A New Partnership for New Market Tax Credits in Georgia
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A New Partnership for New Market Tax Credits in Georgia 1
Transcript of A New Partnership for New Market Tax Credits in Georgia
A New Partnership for New Market Tax Credits in Georgia
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BACKGROUND / HISTORY OF CSRA
• CSRA Business Lending is a 501(c)3 founded in 1979 that has funded 835 projects totaling more than $723 million dollars using SBA-504 and Direct Loan programs in Georgia and portions of South Carolina.
• Our loans on those projects have totaled $287.5 million dollars and created or retained over 8,000 jobs.
• We are a Certified Development Company of SBA, an Accredited Lender of SBA, a Department of Commerce EDA Revolving Loan Fund Lender, and a USDA Intermediary Lender.
• While our loan programs have allowed us to assist many, we have always consciously felt we as a non-profit need to do more especially for low-income areas, people of color, rural, and smaller metropolitan areas of Georgia.
CSRA Has a 30 Year Track Record of Funding Key Economic Development Projects throughout the State. Some Examples:
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The Georgia Theater – Athens. $4.4 million project in low income area. Provided funding after a fire almost totally destroyed the iconic theater that is one of the centerpieces of downtown Athens. Created 36 jobs.
Daniel Defense – Bryan County. $2.5 million project in low income rural area for one of the nations top defense firms. Created 126 jobs.
Aalto Scientific – Eatonton. $9.9 million project in low income rural area for one of the countries top producers of medical testing technology that calibrates tests for some of Americas top medical testing labs. Moved 62 jobs to rural Georgia and created another 50.
Southern Veneer – Fitzgerald. $4.8 million in low income rural area for acquisition of a key finished plywood production facility that was near insolvency during the great recession. Saved 132 jobs and protected a buying point that purchases close to $1 million of logs monthly.
(In Process) Sweet Grass Dairy – Thomasville. $4.9 million project in low income rural area for Georgia’s largest cheese producer that is now global in Harrod’s in London, the cheese counter in Bath, and Whole Foods. Delta Airlines snack package is their cheese. Created 10 jobs.
(In Process) High Line Station / High Noon Brewery – Macon. $2.2 million project in low income area for key revitalization project in the Plum Street area of Macon for a brewery and event space venue. Created 24 jobs.
Why New Market Tax Credits? Why Now?
• New Market Tax Credits are an economic development game changer providing a subsidized “forgivable” interest only loans often for millions of dollars to fill a gap or provide an incentive for projects to occur in a qualified low income community (which in Georgia’s case are mostly in rural and smaller metro areas).
• As we started to look at NMTC’s we discovered our colleagues in Iowa and Oklahoma that make SBA-504 loans like we do, have received over $700 million in New Market Tax Credit allocations for their states allowing them to do transformational economic development projects.
• Georgia is one of the most underserved states for New Market Tax Credits and Georgia unlike many states has no CDE dedicated to focusing solely on its state making NMTC’s difficult to obtain.
NMTC’s in Georgia Compared to Iowa and Oklahoma
STATE POPULATION # NMTC Projects RatioOklahoma 3,751,000 99 1 per 37.9KIowa 3,046,000 49 1 per 62.2KGeorgia 9,688,000 93 1 per 104.2KThere are only 4 Georgia CDE’s that have received allocations in recent years:Sun Trust Community Development (Nationally)… $643MM (10 Allocations)Atlanta Emerging Markets (Atlanta Only)… $177MM (6 Allocations)Carver Financial (Nationally)… $80MM (2 Allocations)Habitat for Humanity (Nationally)… $30MM (1 Allocation)
Three of the above received allocations in 2020: Sun Trust - $65MM; Carver $50MM; and, Habitat $30MM. $3.5B was awarded in 2020 and $5.0B will be awarded in 2021.
Georgia’s NMTC’s Since 2017Have Been Predominately in Atlanta
Project NMTC/Project Community Dev. Entity Ron Clark Academy - Atlanta $8,000,000/$23,000,000 Atlanta Emerging (AEM)Boys and Girls Club - Augusta $10,000,000/$10,000,000 Carver StatePrince Avenue Market – Athens $17,150,000/$20,779,492 Ent. Partners/NDCQuest Center for Change – Atlanta $10,500,000/$11,339,975 Atlanta Emerging (AEM)Space to Soar – Atlanta $8,500,000/$8,733,750 Atlanta Emerging (AEM)Chris 180 – Atlanta $13,000,000/$13,537,762 NFF/Primary Care Dev.Atl. Neighborhood Dev. – Atlanta $5,000,000/$5,000,000 Housing Partnership Net.Atl. Community Food Bank – Atlanta $46,000,000/$47,137,643 Kroger/PNC/Rural Dev. ACE – Cleveland/Atlanta $30,000,000/$30,000,000 Carver StateBeadles & Balfour – Moultrie $11,800,000/$28,400,000 MuniStrategiesYMCA Atlanta – Atlanta $22,000,000/$24,534,789 AEM/MBS Urban/SunTrustSpecial Olympics Georgia – Atlanta $7,300,000/$7,300,000 Ent. PartnersPittsburgh Yards – Atlanta $6,500,000/$6,500,000 AEM/Brownfield Rev./ECF
Eligible Low Income NMTC Tracts - Georgia
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Who is Behind Us…Our Statewide Advisory Board
Bill Easterlin, Chairman, Queensborough National Bank and Trust, LouisvilleMatt Forshe, Community and Economic Development Manager, Georgia PowerLarry Hanson, Executive Director, Georgia Municipal Assoc./ Board of GDEcD (CDFI)Daryl Ingram, SVP, Electric Cities GeorgiaThelma Johnson, President and CEO, Albany Community Together (ACT!) (CDFI)Wade Johnson, President, Durden Banking Co. / Emanuel County Development AuthoritySanford Loyd, Owner, Sanford Loyd CPA, AugustaSam McCard, EVP, South Georgia Banking, Tifton / Turner County CommissionerJackson McConnell, President and CEO, Pinnacle Bank, ElbertonJosh Rogers, President and CEO, NewTown Macon (CDFI – Pending)Andrea Schruijer, Executive Director, Valdosta-Lowndes EDA / First Vice Chair GAEDSteve Williams, Sr, Vice President, Morris Bank / Georgia Workforce Development Board
MOU for Shared Services
Our Investor Fund Management Team -
• Novogradac & Company –– Michael Kressig, CPA
• Michael Kressig is a partner in the St. Louis office of Novogradac & Company LLP, where he specializes in community development and affordable housing, including new markets tax credit (NMTC), low-income housing tax credit (LIHTC) and historic rehabilitation tax credit (HTC) transactions. He has more than 20 years of public accounting and business advisory experience. His consulting expertise includes forecasts and projections, deal structuring and related services. Mr. Kressig also works extensively with real estate partnership and compliance audits, advises clients on accounting, tax and regulatory issues and is a frequent speaker at industry events. Before joining Novogradac & Company LLP, Mr. Kressig was partner in charge of Sabino & Company's assurance services group and directed the firm's real estate services practice group. Mr. Kressig also served as a senior manager with Deloitte LLP, where he specialized in financial industry audits as well as merger and acquisition consulting and due diligence. Mr. Kressig received a bachelor’s degree in business administration, majoring in accounting, from Rockhurst University. He is licensed in Missouri as a certified public accountant.
• Twain Financial Partners –• Twain offers a suite of services to help ease the administrative and financial burden of the NMTC program for both
Investors and CDEs. Our Client Services and Partner Reporting teams provide services for a wide range of customers, from Fortune 500 companies to small CDEs.
• We currently provide the following services:•Manage 793 Investment Funds (with QEIs in excess of $10 billion).•Administer 250 CDEs, and provide CIIS reporting for 127 CDEs.•Collect and process 3500 documents annually. •Asset manage 65 NMTC investments. •Maintain 1159 bank accounts and process approximately 700 cash
transactions per month.
• Lathrop Gage –– Jared M. Minkoff
• Jared Minkoff has extensive experience in all aspects of development and finance. He has a national practice representing investors, community development entities, developers and lenders in transactions utilizing federal and state new markets and historic tax credits. Jared has also represented clients in projects utilizing federal and state low income housing tax credits, as well as conventional real estate development and finance, and commercial leasing.
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What is a New Market Tax Credit?
Click below to see a video our colleagues in Iowa have prepared that we think provides a great overview of how New Market Tax Credits work.
https://www.youtube.com/watch?v=1Xf_TNzqNDk
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Iowa Community Development’sNMTC Projects Tell Their Story
Click below to see a short video on how our peers at Iowa Community Development has used New Market Tax Credits in their state.
https://youtu.be/G9grvwI_9VU
NMTC Program Overview – How They Work… $10 million dollar NMTC allocation will produce a $3,900,000 or 39% Tax Credit to a project
($10,000,000 * 39% = $3,900,000) $3.9 million dollar tax credit converts to cash by being sold at a discount at 75¢ (+/-) on the
dollar to an investor to provide capital now to the project versus in the future ($3,900,000 * .75¢ = $2,925,000) (Investors Buy the Credits at a Discount)
The tax credit is then taken over the seven years with 5% ($500,000) being taken the first three years and 6% ($600,000) being taken in years 4 through 7. The credits can be used over an extended period beyond seven (7) years to benefit the investor in years of high earnings.
The $2,925,000 is loaned in a low interest seven year subsidized loan from GCRF to the business after our tax credit sale and forgiven through a predetermined put/call purchase option to buy that Note back at the end of seven years for $1,000. The business then forgives their debt creating essentially free equity to the project. It is a taxable event.
Transaction costs are expensive and typically can reach $450,000 ($2,925,000 - $200,000 (Loan Fee) - $250,000 (Legal Fees) = $2,475,000)
Economic Benefit to the Business = $2,475,000 loan interest only 4 to 4.5% forgivable The remainder of the $10,000,000 investment comes from a leveraged loan from a bank loan or
other source of funding ($7,075,000 in this instance) that flows through GCRF to the company. If it is a bank making that leveraged loan they set the terms and conditions and the collateral is assigned back to them in the event of default. That term is seven (7) years interest only.
NEW MARKET TAX CREDITS TYPICALLY FILL TWO NEEDS – A GAP IN FINANCING THAT IS NEEDED TO MOVE A PROJECT FORWARD OR AS AN INCENTIVE FOR ECONOMIC DEVELOPERS TO WIN PROJECTS FOR THEIR STATES AND COMMUNITIES
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NMTC – $10,000,000 Leveraged Loan Structure
NMTCInvestor
(Investment Fund)
GCRF Fund 1, LLC
CDE (GCRF, Inc.)
Business
$7,075,000 loan $2,925,000 Equity @.75
NMTC $3,900,000
$10,000,000QEI
2% upfront fee
$200,000
$2,475,000 Loan After $450,000 Loan and Legal Fees and Plus Annual Fees
Loan B$250,000
Transaction costs (to get deal
closed)
Lender
$7,075,000 Loan A
3rd parties
$100,000 fee paid annually (included in loan interest)
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NET BENEFIT = $1,775,000 Subsidized “Forgivable” Loan
(NET VARIES DEPENDING ON COMPLEXITY OF TRANSACTION)
Roshek Building (IBM), Dubuque, IA
Office Building – renovation of 180,000 square foot historical building
Project size: $45.5 million2008 ICD NMTC Allocation used: $10 millionInvestor: US Bank
Project ConstructionDirect Jobs 1300 190
Planned annual payroll: $58.5 million
Iowa Project Example – NMTC Used as IncentiveIBM Dubuque, IA “Project Big Blue”
Roshek Building (IBM), Dubuque, IA
Office Building – renovation of 180,000 square foot historical building
Project size: $45.5 million2008 ICD NMTC Allocation used: $10 million (Obtained $20 million
additional for a total of $30 million creating over $6,000,000 million for the project.
Investor: US BankProject Construction
Direct Jobs 1300 190
Planned annual payroll: $58.5 million
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ICD Project Example – NMTC Used as Gap to Move Project Forward Frank Loyd Wright Hotel Restoration – Mason City, IA
Wright on the Park, Mason City
Renovation of former bank building and hotel designed by Frank LloydWright. Will be used as a boutique hotel, restaurant, and conference center.
Project size: $18.9 million2008 ICD NMTC Allocation used: $10 millionInvestor: US Bank
Project ConstructionDirect Jobs 11 25
$1.47 million of the benefit will go to a Mason City Foundation for support of future low income Mason City area benefit.
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Projects ALL LIC’s in Georgia Need More Of…Manufacturers (Jobs), Community Services, Healthcare and Food Sources, Historic Reuse
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Premium Peanut – DouglasAG Manufacturing Historic Macy’s Building – Atlanta
Mixed Use / Retail / Commercial
Prince Avenue Market – AthensMixed Use Grocery - Condos
Atlanta YMCA
Northeast Georgia Food BankRon Clark Academy – South Atlanta
Back to Slide #5…What Would It Mean If Georgia Received The Same Portion Of NMTC's as Oklahoma or Iowa?
STATE POPULATION # NMTC Projects RatioOklahoma 3,751,000 99 1 per 37.9KIowa 3,046,000 49 1 per 62.2KGeorgia 9,688,000 93 1 per 104.2K____________________________________________________
POPULATION # NMTC ProjectsGeorgia 9,688,000 255 (+162) if 1 per 37.9K like Oklahoma
Georgia 9,688,000 156 (+63) if 1 per 62.2K like Iowa
Projects Must Impact Low Income Communities: Highly Distressed Areas; Non-Metropolitan Areas (Georgia Has 14 MSA’s and 84% of the states population lives in those MSA’s); Provide Quality Jobs; Provide Accessible Jobs; Provide Community Goods and Services; Provide Healthy Food in Food Desert Areas; Health Care; Community Facilities That Benefit LIC Persons and Communities; Benefit Minority Owned Businesses and Communities; Impact Housing and the Homeless; Redevelop Brownfield Sites; Provide Community Revitalization of Blighted and Historic Properties; Provide Community Benefits
Eligibility Map Located at: www.novogradac.com
Its all about Allocation… Allocation… Allocation
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NMTC’s Are Competitive…For States to Get an AllocationFor Projects to Get an Allocation
• Letters of interest from investors (banks) that they would be interested in investing in a project that meets NMTC eligibility guidelines and subject to GCRF and their banks underwriting. It demonstrates to Treasury/CDFI there is a base of support for the program in the state amongst the financial institutions.
• Verification of a project pipeline. GCRF will need to identify a project pipeline to Treasury/CDFI with the assistance of economic developers. Once again its not committing to fund those projects. It is saying if we had the credits today here are current projects that we could potentially use the tax credits on. It demonstrates to Treasury/CDFI that there is a base of support among the economic development agencies. The projects can be public, private, for-profit, non-profit, there is a wide eligibility. Can be in tentative planning stages or even under construction.
• We plan on asking for $100 million in credits in hopes we would get $30-$70 million. We will need $200 million in letters of interest and a pipeline of $200 million in projects.
This is the key ask of the banks and economic developers we are meeting with.
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Our Ask: Application Help
Mr. Randy Griffin, President Georgia Community Reinvestment Fund, Inc. 3626 Walton Way Extension, Suite 300 Augusta, Georgia 30909
Dear Mr. Griffin:
Please accept this letter as support for the Georgia Community Reinvestment Fund (GCRF) application to the US Dept. of Treasury New Market Tax Credit (NMTC) program. _________ Bank, (City), (State) is dedicated to helping Georgia businesses grow and invest in our state. We have reviewed GCRF’s proposed NMTC program and concur that there is no other financing tool like this available in the marketplace. As such, we recognize the potential for success of this unique and flexible financing tool that would offer below market rate interest loans and equity capital to qualifying businesses expanding and investing in qualifying low income census tracts throughout Georgia.
Therefore, _________ Bank has interest in an investment of $____________ in GCRF which would be exchanged for New Market Tax Credits. It is our understanding that such an investment would qualify as a Qualified Equity Investment under the terms of the New Market Tax Credit Program and that GCRF will use the funds to implement the proposed program of making business incentive loans to qualifying businesses throughout Georgia.
We are submitting this letter of interest with the understanding that businesses applying for funding under GCRF’s proposed NMTCprogram would have to meet tests of location, community and economic impact as well as the underwriting standards and due diligence of both GCRF and our bank.
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Bank Letter of Interest Needed
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