Financing Housing with New Markets Tax Credits February 21, 2008.
-
Upload
caleb-pope -
Category
Documents
-
view
216 -
download
2
Transcript of Financing Housing with New Markets Tax Credits February 21, 2008.
Financing Housing with New Markets Tax Credits
February 21, 2008
2
Since 1982 Enterprise has invested more than $8 billion in communities, which has produced more than 215,000 affordable homes
Enterprise works with a national base of partners -- developers, investors, community groups, government, and CDCs to reach our common goal: provide decent housing and rebuild communities
Enterprise invests at a rate of $1 billion a year in housing and community enrichment facilities
Financing Housing with New Markets Tax Credits
3
How can NMTCs be used for housing?
Mixed use developments (with residential rental)
For-sale housing
Business loans
Financing Housing with New Markets Tax Credits
4
Financing Housing with New Markets Tax Credits
Types of Properties Which Can Use NMTC
Commercial, non-residential, or mixed-use (office/retail/hotel and residential) property– Mixed-use developments must have at least 20% of gross
income generated by commercial component For sale product Cannot use NMTC for:
Residential rental property (buildings which derive 80% or more of income from residential rental dwellings do not qualify)
Under IRS Regulations, NMTC-enhanced financing cannot be combined with Section 42 (LIHTC) financing.
5
Financing Housing with New Markets Tax Credits
Business Lending Can be used to provide working capital to real-estate related entities
Provides pre-development and acquisition financing for real estate developers who develop housing
Investment product must be flexible – Line of credit or other mechanism to allow for reinvestment
(typical pre-development loan would have a shorter term) Developer entity must be a qualified business (QALICB)
– Limitations on total non-qualified financial property and locations of owned property
Mitigating factors NMTC allows flexibility for reinvestment NMTC allows flexibility for QALICB as long as they meet the tests
6
Financing Housing with New Markets Tax Credits
Impact of Business Lending financed by NMTC Allows developers to use less expensive
capital to fund operations of their Qualified Business
Lower capital costs can lead to lower prices to ultimate consumers
Provides jobs, goods & services to residents of low income areas
7
Financing Housing with New Markets Tax Credits
Example of NMTC used for Business Lending to allow a not-for-profit housing organization to expand its program
NMTC Allocation - $9.5 Million Net Interest Rate - approximately 2% Term – 7 year business loan Total development costs approximate
$90 million, resulting in the recycling of the $9.5 million more than 9X
8
Financing Housing with New Markets Tax Credits
Developer: Columbus Housing Partnership (“CHP”) Project Type: For Sale Housing Project Description: Phased construction or rehab of up to
700 single family homes over a 7-year period; homes are targeted to buyers 65% - 80% of AMI
Total Development Costs: Approximately $90 million Expands CHP’s homeownership program and allows CHP to
reach size, scale & sustainability Catalytic project and central to Columbus’s Home Again
Program
9
Financing Housing with New Markets Tax Credits
Total QEI of $9,500,000 Business loan of $9,500,000 CHP borrower qualified as a QALICB; involved the borrower
relocating its location to a qualified census tract Home sites at various locations throughout Columbus; the
majority verified as qualified low-income communities Requires significant commitment and support from local
government:• Effort is consistent with City’s Home Again program
• Critical that CHP acquires properties at or below FMV• Subsidies of approximately $20 million include
infrastructure reimbursement and gap financing
10
Financing Housing with New Markets Tax Credits
Sources of NMTC QEI: $ RateUT Fund Lenders:
World Financial $1,500,000 2%
The Affordable Housing Trust for Columbus and Franklin County $1,000,000 3.5%
Nationwide Mutual Insurance $2,000,000Below
market
Huntington Community Development Corporation $2,000,000
Below market
UT Fund Investors:
Nationwide Mutual Insurance $1,500,000Huntington Community Development Corporation $1,500,000
Total $9,500,000
11
Financing Housing with New Markets Tax Credits
Qualifying QALICB – required borrower to re-locate to a highly distressed qualified census tract and a review of assets (current & potential) to ensure continued QALICB status
Significant local government commitment – in support and $$ Tailored Lender requirements -
– Limitations on Inventory - draw of funds limited at certain inventory levels to prevent financing proceeds from being “stalled” in finished inventory
– Prohibition of unentitled land beyond a certain level and an imposed time limit
– Affordable housing requirements pushed down to borrower level Detailed analysis of project and developer results of operations was
required
Significant Issues
12
Financing Housing with New Markets Tax Credits
Subsidy to ultimate homebuyers Need for other subsidies Addressing REO/Scattered Sites (Foreclosures!!) Local/Regional Investors involved Addressing Workforce Housing Committed sponsor City involvement Innovative use of NMTC Program
Important Points
13
Financing Housing with New Markets Tax Credits
“So where do I begin?” Figure out if your project is in a qualifying
tract/community or qualify your business as a QALICB
Develop a pro-forma that assumes NMTC financing
Begin conversations with “investors”
Begin conversations with “CDE’s”– CDE’s are required to use their allocation in a
manner that is consistent with their NMTC Application.
14
“What ought to be can be with the will to make it so.”
James W. Rouse, Co-Founder, Enterprise
Financing Housing with New Markets Tax Credits