New Markets Tax Credits (NMTCs) are a flexible financing tool, primarily used for commercial, industrial and nonprofit-sponsored development projects in Low-Income Census tracts. They can also support financing for operating businesses. In aggregate, NMTCs can generally be used to raise additional capital for a project equal to roughly 20-25% of total project costs, provided the deal is structured efficiently and enough NMTC credit allocation can be obtained from funders, which are referred to as Community Development Entities (CDEs).
SB Friedman provides a range of NMTC-related services on behalf of nonprofits, manufacturers, developers, local governments, financial institutions, foundations, and CDEs. To date, we have structured and closed over $950 million in NMTC allocation to support over 60 community development projects and have helped to secure $714 million in allocation for CDE clients in the federal competitive process. We also help to administer and provide compliance services for a portfolio of $535 million of outstanding NMTC loans on behalf of CDE clients.
Obtaining NMTC Allocation and Equity. We assist clients in obtaining commitments of NMTC allocation from CDEs and equity from NMTC investors. We are effective in making pitches to NMTC financing partners to secure commitments in a very competitive environment where these resources are often scarce. Our services include:
- Identifying appropriate financing participants for projects based on geography, project type and other factors.
- Presenting the community impacts of a proposed project in a compelling manner to attract interest from CDEs/investors.
- Summarizing transaction details in clear, understandable formats that address CDE/investor questions and create a clear path to closing.
- Obtaining term sheets from CDEs/investors committing NMTC resources to the transaction.
- Assisting our clients in negotiating favorable terms on the NMTC financing, including CDE fees and investor pricing.
In addition to obtaining allocation from CDEs to support projects, we also have an extensive track record of writing successful NMTC applications to secure allocation for CDE clients. We take a highly customized approach to NMTC applications, where we work to present a CDE’s mission, strategy and history in the most competitive light. In drafting NMTC applications, we tap our firm’s in-house capabilities, datasets and software to analyze such factors as economic impact, spatial/ demographic indicia of distress, retail leakage/demand, and other factors to create compelling support for NMTC strategy and impact narratives.
Transaction Structuring and Closing Support. The flexibility of the NMTC program allows sponsors to opt for multiple different transaction structures; however, each has its own implications for an organization’s operations, balance sheet, financial reporting obligations, etc. We routinely provide transaction structuring services for our clients to arrive at the most feasible, efficient and beneficial structure for all parties. We routinely work with a diverse array of sources, such as conventional bank debt, CDFI Loans, Tax Increment Financing (TIF), historic tax credits, renewable energy credits, low-income housing tax credits, state tax credits, NSP funds, EB-5 debt, QSCB bonds, tax-exempt bonds, philanthropic loan guarantees and social investments, HUD 108 loans, 221(d) loans, and federal/state/local grants. We also specialize in the drafting of detailed term sheets to identify the major transaction structuring issues up-front and streamline the ultimate closing process. We assist our clients in moving efficiently through the complex NMTC closing process on transactions that include a diverse array of capital sources.
Community Impact Measurement and Analysis. We routinely assist our clients with assessment, documentation, analysis and community impact reporting tasks related to NMTC transactions. We work closely with NMTC project sponsors to fully understand the breadth of impacts that projects have on their community through customized survey and reporting tools, community benefits agreements, and on-site interviews. We then supplement this primary data with a full suite of economic and demographic analysis tools and additional research to contextualize project impacts. Finally, we work closely with our clients to help present this information to various audiences through reports to the CDE staff and board members, CDFI Fund CIIS reporting, and impact narratives included in NMTC allocation applications.
Asset Management and Compliance. We provide clients with ongoing servicing, asset management and compliance support. These functions include: borrower reporting/monitoring, loan servicing, and flow-of-funds management during the seven-year NMTC compliance period; monitoring/documentation of Allocation Agreement and IRS compliance; CDFI Fund CIIS reporting; transaction/borrower performance monitoring; CDE-level LIC accountability; NMTC investor reporting and other related functions. We also routinely coordinate with our clients’ audit teams to provide them the information required to complete CDE audits. Finally, we work extensively with our clients to ensure that they have a full understanding of their obligations during the NMTC compliance period and are providing all required information in a timely fashion.