2014 NMTC Awardees Share Round 12 Highlights, Investment Plans

Published by Teresa Garcia on Wednesday, July 1, 2015
Journal thumb July 2015

The New Markets Tax Credit (NMTC) program officially has a dozen funding rounds under its belt. On June 15, the Community Development Financial Institutions (CDFI) Fund announced the 76 community development entities (CDEs) selected to receive $3.5 billion in NMTC allocation authority under the calendar year 2014 round of the program. The 76 allocatees were selected from a competitive pool of 263 CDEs requesting $19.9 billion in allocation authority, a slight drop from last year’s round, when 87 of 310 applicants were awarded $3.5 billion of the $25.8 billion they requested.

“Since the inception of this program, one thing has remained the same: Demand for allocation authority far exceeds supply,” said Bob Ibanez, the CDFI Fund’s NMTC program manager. “We’re always trying to balance supply and demand … but with only $3.5 billion in allocation authority available, that leaves many deserving applicants without an allocation.”

Award sizes this year ranged from $15 million to $75 million. Wells Fargo Community Development Enterprises Inc. was among the three CDEs selected to receive $75 million in allocation authority. “It’s always been competitive and you’re competing against the best of the best,” said Lee Winslet, head of the NMTC group for Wells Fargo Community Lending & Investment. Winslet said that applicants raise the bar every year as they learn more about how the NMTC revitalizes entire communities.

While most awardees are longtime program participants, Ibanez noted that the number of first-time recipients nearly doubled from five last year to nine. Among them is Jubilee Manna CDE LLC, a partnership between two Washington, D.C.-based affordable housing providers: Jubilee Housing, which focuses on multifamily rental housing, and Manna Inc., which specializes in affordable homeownership. “Manna and Jubilee have been around for a long time, but we were in different fields within affordable housing,” said Rozanne Look, Manna’s director of project development. Look said the partners hope to use their $15 million of NMTC allocation authority to provide a continuum of affordable housing options to local families.

Jim Knight, Jubilee’s president, added that Jubilee Manna’s allocation will also fund projects spearheaded by other groups. “At the same time, the [NMTC] allows us to contribute resources to other highly valuable projects in the city that help low-income individuals and families,” said Knight. “We’re excited to find other partners who have similar goals.”

Planned Investment Activities
The 76 allocatees are headquartered in 27 states and the District of Columbia. All of them have committed to providing at least 75 percent of their investments to communities characterized by multiple indicia of distress, significantly greater indicia of distress than required by program rules or high unemployment rates. In other words, CDEs intend to direct their allocations into the communities that need investments the most.

Allocatees noted a significant shift in planned investment activities. For the past two funding rounds, CDEs earmarked roughly 74 percent of total NMTC proceeds to finance and support loans to or investments in operating businesses and about 25 percent for real estate projects or providing capital to other CDEs. Compare that to the 2012 round, when 58.7 percent of proceeds were intended for operating businesses and 41.3 percent for real estate investments and capital to other CDEs. “We’re starting to see a tight turn away from traditional real estate deals,” said Mitchell Baris, president of tax credit services for Enterprise Bank & Trust and executive director of Enterprise Financial CDE. Baris said a significant portion of Enterprise’s $65 million award from this round will focus on financing small operating businesses.

Based on initial estimates of the 2014 allocatees, about $721 million of this year’s allocations will be invested in rural areas. “The new markets tax credit has become an integral financing tool to attracting large-scale capital to rural markets,” said Dave Glaser, CEO of Montana Community Development Corporation (Montana CDC), which received a $65 million NMTC award for investments focused primarily on operating businesses in Montana and Idaho rural communities. Glaser said, “Only a few major banks have a footprint in our communities, so by having new markets credits, we’re attracting larger pools of capital to underserved areas.”

AMCREF Community Capital LLC will also devote a portion of its $75 million award to financing businesses in rural areas. “This is the biggest award we’ve ever received and it allows us to do more deals than ever in rural communities, especially in our southern service area,” said Clifford Kenwood, AMCREF’s president. “We’ve got a number of good rural deals in the pipeline—all in underserved areas.”

The CDFI Fund reported that while there was no specific credit set-aside for healthy food financing in the 2014 NMTC allocation round, 51 of the 76 allocatees indicated that they intend to devote some of their allocation to healthy food financing activities. Donald Hinkle-Brown, CEO of The Reinvestment Fund Inc. (TRF), said the CDE will use its $65 million award from this round to focus on healthy food access projects and supermarkets. TRF also intends to invest in charter schools, community health centers and other commercial and mixed-use developments in highly distressed areas.

Tested Program, Uncertain Future
CDFI Fund data shows that the NMTC has created or retained nearly 600,000 jobs since its inception and has generated more than $8 of private investment for every $1 of federal investment. Other reports have shown that the NMTC more than pays for itself in federal, state and local revenue generated. Despite demonstrated success, the NMTC’s future remains uncertain. It has yet to become a permanent part of the tax code, instead needing to be resuscitated five times since its inception. The latest was a retroactive, one-year extension that authorized the program until Dec. 31, 2014.

“The lack of long-term certainty is an enormous challenge,” said Lin Van Hofwegen, managing director of Dakotas America, which received $65 million in Round 12 allocation authority. “This is a problem that constrains the economic development industry, and in the end, keeps costs high, making it more difficult to serve the low-income communities the NMTC program was created to help.”

Participants say that program permanency would also allow more multiphase, longer-term projects to benefit from the NMTC. “The hyper shovel-ready nature of new markets has been created by the short-term nature of the program,” said TRF’s Hinkle-Brown. “A long-term extension would allow valuable programmatic changes, increasing patience with longer pre-development times and higher risk tolerances.”

CDEs have long argued that the NMTC merits and needs an increase in funding. “Not only do you have a program that is oversubscribed and competitive based on CDE applications, but [CDEs] have to turn down so many good projects,” said Richard Montgomery, managing director of tax credit finance for Enhanced Capital. Montgomery said Enhanced Community Development LLC will focus a portion of its $65 million award on loans to small, early stage businesses that would otherwise not qualify for traditional lending.

“There’s nothing that comes close to being a substitute for what this tax credit equity can do for these larger-scale developments in the neighborhoods we’re working in,” said Kevin Boes, president and CEO of New Markets Support Company (NMSC), an affiliate of the Local Initiatives Support Corporation (LISC). Boes said that LISC will contribute a portion of its $70 million Round 12 allocation award to community health centers financed by the multi-CDE Healthy Futures Fund, as well as for its small business loan fund, rural activities and other investments.

In anticipation of Congress renewing the NMTC, the CDFI Fund has begun working on its 2015 funding round application and notice of allocation availability (NOAA). Information will be posted at the CDFI Fund website.