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Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NEW MARKETS TAX CREDITS BORROWER ELIGIBILITY • APRIL 5, 2017
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org 2
National CDFI with a mission to create ownership and economic opportunity for all
Affiliated orgs: Self-Help Ventures Fund, Self-Help Credit Union, Self-Help Federal Credit Union, Center for Responsible Lending
Business lines: commercial loans, home loans, retail services, real estate development, policy research
46 locations in North Carolina, California, Florida and Chicago, Self-Help has made $7 billion in loans: 25% in rural areas, 71% in designated low-income areas and 70% to communities of color.
Self-Help Overview
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NMTC LENDER
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SHVF has received $328 million in NMTC allocation over 6 rounds
$411 million deployed through revolving loan pools, or 125% of our allocation funded to date
160 NMTC loans across 18 states, 20% in non-metro areas
Borrowers 58% nonprofit or coop; 41% led by people of color
Self-Help NMTC Lending
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
LEVERAGED STRUCTURE
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Leverage Lender
Equity Investor
Investment Fund
Sub-CDE
Project
$7M $3M
$10M QEI
$2.3M B Note
$3.9M Tax Credits
$7M A Note
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
SELF-HELP STRUCTURE
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Leverage Lender
Equity Investor
Investment Fund
Sub-CDE/ Lending
Pool
Project Project
$10M QEI
$7M $3M
$7M $3M $500k
Project Project Project
$2M
$3.9M Tax Credits
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
SELF-HELP LOAN TERMS
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Loan size: $500,000 to $15,000,000 Term: 7 years Amortization: 12 to 24 month interest-only period on
construction-to-permanent loans, converting to 25 year amortization upon stabilized debt service coverage
Interest rates: 7-year USD Swap +2.25% Origination fee: 0.5% for nonprofits; 0.75% for profits Construction loan administration fee: Case-by-case Debt service coverage: 1.20x minimum Loan to value: Case-by-case assessment Minimum equity: Case-by-case Prepayment: No prepayment
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NMTC LOAN EXAMPLE
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Eastern Carolina Organics (ECO)
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NMTC LOAN EXAMPLE
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ECO is a women-led farmer owned cooperative produce distributor with seasonal cash flows
• Required 95% LTV to renovate 26,000 s.f. warehouse facility on a brownfield site as larger more centrally located home for ECO and 4 other sustainability-related business tenants
• In 2012, SHVF made a $1.24M NMTC loan in principal repaid from previous loans; 10 year loan, 4 years of NMTC subsidy and prepayment prohibition
• But for: ECO could not secure standard bank debt and needed additional subsidy to cash flow
Borrower Need
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NMTC LOAN EXAMPLE
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Promotes local-regional farm system, promotes organic growing
Creates a “food hub” for aligned businesses, including
Transformed a brownfield in a severely distressed neighborhood providing a larger, more centrally located home for ECO and 4 other sustainability-related business tenants
Provided 8 quality jobs to local residents. ECO covers 100% of health and dental premiums for full-time employees and provides 0% loans to families facing health crises.
ECO also delivers 80% of sales proceeds back to growers, a much higher percentage than is typical in the industry, which has the multiplier effect of supporting better jobs for farmers and their employees.
Community Impact
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
NMTC BORROWER
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Began to develop, hold, and self-manage commercial real estate in 1991, with a focus on community revitalization in NC downtowns
SHVF has invested $73 million to redevelop more than 1.3 million square feet of office and retail space in 16 locations throughout North Carolina and Washington DC.
6 are NMTC projects; 10 are HTC projects.
Self-Help Commercial Real Estate Development
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
S-H AS BORROWER
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Kent Corner
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
S-H AS BORROWER
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Commercial redevelopment of urban infill site on key corridor
Required below market financing to provide below market lease rate for start up grocery co-op
Required high LTV
High risk due to limited commercial market in area
Borrower Need
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
S-H AS BORROWER
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$13M NMTC investment created 46,000 s.f. of new leasable retail and office
Durham Coop Market named 2015 Start Up of the Year by the Food Coop Initiative – 500 new members in first 6 weeks; sales 50% over projections
Food for All program; $3 dinners
Local hiring; training, good wages and benefits
Catalyzed additional commercial development
Community Impact
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
ELIGIBILITY
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Geography
Project
Borrower
3 Levels of Evaluation
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
ELIGIBILITY: GEOGRAPHY
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A LIC is a census tract with: • >20% poverty rate • <80% AMI
High or Severe Distress: • >30% poverty rate • <60% AMI • >1.5x national unemployment rate • Non-metro • Meets at least two other designated economic
distress criteria
Located in a Low Income Community
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
ELIGIBILITY: PROJECT
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If rental real estate: • 80/20 rule: >20% of income must be non-
residential
• Substantial improvements rule: cost basis of improvements must be at least 25% of adjusted basis of building, within 24 mos of loan
• Disallowed tenants: liquor stores, massage parlors, tanning salons, gambling facilities, certain farming businesses
Sin business rule applies to borrowers as well
Flexible Uses, with some restrictions
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
ELIGIBILITY: BORROWER
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Gross Income: >50% of total gross income derived from qualified business in LIC (also met if >50% of property within LIC)
Tangible Property: >40% property, owned or leased, within LIC (cost basis; must be >85% if no employees)
Services Performed: >40% services performed by employees within LIC (also met if >85% property within LIC)
Collectibles: <5% property value
Nonqualified Financial Property: <5% property value
Business must generate revenue within 3 years
Borrower Requirements
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
ELIGIBILITY: EXPECTATIONS
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A CDE must have a “reasonable expectation” that all eligibility requirements will continue to be met over NMTC compliance period
Most CDEs require annual certifications and reporting to document a borrower’s continued compliance
Reasonable Expectations Test
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
BECOME A BORROWER
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Compelling, measurable community impact, measured in terms of: • jobs creation, quality, accessibility • providing goods and services where they were
lacking (education, health care, fresh food)
Ready to go • Other sources of funding are committed • Approvals are in place
Who gets to the top of the queue?
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
LINGO REVIEW
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NMTC – New Markets Tax Credit
CDE – Community Development Entity is eligible to become a NMTC allocatee
QEI – Qualified Equity Investment triggers tax credit return
QLICI – Qualified Low Income Community Investment
QALICB – Qualified Active Low Income Community Business
Creating and Protecting Ownership and Economic Opportunity | www.self-help.org
CONTACTS
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Amanda Frazier Wong NMTC Director 864-952-6320 [email protected] Eligibility & general NMTC program questions Steve Saltzman Senior Loan Officer 919-956-4620 [email protected] Charter Schools & Healthy Foods Loans Allison Moy Underwriter 919-956-4414 [email protected] Commercial Real Estate Loans Donnetta Collier Charlotte Area 704-409-5913 [email protected]
