white paper nmtc 0117 - Dan McRae · 13-01-2017 · previous facility to a 190,000 square-foot industrial, office and research facility in Bainbridge, Georgia. The continued success

FINANCINGPROJECTS

WITHNEW MARKETSTAX CREDITS

(NMTC)

Daniel M. McRaeSeyfarth Shaw LLP

404-888-1883 [email protected] danmcrae.com

FACEBOOKhttp://facebook.com/danmcrae68

LINKEDIN http://linkedin.com/in/danmcrae2

TWITTER@McRaeDan

Copyright 2017 Dan McRae ([email protected]). Reproduction permitted provided this copyright noticeand disclaimer included. Document subject to disclaimer at https://www.danmcrae.com/copyright.html

©2015 Seyfarth Shaw LLP - 19632984_1.pptx

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THE PROGRAM IS FOR REAL

Copyright 2017 Dan McRae ([email protected]). Reproduction permitted provided this copyright notice and disclaimer included. Document subject to disclaimer at https://www.danmcrae.com/copyright.html



mixed-use, 5% office, 5%

comm'l realestate, bus. loans,

14%

retail, food,grocery, 18%

mfg, ind., tech.,23%

communityfacilities &

amenities, 35%

Data Source: NMTC Coalition, for2003-2013Data Visualization: Dan McRae (mapand legend source NMTC Coalition)

WHERE THE GEORGIA PROJECTS ARETHAT GOT “FREE MONEY” FROM

NEW MARKETS TAX CREDITSAND WHAT THEY SPENT IT ON

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THE CREDITS ARE TURNED INTO CASH

THE PROJECTTYPICALLY NETS SUBDEBT ("FORGIVABLELOAN") EQUAL TO 20%-25% OF THE NMTCALLOCATION

• Something called a "CDE" holds theallocation of credits and is theconduit.

• Ultimate NMTC benefit should becalculated net of costs and anyapplicable taxable income on exit. 4

Copyright 2017 Dan McRae ([email protected]). Reproduction permitted provided thiscopyright notice and disclaimer included. Document subject to disclaimer athttps://www.danmcrae.com/copyright.html


HOW CREDITS BECOME SUB DEBTHOW SUB DEBT BECOMES A "FORGIVEABLE LOAN"

Tax Credit Schedule forNMTC Investors

Year 1 $500,000 5%

Year 2 $500,000 5%

Year 3 $500,000 5%

Year 4 $600,000 6%

Year 5 $600,000 6%

Year 6 $600,000 6%

Year 7 $600,000 6%

$3.9million

39%

InvestmentFund

(Conduit LLC or LP)

Leverage Lender

Tax Credit (Equity)Investor

CDE

Borrower (QALICB)

7 years

Repayment$7.27 million

Loan$7.27 million

Equity(QEI) $2.73 million

Equity $10mm(QEI)

Investor Return-(effect-Redemption

$10 million)

Loans $10 million(QLICI)

7-year compliance period

tax credits$3.9 million

“A Note”- for $7.27 (repaid)“B Note”-

for $2.73 million (pretax effect-some or all "forgiven")

TAX AND OTHER NMTC REQUIREMENTS INCLUDECENSUS TRACT QUALIFIED AS-Most Favored: Severely DistressedPractical Minimum: High Distress

Legal Minimum: Qualified (based on poverty or lowincome)

If census tract is qualified and low income, then projectcould be severely distressed if serves Targeted Populationto the extent that: (a) such project is 60% owned by low-income persons (LIPs); or (b) at least 60% of employees

are LIPs; or (c) at least 60% of customers are LIP(other qualifications/issues might apply)

credits aregeneratedby thisinvestmentand belongto theInvestmentFund, not tothe QALICB(the project)

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Copyright 2017 Dan McRae ([email protected]). Reproduction permitted provided thiscopyright notice and disclaimer included. Document subject to disclaimer athttps://www.danmcrae.com/copyright.html


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THE HARD PART

Copyright 2017 Dan McRae ([email protected]). Reproduction permitted provided this copyright notice and disclaimer included. Document subject to disclaimer athttps://www.danmcrae.com/copyright.html



$6,100,000

$3,120,000

$2,620,000

$3,900,000

$500,000

$400,000

0

$2,220,000

0

tax dollars saved by investor

net loan proceeds

closing costs (paid out of loan)

loan at par

CDE fee (paid out of equity)

dollars paid for credits by investor(equity)

dollars taxed to investor

HOW NEW MARKETS TAX CREDITS “STACKS UP”WHERE THE MONEY GOES

BEFORE

THE PROJECT GETS ITS“FORGIVABLE LOAN”

$10 MILLION INNMTC CREDITS

DOES NOT MEAN$10 MILLION INCASH TO THE

PROJECT“RULE OF

THUMB”IS NETPROCEEDS =20% - 25% OFALLOCATION

net amountavailable for“forgivable loan”before loanclosing costs

Data Source: DeMuth & Lagun, IPT 2015 Annual Conference;assumptions in example include $10 million allocation, credits$0.80/$1.00; benefits are pre-tax; exit and annual costs not shownData Visualization: Dan McRae

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CLOSE TO HOME EXAMPLE

Meredian Bioplastics, Inc. (Meredian) isa green technology company that usesbyproducts of the timber and agriculturalindustry to create bioplastics.Meredianutilized NMTC financing to acquire newequipment and expand from theirprevious facility to a 190,000 square-footindustrial, office and research facility inBainbridge, Georgia. The continuedsuccess and growth of Meredian is vitalto the economic health of the city ofBainbridge, and the new facility hasbrought significant investment into a low-income community in rural Georgia.Source: Meredian

NMTC Allocation$27.5 million

NMTC proceeds$8.6 million

Total ProjectCosts $38.7million

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MORE INFORMATION

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QUESTIONS?

If you have any questions or comments on this presentation,please do not hesitate to let me know.

Daniel M. McRae, PartnerSeyfarth Shaw LLP

1075 Peachtree Street, N.E.Suite 2500

Atlanta, GA 30309404.888.1883

404.892.7056 [email protected]

danmcrae.com

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DOWNLOADS

• THIS PRESENTATION AND MY WHITE PAPERS ONECONOMIC DEVELOPMENT AND OTHER TOPICSCAN BE DOWNLOADED

at http://danmcrae.com/whitepapers

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SCOPE

This presentation is a quick-reference guide for elected and appointedofficials and their staffs, company executives and managers, economicdevelopers, participants in the real estate and financial industries, and theiradvisors. The information in this presentation is general in nature. Variouspoints which could be important in a particular case have been condensedor omitted in the interest of readability. Specific professional advice shouldbe obtained before this information is applied to any particular case. Any taxinformation or written tax advice contained herein is not intended to be andcannot be used by any taxpayer for the purpose of avoiding tax penaltiesthat may be imposed on the taxpayer. (The foregoing legend has beenaffixed pursuant to U.S. Treasury Regulations governing tax practice.)

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white paper nmtc 0117 - Dan McRae · 13-01-2017 · previous facility to a 190,000 square-foot industrial, office and research facility in Bainbridge, Georgia. The continued success