Tax Credits as an Alternative to Tax-Exempt Financing Vincent Lyles President M&I Community...

Tax Credits as an Alternative toTax-Exempt Financing

Vincent Lyles

President

M&I Community Development Corporation

Philip Schultz

Managing Partner

Horizon Development

Group, Inc.

John Vitek

Shareholder

Mallery & Zimmerman, S.C.

Financing Using Tax Credits

Tax Credit Types

• Low‐Income Housing Tax Credits (LIHTC)

• Historic/Rehabilitation Tax Credits (HTC)

• New Markets Tax Credits (NMTC)

Low-Income Housing Tax Credits

• Funds construction/rehabilitation of affordable housing for low‐income population

• 9% annual LIHTC for state housing authority allocation projects

• 4% annual credits for qualifying exempt bond financed projects

Low-Income Housing Tax Credits

• LIHTC taken ratably over 10 years

• Project must continue to meet LIHTC requirements for 15 years such as to tenant income and rent levels

• Subject to “recapture” during 15 years for disposition and/or compliance failure

Historic/Rehabilitation Tax Credits

• Funds rehabilitation of “historic” buildings– Certified Historic buildings (20%)– Buildings in Historic Districts (20%)– Buildings older than 1936 (10%)

Historic/Rehabilitation Tax Credits

• HTC taken in year rehabilitation is “placed in service”

• Requirements for approval of rehabilitation by National Park Service (NPS)

• Subject to “recapture” for disposition during 5‐year period

New Markets Tax Credits

• Funds, investment in CDEs that provide loans to qualifying borrowers in Qualified Census Tracts (QCTs)

• NMTC is 39% of investment amount, taken over 7‐year period

• Subject of loss of credits if amount of qualifying loans not maintained

Structure of LIHTC/HTC

SponsorSponsor

SponsorSubsidiarySponsor

Subsidiary

CreditInvestors

CreditInvestors

ProjectLP/LLCProjectLP/LLC

.01%

99.99 %

← Lenders← Developer← Property Manager← Contractor

Structure of NMTC(Basic Model)

CDECDE CreditInvestors

CreditInvestors

SubAllocatee(LP/LLC)


EquityInvestment

Qualified Borrower

EquityInvestment

Structure of NMTC(Leverage Model)

CDECDE LenderLender



Loan

Qualified Borrower

CreditInvestorCredit

Investor

Contributions

InvestmentLLC/LP

InvestmentLLC/LP

Loan

EquityInvestment

DonorDonor

Why Consider Housing Tax Credits?

Community and Mission Benefits

• Furthers the Nonprofit Mission

• Serve moderate income families and seniors

• Bring employees and customers closer

• Strengthen neighborhoods surrounding operations

• Provide affordable assisted living

• Address spend down issue for seniors

Financial Benefits

• Sale or lease of vacant land

• Bring in investor equity

• Jumpstart other projects

• Development fee revenue

• Operational revenue

• Control in year 15

80 Unit Senior CommunitySources of Funds

First Mortgage $ 1,900,000 17%

HOME Mortgage $ 550,000 5%

Developer Equity $ 100 0%

Investor Equity $ 8,592,324 78%

Total $ 11,042,424

Use of Funds

Land $ 800,000

New Construction $ 7,566,936

Soft Costs $ 2,675,488

Total $ 11,042,424

Watertown Regional Medical CenterHighland Village Campus

Franciscan Sisters of St. ClareClare Meadows of Franklin

Woodland Ridge of GreenfieldSoutheast Wisconsin Deaf Senior Citizens

Housing Credit Application

• $12 Million in credits available annually

• Applications due February 3, 2012

• Highest scoring projects get credits

• 2011: 59 applicants requesting $38 Million

• Extremely competitive

Why All The Hard Work?

• Mission Vision and Values

• Financial benefits

Why Consider New Markets Tax Credits ?

Mission Benefits

• Job creation and/or retention

• Rehabilitation or new construction development within eligible census tracts

• Leveraging of resources

Financial Benefits

• Public private partnerships

• Patient, flexible and low cost capital

• Equity infusion

Structure of NMTC(Basic Model)

CDECDE CreditInvestors

CreditInvestors



EquityInvestment

Qualified Borrower

Lad LakeEducation and Life Skills Development Center

The Center, located in central Milwaukee, focuses on helping youth who are at risk of school failure, who are struggling with emotional or behavioral problems, who lack independent living skills, or who are experiencing crises.

Hope Family Services

Hope Family Services, located in west Florida, offers free and confidential services, including safe shelter, hot-line, referral services, and counseling to victims of domestic violence. Construction of this project has allowed HFS to double the number of women and children it serves.

EquityInvestment

Structure of NMTC(Leverage Model)

CDECDE LenderLender



Loan

Qualified Borrower

CreditInvestorCredit

Investor

Contributions

InvestmentLLC/LP

InvestmentLLC/LP

Loan

EquityInvestment

DonorDonor

Discovery World

Located on Milwaukee’s Lakefront, Discovery World is dedicated to developing a better understanding of the environment and technology, and fostering innovation and creativity.

Tax Credits as an Alternative toTax-Exempt Financing

Philip SchultzManaging Partner

Horizon Development Group, Inc.

5201 East Terrace Drive

Suite 300

Madison, WI 53718

[email protected]

414-541-3900 x 222

Vincent LylesPresident

M&I Community Development Corporation

250 East Wisconsin Avenue

Suite 1610

Milwaukee, WI 53202

[email protected]

414-390-1518

John VitekShareholder

Mallery & Zimmerman, S.C.

731 North Jackson Street

Suite 900

Milwaukee, WI 53202

[email protected]

414-271-2424

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