The Economic Driver New Markets Tax Credit Projects Revitalize Low-Income Communities in Variety of Forms

13 min read

When you come right down to it, the federal new markets tax credit fuels projects, programs, and services that provide for America’s basic needs and cultural aspirations – jobs, education, health care, real estate development, museums, and more.

This wide range of ventures is illustrated in the activities planned by a sampling of community development entities (CDEs) with their latest new markets allocations, as well some of their completed projects. Moreover, the large-scale positive impact from this tax incentive on an entire community is evident in a look at the city of Cincinnati, Ohio.

The Main Concern

Allocatees, when asked in interviews to name their main issue or concern in the NMTC program, all responded with the same answer: the overarching need to renew the program so that it can continue.

“The most significant issue that we have is the lack of consistency in having authorization,” says Terri Preston, a Principal at Baker Tilly Virchow Krause, LLP, who manages two CDEs: the Business Valued Advisor Fund and The Valued Advisor Fund.

Since the NMTC was established in 2002, the program has been had multiple short-term legislative extensions, the last occurring in January 2013. That legislation extended the program for calendar years 2012 and 2013 with $3.5 billion in allocation authority each year.

In June, the Community Development Financial Institution (CDFI) Fund announced the last allocation awards – unless the program is renewed – totaling $3.501 billion to 87 CDEs. And this fall, the CDFI Fund opened a new funding round, even with the lack of legislative authorization, receiving 263 applications requesting a total $19.9 billion. As much as $5 billion could be available. However, Congress must first pass legislation to reauthorize the NMTC program, which could occur in the current lame-duck session or in 2015 when the new 114th Congress convenes. NMTC advocates are cautiously optimistic that the program will be renewed. In April, the Senate Finance Committee passed a bill (S. 2260) that would renew the program for 2014 and 2015.

In recent interviews, allocatees described some of the projects they plan with their new batch of allocation authority as well as some of their completed projects:


“With the $48 million [allocation] we received, we’re looking to do about four projects,” says Elaine DiPietro, Vice President of the New Markets Tax Credit Program at Enterprise Community Investment, Inc. in Columbia, Md. Enterprise’s CDE, ESIC New Markets Partners LP has received a total $770 million in allocations since the program began.

“We’ve closed on one investment already” using Enterprise’s latest allocation, says DiPietro. Enterprise will be providing $8 million in allocation in the form of debt to help finance the construction of a new $49 million produce processing plant in a small town southeast of Atlanta, Ga. by a St. Louis, Mo.-based firm called Castellini Companies.

DiPietro said the plant will create about 300 permanent new jobs. “The company is working with the local government to provide job training and hiring low-income people who live in that area,” she notes, adding that the firm plans to operate a shuttle service to provide transportation to and from the facility for employees who don’t have cars.

Four other CDEs also provided NMTC allocation for the project; U.S. Bank Community Development Corporation is the new markets tax credit investor.

Georgia was one of the states designated as “underserved” by the CDFI Fund in the 2013 funding round.

DiPietro says Enterprise has also committed a portion of its latest NMTC allocation to a mixed-use real estate project in Baltimore, Md. “Then the other deals we’re still looking at but haven’t yet committed to are some federally qualified health centers and a mixed-use project in New Orleans.”

Bank of America Merrill Lynch

Bank of America Merrill Lynch plays multiple roles in the NMTC program – as an allocatee, an investor in new markets projects, and a debt lender to projects.

Banc of America CDE, LLC received a $48 million allocation in the 2013 round, of which it has committed $38 million to specific projects and has earmarked most of the remaining $10 million for projects in the designated underserved states, according to Leigh Ann Smith, who oversees Bank of America Merrill Lynch’s new markets tax credit allocation activities.

One of the projects that the bank’s CDE has committed allocation to is Remington Row, a new construction mixed-use real estate project in Baltimore that also has new markets allocations from Enterprise and the Low Income Investment Fund. Sponsored by local developer Seawall Development Company, the $39 million project will be a five-story building containing 108 apartments (20% affordable to renters making 80% of less of the area median income), 30,000 square feet of office space for nonprofit groups, and 15,000 square feet of ground-floor retail space.

Smith said that the bank’s CDE has committed allocation to nine projects so far. Among the investments expected to close shortly are:

  • Stinger Welding, Coolidge, Ariz. Some $9.5 mil- lion in allocation, provided in the form of debt, will be used to finance the equipment within a new facility being constructed that will manufacture bridge components. The new plant, owned and operated by Fisher Industries, will replace and be larger than an existing plant in Libby, Mont. that was owned by a different company that went into bankruptcy after the death of the owner. “They currently have 78 full-time employees – those jobs will all be retained – and then there will be 42 new jobs created as a result of this expansion,” says Smith. A second CDE, Montana Community Development Corporation, is also providing $13.2 million in allocation for the project.
  • DC Prep, Washington, D.C. The bank’s $2.5 million in allocation, together with $26.65 million allocation from three other CDEs, has financed the expansion of this local charter school. The charter school, established in 2008, served students in pre-school through the third grade until the latest expansion, which added a middle school campus that opened in the fall of 2013 to serve fourth graders, with plans to add an additional grade each year, through the eighth grade. “At full enrollment,” says Smith, “the elementary school and middle campus will have 750 students in preschool through eighth grade.” All of the current students are minorities, and 83% are eligible for free or reduced-price lunches. Smith explained that Bank of America Merrill Lynch had provided a construction loan that enabled construction of the middle campus to move forward. The construction loan is being taken out by the new markets financing. However, if the NMTC allocation had not been received, she said, the scale of the expansion would have had to be reduced.

HRI Properties, Inc.

HRI Properties, Inc., a New Orleans, La.-based real estate developer that specializes in rehabilitating historic buildings in cities, has utilized its CDE (National Cities Fund, LLC) to help finance its own projects and occasionally those of other developers.

“HRI does public-private partnership development,” says Hal Fairbanks, Vice President-Acquisitions. “All of the projects are in urban cores and feature some sort of partnership with the municipality or other government units. Typically we’re working on a project that is a priority for the city – often a vacant, blighted iconic building in the downtown.

“HRI wanted to have a way to close the funding gaps rather than relying on trying to make projects work just with historic tax credits and whatever subsidy the municipality can provide. New markets tax credits help us close that gap and to do catalytic ‘but for’ projects that wouldn’t get done otherwise.”

National Cities Fund received a $20 million NMTC allocation in the latest round. Fairbanks indicated that the CDE is currently considering allocations for three projects in Texas. The primary candidate is the redevelopment of a large historic building in Fort Worth into a mixed-use project containing apartments and a hotel.

The last NMTC investment that the CDE closed, in late 2013, was 225 Barrone – a $94 million transaction that involved the rehabilitation by HRI Properties, using new markets and historic credits, of an historic 550,000-square-foot commercial building in New Orleans into a 188-room Aloft Hotel, 192 apartments, and a 365-space parking garage. U.S. Bancorp CDC was the NMTC investor.

Fairbanks noted that HRI’s NMTC projects have revitalized downtown areas, restored vacant buildings to productive use, and created other benefits. Examples of completed projects include:

  • Rehabilitation of a vacant 447,000-square-foot historic building in downtown Richmond, Va., the former Miller & Rhoads Department Store, into a 250-room hotel and 133 apartments in a $110 million transaction. HRI’s CDE provided $25 million in NMTC allocation while two other CDEs contributed new markets allocation as well. HRI was co-developer of the project, the first by its CDE.
  • Renovation of an iconic office tower in New Orleans, once occupied by Hibernia National Bank, into office space and 175 mixed-income apartments. Fairbanks said the project helped establish the central business district as a residential area.

Great Lakes Capital Fund

CapFund New Markets, LLC, the CDE operated by parent Mich.-based Great Lakes Capital Fund, a Lansing, Mich.-based regional community development finance organization, has committed its entire $35 million NMTC allocation received in the last funding round to four projects, according to Community Development Finance Analyst Peter Giles. “They’re at different places in the closing process,” he notes.

The CDE has committed new markets allocation to help finance:

  • A new, larger YMCA in rural Warsaw, Ind. that will replace a very old and outdated facility. The new center will enable the Y to do more community outreach, attract more low-income individuals as members, and hold additional community events.
  • A new community facility in depressed Pontiac, Mich. that will be owned and operated by HAVEN, which provides a range of services to domestic abuse victims. The new facility will not only be used by HAVEN for its own operations but also provide space for other nonprofits and agencies that offer other services and support for domestic abuse victims.
  • A 3.3-mile modern light rail streetcar system (M-1 RAIL) along Woodward Avenue in Detroit, Mich., which will be built and operated by a nonprofit organization for 10 years before being handed over to a state-appointed regional transit authority. NMTC financing will be combined with other public, corporate, and philanthropic dollars to construct the rail line, purchase the street cars, and fund an operating reserve. M-1 RAIL is projected to create 300 construction jobs alone and spur $3.47 billion in new economic development in its first 10 years.
  • A new $60 million facility for the Salvation Army in the West Humboldt Park neighborhood of Chicago, Ill., which will contain residential and outpatient substance abuse treatment centers and a residential halfway house for individuals coming out of federal prison. The center will also be used for community outreach programs.

The Valued Advisor Fund, LLC 

The Valued Advisor Fund, LLC, one of two Chicago, Ill.-based CDEs led by Executive Director Terri Preston, received a $51.4 million NMTC allocation in the last round.

The CDE’s allocation authority is restricted for projects in the 10 underserved states designated by the CDFI Fund, with a focus on rural areas.

“We’ve closed two transactions so far,” says Preston, noting she has been inundated with requests for allocation authority from sponsors seeking NMTC financing for their projects.

The closed NMTC investments to date will fund:

  • A rural loan pool in Alabama, operated by United Bank of Alabama, a community development financial institution, which will make loans of $2 million or less to small rural businesses – such as small manufacturers – that currently can’t access credit because of their size and location. The Valued Advisor Fund has provided about $6 million in allocation, structured as debt.
  • Atlantic Healthy Goods, a new refrigerated produce processing distribution facility, together with company office space, in Clayton County, Ga. The facility represents an expansion of the company into Georgia, and will be a state-of-the-art facility in compliance with tougher federal food safety and environmental guidelines that take effect in 2015. According to Preston, the project is expected to create 390 construction jobs, as well as 300 permanent new, high-quality jobs, of which 275 should be accessible to low-income persons. The Valued Advisor Fund provided $6.25 million in NMTC allocation, again in the form of debt.

The Revitalization of Cincinnati

In her position as Vice President of Marketing & Communications at the Cincinnati Center City Development Corporation (3CDC), a civic organization that promotes and facilitate redevelopment and revitalization projects in the central business district and the Over-the-Rhine neighborhood in Cincinnati, Ohio, Anastasia Mileham has witnessed the wide-scale economic benefits generated by the new markets tax credit, both in these two areas and citywide.

3CDC is one of several CDEs in Cincinnati. And while 3CDC’s CDE was unsuccessful in landing a NMTC allocation in the latest round, it has received multiple allocation awards in the past and currently is trying to help sponsors of several proposed projects find allocation authority from other CDEs.

Mileham says the new markets tax credit has had “an incredible impact” on the central business district and the adjacent Over-the-Rhine neighborhood. “I don’t think we could have accomplished what we have in the timeframe we have had without the program.

“The $153 million in new markets allocations we’ve received so far has resulted in a total of $829 million invested in our center city, including private investment as well as city dollars. We’ve renovated more than 125 vacant historic buildings and in-filled over 60 vacant lots, generating over 835,000 square feet of commercial space filled with businesses providing jobs to over 2,275 individuals within these low-income communities. It’s also created 1,086 housing units, more than 37% of which are affordable for low-income residents, and renovated two significant civic spaces: Fountain Square and Washington Park.”

Among the completed projects for which 3CDC has provided NMTC allocation are:

  • 21c Hotel, a boutique hotel in the central business district created from the renovation of a distressed historic building into 156 hotel rooms, a restaurant, and 6,000 square feet of public art exhibits open round the clock.
  • Mercer Commons, a three-phase project in Over-the-Rhine – a neighborhood once marred by vacant buildings, high crime, and unemployment – that has involved the redevelopment of vacant buildings and lots, combined with new construction, to create mixed-income apartments (developed by McCormack Baron Salazar), for-sale condominiums, and a 340-space public parking garage.

Mileham said the NMTC projects in Cincinnati have triggered enormous subsequent development and investment in the targeted neighborhoods. For example, in the area of Fountain Park, a two-acre public space, “We’ve tracked about $350 million in new private investments surrounding the Square since the Square was renovated. That includes a hotel, some businesses, a company moving its headquarters a block away from Fountain Square, and new restaurants and entertainment activity around the Square.”

Let the Program Continue

NMTC industry participants, however, fear the consequences if the program is not continued – a curtailment to job creation, new and expanded business, and new real estate projects in urban and rural low-income communities throughout the U.S.

“We continue to be excited about the program,” says Great Lakes Capital’s Peter Giles, “because there’s no limit to the types of projects that can be done and the impact that this financing tool can have.”