An oftentimes overlooked but potentially advantageous source for filling the financing gap of real estate new construction/rehabilitation projects and business capital investment projects is the financing subsidy that can be obtained through new market tax credits (“NMTCs”). Taft has experience utilizing NMTCs in connection with new construction and rehabilitation projects related to hotels, medical office buildings, mixed-use office/residential projects, retail shopping centers, solar energy projects, and industrial park projects.
NMTCs provide a 39% federal income tax credit over a seven year period to certain equity investments or loans made to qualifying businesses and projects. While purely rental residential projects will not qualify, projects including a substantial residential rental component can qualify in certain cases when combined with a commercial component. The census tracts where the project must be located are those with a 20% poverty rate or household median incomes at or below 80% of the area or statewide median, whichever is greater. Generally 40% of all U.S. census tracts, and most central business district census tracts, will qualify for projects utilizing NMTCs.
One of the unique aspects of utilizing new market tax credits is that through a “leverage model plus” financing structure, NMTCs can effectively increase the amount of equity in the project by upwards of 32%. Taft has also implemented structures that have utilized NMTCs with other incentives such as tax increment financing, the historic rehabilitation tax credit and the investment tax credit for various renewable energy projects.
The Obama administration’s fiscal 2012 budget proposes an expansion of the NMTCs program to $5 billion from the current $3.5 billion amount. Taft will be happy to discuss with you the potential opportunities and structuring models necessary to take advantage of NMTCs for your particular project.