Professional Documents
Culture Documents
2002
2003/4
2005
2006
2007
2008*
2009
Allocation Round
*2008 includes $1.5B of supplemental allocation. Source: CDFI Fund
In This Issue
Carver Leverages NMTC to Overcome Homelessness in the Bronx 4 Private Letter Rulings Affecting the NMTC Industry NMTC Coalition Corner About Reznick Group
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On average, each competitor for the NMTC awards had about a 40% chance of winning in the 2009 allocation round. Banks had among the lowest success rate in receiving an award. As Chart 2 shows, banks were awarded only 16.7% of the award dollars, roughly the same amount as government entities and somewhat more than real estate companies, both of which were more likely than banks to have winning applications. While the program requires allocatees to invest 85% of funds in low-income communities, 91 of the 99 awardees indicated that 100% of their activities will be provided to areas with higher economic distress than the minimum, and an additional four awardees indicated a minimum of 90% would be targeted to these areas. Ninety-eight of the 99 are committed to providing at least
75% of investments in areas characterized by (1) multiple indices of distress; (2) significantly greater indices of distress than required by NMTC program
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Internal Revenue Code Section 45D(e) specifies requirements for all low-income communities that qualify for NMTC projects. The general rule is that a qualifying census tract must either have a poverty rate of at least 20% or a median family income that does not exceed 80% of median family income (based on statewide median family income for nonmetropolitan areas and based on the greater of statewide or metropolitan area income for metropolitan areas). Many CDEs elect more restrictive rules for qualifying areas known as the Targeted Distressed Community rules. There are numerous ways to qualify as a Targeted Distressed Community. Some of the more common methods are as follows: (i) a census tract with poverty rates greater than 30%; (ii) a census tract meeting the median family income test using a 60% limit instead of an 80% limit; (iii) a census tract with an unemployment rate at least one and one-half (1.5) times the national average; (iv) areas meeting at least two of a list of thirteen or more unusual designations; or (v) generally, certain counties, during certain time periods, that are subject to a FEMA major disaster declaration
and that have a FEMA determination indicating such county is eligible for both individual and public assistance. Affordable Housing. Many CDEs are subject to affordable housing restrictions. Allocation agreements with this restriction require CDEs to enter into investments resulting in at least 20% of housing units developed or rehabilitated as a result of such investments being affordable to low-income persons. For rental housing, low-income persons is defined based on 80% of area
median income, and affordability requires the units to be rent restricted. The rent restriction and income tests must be met for the entire seven-year NMTC compliance period. With respect to for-sale projects, the income test is applied at the time of sale only, and, in place of the rent restriction, at the time of the sale, the for-sale units must be occupied by individuals meeting a 38% debt-to-income ratio requirement. When attempting to benefit from the NMTC program, real estate developers
must be careful that their projects meet all of the NMTC programs technical requirements. In addition to the Internal Revenue Code and Treasury Regulation requirements, developers need to understand any additional restrictions and obligations that a CDE has promised to the CDFI in the CDEs application and allocation agreement. Understanding these requirements early in the process helps assure that the developers project is compatible with the CDEs allocation agreement requirements.
. . . NMTC Awards
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rules; or (3) high unemployment rates. Ninety-six indicated that at least 95% of QEI dollars would be invested in QLICIs. Additionally, 96 of the 99 winners indicated that 100% of their investment dollars would be made at least 50% below market and/or with at least five concessionary features. To make the awards, the CDFI Fund used independent graders to evaluate four categories of questions from the applications. A minimum score of Good in each category was required to be considered further. The applications that passed were then rank ordered by total points, with bonus points awarded for effectively demonstrating previous service to disadvantaged businesses or communities and for committing to invest in unrelated entities. The amount of the awards was based on each applicants expected allocation needs for a two-year period. The CDFI Fund vetted past activities to determine if those allocatees that had received prior awards had made effective use of prior awards and met other program requirements. The CDFI Fund then reviewed the awards to direct a targeted amount toward rural areas. The results of this process show
that, as compared with last years initial allocation round, there has been a decrease in the amount committed to rural counties, as shown in Chart 3.
Business
Real Estate
2009 Round
Aside from the chart above, which shows the awardees own estimates for projects directed to rural counties, the CDFI Fund states that it will require that an additional $44 million of allocation authority, approximately 0.9% of the total allocation, be directed toward projects in nonmetropolitan counties. The CDFI Funds stated investment target for rural areas is 20% of all dollars invested by allocatees. The CDFI Fund stated that 57% of NMTC proceeds will likely be used to
finance and support real estate projects in low-income communities. The analysis of 2009 allocation round awards by type of CDE (Chart 4) shows a breakdown of award dollars that may favor more real estate investment than the CDFI Fund predicts. Based on new information requested in the applications, some observers expected that the CDFI Fund would comment on the aggregate level of fees that may be charged by CDEs outside of those that are charged from QEIs; however, there was no comment in the award announcements related to those fees. To read more, see the CDFI Funds website at http://www.cdfifund.gov.
space, community healthcare facilities and much needed retail space. One of the most inspiring of Carvers projects is located on Cromwell Avenue in the Highbridge section of the Bronx. The site contains an auto repair shop and parking garage in addition to serving as a new location for the Volunteers of America (VOA), a national organization founded in New York City in 1896. VOA of Greater New York is the largest of the organizations affiliates, operates over 70 programs in the metropolitan area, and is at the forefront of the provision of social services helping troubled individuals overcome homelessness, addiction, untreated mental illness, and intergenerational poverty. VOA had outgrown its previous site and this new facility allowed for the creation of a transitional homeless shelter containing 80 beds, 40 of which have been reserved for soldiers returning from overseas. The new facility is accessible 24 hours a day
and has an on-site social services program that works with program participants to prepare them for independent living while helping them to locate permanent housing. With NMTC financing, Carver was able to refinance a high-interest loan on the property, replacing it with an interest-only payment at a six-year Federal Home Loan Bank (FHLB) rate plus 1% (5.25%). The low interest rate and favorable terms on the new loan allowed the property owner to waive more than $250,000 in improvement costs to VOA, which helped the organization continue investing 90 cents of every dollar received in client care. The Cromwell Avenue project will serve as a catalyst to promote economic development in the Bronx not only through the provision of VOAs valuable social services, but also through added property value and sustainable job
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be aggregated and treated as one building, it does not provide guidance on how it would determine what portion of the master lease payments is related to residential units. This is critical because if 80% or more of the gross rental income is related to rental income from dwelling units, then the aggregate building would still be residential rental property. Perhaps this was not a concern because when viewed in the aggregate, the projected revenue from the rental of dwelling units was far less than 80%. But what happens if the operations of the buildings start at different times such that
party test so that it promotes private sector investing in lowincome communities while also preventing entities from obtaining a federal tax credit to reduce the costs of expanding or building upon their existing businesses. For that reason, we believe that the related party test should focus on the relationship between the investor and the qualified business. The NMTC Coalition suggested that the Fund consider the feasibility of a three-year award of what an applicant requests, up to a maximum of $300 million. The Fund could take a percentage, for example 20%, of each annual allocation amount, and use it to fund such three-year awards. The Coalition would not recommend using more than $2 billion of the $5 billion in allocation authority for multi-year awards in either the pilot program or going forward. There are many issues that would have to be addressed, including whether there needs to be a minimum size of allocation requested or whether only previously successful allocatees could participate. The NMTC Coalition recommends that the Fund require all applicants to self-identify as to whether they are minority CDEs and that the definition of a minority CDE be modified to require (1) a majority of the board of directors be members of a minority population in the case of a not-for-profit organization that controls a CDE or, in the case of a for-profit organization that controls a CDE, a majority of the stock be held by individuals who are members of minority groups, and (2) 50% or more of the applicants and controlling entitys activities be targeted to low- and moderate-income minority populations and/or low-income census tracts which are majority minority.
Please visit the NMTC Coalition website to find a copy of the Coalitions comment letter submitted to the Fund, which offers a more complete description of the recommendations outlined here.
. . . the Bronx
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creation. The project is estimated to create 40 full- and part-time jobs with VOA and an additional 50 construction jobs, which is a meaningful step toward a more prosperous community. In addition to the Cromwell Avenue project, Carver provided a $5.2 million predevelopment loan to Abyssinian Development Corporation, a Harlembased community development corporation. The loan was used toward the renovation of the legendary Renaissance Ballroom, which had been vacant for over 30 years. Carvers NMTC loan will enable Abyssinian Development Corporation to revitalize this historic property while offering community and cultural space, and affordable homeownership opportunities. Carver also provided a $2 million loan to the Community Partnership Development Corporation to capitalize a revolving loan fund that provides no-interest, predevelopment loans and
equity stakes to small, minority- and women-owned housing builders and developers in New York City. Carver has an unparalleled commitment to investing in the most distressed neighborhoods in New York City and has been a great contributor to the revitalization efforts throughout the area. As the recipient of an additional $65 million NMTC allocation in 2008 through the American Recovery and Reinvestment Act, Carver will continue its commitment while further expanding its products and services.
. . . NMTC Industry
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The PLR affirmed that the CDE could avail itself of the six-month cure period, allowing it to continue to negotiate a potential deal. However, the ruling indicated that the six-month cure period did not bring the total window for closing a QLICI to eighteen months. Pursuant to the Treasury Regulations, the clock for the additional six months starts on the date that the CDE becomes aware (or reasonably should have become aware) of the failure to invest substantially all of the QEI proceeds in a QLICI within the twelve-month window after receiving a QEI.