Real Estate Journal — Brokerage Directory — July 26 - August 8, 2019 — 9C
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By Dan M. Dixon, Esquire, Kaplin Stewart Are the New Markets Tax Credits Right for You?
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instead of $2.64 per credit if the investor had provided all $10M in capital directly to the CDE). Table A, illustrates the flow of funds and credits works in the “leverage” model. Project Side CDEs like CCG are encour- aged to make deals and offer preferential loan rates and terms to QALICBs. Thus, QALICBs (the developers, businesses, etc.) can benefit from low-interest loans for projects that otherwise would have died-on-the-vine for lack of funding (again, traditional
lenders may be hesitant to provide 100% of the financing required via traditional loans because these projects are in economically distressed areas). In Pennsylvania, CCG spe- cifically targets mixed-use properties in distressed com- munities and community facil- ities that provide services for low-income Pennsylvanians in traditionally underserved areas. The benefits of securing financing through an NMTC- based loan structure are substantial. This means that the application process is
complicated and rigorous. Both sides of the NMTC pro- gram are complex but carry with them robust benefits for investors and developers alike. Our team at Kaplin Stewart can provide the sup- port, guidance, and advocacy that you or your company needs as you navigate this complicated but rewarding process. Please contact us to discuss how this program could ben- efit you. Daniel M. Dixon, Esquire is a partner with Kaplin | Stewart.
ummary and Back- ground The New Market s
Tax Credit ( N M T C ) Program al- l ows i nd i - vidual and c o r p o r a t e taxpayers to “purchase” a non-refund- able dollar-
Dan M. Dixon
for-dollar federal income tax credit by making an equity investment in a state com- munity development entity (CDE). On May 31st, Gov- ernor Wolf announced that the U.S. Treasury awarded to the CDE Commonwealth Cornerstone Group (CCG) $55 million in credit allocations. A CDE uses the funds from the sale of its NMTCs to pro- vide equity infusions and low- interest financing to qualified active low-income community businesses (QALICBs). These QALICBs often can’t secure full project financing for these projects through traditional avenues because the projects are in economically distressed areas. In Pennsylvania, CCG is a CDE that provides funding to QALICBs via loans and equity investments for, among other things, business expansion projects, mixed-use develop- ment projects, and community facilities in Pennsylvania’s economically distressed areas. Investor Side Equity investors provide funding to the CDE. The investor then receives non- refundable federal income tax credits worth 39% of its investment. The credits are used by the investor over the course of seven years to offset federal income tax liability. The credit benefits to the investor(s) can increase ex- ponentially when the inves- tor partners with a lever- age lender. In that case, an investor forms an LLC and makes an equity investment of $2.5M in the LLC. Then the LLC secures financing from a leveraged lender of $7.5M. The LLC provides the $10M to the CDE, and the CDE uses the entire $10M to fund a qualified project. The credit is computed based on the $10M in funding but still flows directly to the investor. Thus, the investor pays only $0.64 per $1.00 of credit ($2.5M in- vestment for $3.9M in credits
Contact: DANIEL M. DIXON • 910 Harvest Drive, Blue Bell, PA 19422 • 610-941-2484 • www.kaplaw.com Other Offices: • Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart A t t o r n e y s a t L aw Business and Corporate Law - To the point! Experience Counts. Count On Us.
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