tax credits as an alternative to tax-exempt financing vincent lyles president m&i community...
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Tax Credits as an Alternative toTax-Exempt Financing
Vincent Lyles
President
M&I Community Development Corporation
Philip Schultz
Managing Partner
Horizon Development
Group, Inc.
John Vitek
Shareholder
Mallery & Zimmerman, S.C.
Financing Using Tax Credits
Tax Credit Types
• Low‐Income Housing Tax Credits (LIHTC)
• Historic/Rehabilitation Tax Credits (HTC)
• New Markets Tax Credits (NMTC)
Low-Income Housing Tax Credits
• Funds construction/rehabilitation of affordable housing for low‐income population
• 9% annual LIHTC for state housing authority allocation projects
• 4% annual credits for qualifying exempt bond financed projects
Low-Income Housing Tax Credits
• LIHTC taken ratably over 10 years
• Project must continue to meet LIHTC requirements for 15 years such as to tenant income and rent levels
• Subject to “recapture” during 15 years for disposition and/or compliance failure
Historic/Rehabilitation Tax Credits
• Funds rehabilitation of “historic” buildings– Certified Historic buildings (20%)– Buildings in Historic Districts (20%)– Buildings older than 1936 (10%)
Historic/Rehabilitation Tax Credits
• HTC taken in year rehabilitation is “placed in service”
• Requirements for approval of rehabilitation by National Park Service (NPS)
• Subject to “recapture” for disposition during 5‐year period
New Markets Tax Credits
• Funds, investment in CDEs that provide loans to qualifying borrowers in Qualified Census Tracts (QCTs)
• NMTC is 39% of investment amount, taken over 7‐year period
• Subject of loss of credits if amount of qualifying loans not maintained
Structure of LIHTC/HTC
SponsorSponsor
SponsorSubsidiarySponsor
Subsidiary
CreditInvestors
CreditInvestors
ProjectLP/LLCProjectLP/LLC
.01%
99.99 %
← Lenders← Developer← Property Manager← Contractor
Structure of NMTC(Basic Model)
CDECDE CreditInvestors
CreditInvestors
SubAllocatee(LP/LLC)
SubAllocatee(LP/LLC)
EquityInvestment
Qualified Borrower
EquityInvestment
Structure of NMTC(Leverage Model)
CDECDE LenderLender
SubAllocatee(LP/LLC)
SubAllocatee(LP/LLC)
Loan
Qualified Borrower
CreditInvestorCredit
Investor
Contributions
InvestmentLLC/LP
InvestmentLLC/LP
Loan
EquityInvestment
DonorDonor
Why Consider Housing Tax Credits?
Community and Mission Benefits
• Furthers the Nonprofit Mission
• Serve moderate income families and seniors
• Bring employees and customers closer
• Strengthen neighborhoods surrounding operations
• Provide affordable assisted living
• Address spend down issue for seniors
Financial Benefits
• Sale or lease of vacant land
• Bring in investor equity
• Jumpstart other projects
• Development fee revenue
• Operational revenue
• Control in year 15
80 Unit Senior CommunitySources of Funds
First Mortgage $ 1,900,000 17%
HOME Mortgage $ 550,000 5%
Developer Equity $ 100 0%
Investor Equity $ 8,592,324 78%
Total $ 11,042,424
Use of Funds
Land $ 800,000
New Construction $ 7,566,936
Soft Costs $ 2,675,488
Total $ 11,042,424
Watertown Regional Medical CenterHighland Village Campus
Franciscan Sisters of St. ClareClare Meadows of Franklin
Woodland Ridge of GreenfieldSoutheast Wisconsin Deaf Senior Citizens
Housing Credit Application
• $12 Million in credits available annually
• Applications due February 3, 2012
• Highest scoring projects get credits
• 2011: 59 applicants requesting $38 Million
• Extremely competitive
Why All The Hard Work?
• Mission Vision and Values
• Financial benefits
Why Consider New Markets Tax Credits ?
Mission Benefits
• Job creation and/or retention
• Rehabilitation or new construction development within eligible census tracts
• Leveraging of resources
Financial Benefits
• Public private partnerships
• Patient, flexible and low cost capital
• Equity infusion
Structure of NMTC(Basic Model)
CDECDE CreditInvestors
CreditInvestors
SubAllocatee(LP/LLC)
SubAllocatee(LP/LLC)
EquityInvestment
Qualified Borrower
Lad LakeEducation and Life Skills Development Center
The Center, located in central Milwaukee, focuses on helping youth who are at risk of school failure, who are struggling with emotional or behavioral problems, who lack independent living skills, or who are experiencing crises.
Hope Family Services
Hope Family Services, located in west Florida, offers free and confidential services, including safe shelter, hot-line, referral services, and counseling to victims of domestic violence. Construction of this project has allowed HFS to double the number of women and children it serves.
EquityInvestment
Structure of NMTC(Leverage Model)
CDECDE LenderLender
SubAllocatee(LP/LLC)
SubAllocatee(LP/LLC)
Loan
Qualified Borrower
CreditInvestorCredit
Investor
Contributions
InvestmentLLC/LP
InvestmentLLC/LP
Loan
EquityInvestment
DonorDonor
Discovery World
Located on Milwaukee’s Lakefront, Discovery World is dedicated to developing a better understanding of the environment and technology, and fostering innovation and creativity.
Tax Credits as an Alternative toTax-Exempt Financing
Philip SchultzManaging Partner
Horizon Development Group, Inc.
5201 East Terrace Drive
Suite 300
Madison, WI 53718
414-541-3900 x 222
Vincent LylesPresident
M&I Community Development Corporation
250 East Wisconsin Avenue
Suite 1610
Milwaukee, WI 53202
414-390-1518
John VitekShareholder
Mallery & Zimmerman, S.C.
731 North Jackson Street
Suite 900
Milwaukee, WI 53202
414-271-2424