Financing Housing with New Markets Tax Credits

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• Financing Housing with New Markets Tax Credits
• February 21, 2008

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Financing Housing with New Markets Tax Credits

• 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

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Financing Housing with New Markets Tax Credits

• How can NMTCs be used for housing?
• Mixed use developments (with residential rental)
• For-sale housing
• Business loans

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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.

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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

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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

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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

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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 CHPs homeownership program and allows
  CHP to reach size, scale sustainability
• Catalytic project and central to Columbuss Home
  Again Program

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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 Citys Home Again
  program
• Critical that CHP acquires properties at or below
  FMV
• Subsidies of approximately 20 million include
  infrastructure reimbursement and gap financing

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Financing Housing with New Markets Tax Credits

• Sources of NMTC QEI

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Financing Housing with New Markets Tax Credits
Significant Issues

• 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

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Financing Housing with New Markets Tax Credits
Important Points

• 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

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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 CDEs
• CDEs are required to use their allocation in a
  manner that is consistent with their NMTC
  Application.

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Financing Housing with New Markets Tax Credits
What ought to be can be with the will to make it
so.
James W. Rouse, Co-Founder, Enterprise