of Greenwood, South Carolina
•The Lander Foundation-Non-Profit organization operating
solely to support Lander University
•The Lander Bearcat Club-promotes intercollegiate athletics at
Lander University
•The Burton Center-Non-Profit agency serving individuals with
disabilities & special needs
•Self Regional Healthcare
•Greenwood Community
Model for Public-Private Partnership
Creates:
10 new jobs
Retains:
349 existing jobs
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Lander University- $15.5 million Revenue Bond
Construction of two
off campus development
projects
25-acre Jeff May Complex for
Recreation, Wells and Sports
providing soccer, baseball,
softball and tennis facilities,
and recreational space for the
school and general community.
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
Lander University- $15.5 million Revenue Bond
37-acre Lander Equestrian
Center at Burton Center, is the
first university-based equestrian
center in South Carolina to offer
academic, therapeutic and
sporting opportunities for students
and community members. The
Equestrian Center is a unique
partnership between the
University, The Lander Foundation
and Burton Center, a non-profit,
governmental agency providing
services for people with disabilities
and special needs
Harry A. Huntley, CPA
Executive Director
1201 Main Street, Suite 1600
Columbia, SC 29201
(803) 737-0627
www.scjeda.com
SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT AUTHORITY
