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Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8 PowerPoint Presentation
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Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8

Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8

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Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8

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  1. Combining Historic Tax Credits and New Markets Tax Credits Historic Tax Credits for Developers: A Guide to Syndication and Beyond 10:45am – 12:15pm Thursday, February 8

  2. New Markets Tax Credits and Historic Tax Credits

  3. New Markets Tax Credit Fundamentals NMTC Synopsis A federal tax credit available to those that provide equity to certain certified community development entities (CDEs) that in turn lend or invest in qualified businesses located in low-income communities.

  4. New Markets Tax CreditsWhat is a CDE? • A partnership or corporation who: • Has a primary mission of community development; • Maintains accountability to residents of low-income communities through their representation on any governing board or advisory board; and • Is certified by the CDFI Fund division of the Treasury • CDEs participate in national competition for allocations of NMTC authority

  5. New Markets Tax CreditsWhat is a Qualified Business? • Any corporation or partnership (including nonprofits) engaged in the active conduct of a qualified business; must meet requirements regarding gross income, tangible property, services performed, collectibles, and nonqualified financial property • No financing of residential rental property • Mixed use okay • Restrictions on certain types of business operations and tenants • E.g. massage parlor, hot tub facility, liquor store, gambling facility

  6. New Markets Tax CreditsWhat is a Low-Income Community? • Generally, a census tract where • The poverty rate is at least 20%, or • The median family income is 80% or less of either statewide median family income, or the greater of statewide or metropolitan median family incomes. • Special rules for “Targeted Populations,” low population areas, and high migration rural counties Go to: www.cdfifundhelp.gov and click on “NMTC” tab

  7. New Markets Tax CreditsHow They Work Tax Credit Investor CDE (Allocatee) Tax Credits over 7 years ($39) and Cash Return QEI ($100) Suballocation of Tax Credit Authority CDE (Subsidiary) QLICI (85%+ of QEI) QALICB

  8. Tenants Typical HTC Structure (Single Entity) Tax Credit Investor LLC Tax Credit Investor Managing Member (Developer Affiliate) HistoricTax CreditEquity 99.99% Credits, Profits & Losses and Cash Flow .01% Credits, Profits & Losses, Fees andCash Flow DeveloperEquity Tax Credit, LLC (Property Owner) Developer Dev.Fee DebtServicePayments RentalPayments LoanProceeds Construction/Perm Lender

  9. QEI QLICI QLICI Sub-Tenants/End Users Master Tenant/NMTC Structure CDE Tax Credit Investor LLC Tax Credit Investor Tax Credit Investor Managing Member (Developer Affiliate) Non-Member Manager 99.99% Credits, Profits & Losses, Fees and Cash Flow DeveloperEquity HistoricTax CreditEquity 100% Credits, Profits & Losses, and Cash Flow .01% Credits, Profits & Losses,Fees andCash Flow Landlord, LLC (Property Owner/Lessor) QALICB Pass-through of Historic Tax Credits & Share of Residual Single Member LLC (Disregarded Entity) Master Tenant, LLC (Master Tenant) Lease Payment &Equity Investment DebtServicePayments RentalPayments LoanProceeds Construction/Perm Lender

  10. Qualified Rehab Expenditures 24,060,799 Credit Rate 20.00% Total Calculated Credit 4,812,160 Tax Credit Investor Allocation 99.99% Total Credit to Investors 4,811,679 Credit Price Per Each $1 of Credit Equity Contributions by Investors 4,727,474 Sample TransactionCalculating the HTC Equity 0.98

  11. Gross HTC Equity 5,252,800 Credit Rate 39.00% Total Calculated NMTC Credit 2,048,592 Iterative Effect 124.21% Total Credit to Investors 2,544,556 Price per Each $1 of NMTC Credit 0.65 Add’l Equity Contributions by Investors 1,653,961 Sample TransactionCalculating the NMTC Equity

  12. Key Business Issues • Pricing (e.g. $.9825 vs. $1.24+) • Equity Pay-In Schedule (same or faster) • Exit Strategy (unwind may be delayed 2-3 years) • Put Option • Call Option

  13. Key Business Issues cont’d • Guarantees (expanded – negotiable; adjuster gross up) • Reserves (no change) • Cash Flow Participation (3% industry standard) • Operational limitations (subtenant mix)

  14. Dia:BeaconBeacon, New York

  15. Portland ArmoryPortland, Oregon

  16. Thank you • Merrill Hoopengardner, Esq.401 9th Street, NWSuite 900Washington, DC 20004 • 202.585.8169 • 202.585.8080 (Fax) • mhoopengardner@nixonpeabody.com