Alternative Financing for Commercial Real Estate – A Primer on Adding EB-5 Capital and Tax Credits to the Capital Stack – March / April 2016
BallardSpahr
Description
Real Property, Trust and Estate Law Section, American Bar Association
Probate and Property
New Market Tax Credits
Comparable to the EB-5, the NMTC program finances community development projects, stimulates
economic growth, and creates jobs in underserved communities. Id. § 45D(d)(1). Providing evidence of
job creation and other community benefits is crucial to receiving this competitive tax credit.
The NMTC was designed to give private investors the financial incentive to invest in low-income communities. Id. § 45(D)(e).
The federal government awards NMTCs based on the size and equity commitments of qualified investor groups. Projects that have typically received NMTC allocations include renovations or construction of office buildings, commercial and retail buildings, shopping centers, hotels, art centers, charter schools, hospitals, college campuses, high-tech and biotech facilities, homeless shelters, transitional housing, facilities to assist educating the homeless, and homeownership assistance. In general, the NMTC benefit ranges from 15% to 25% of total project costs, assuming that the deal is structured efficiently and enough NMTC credit allocation can be identified.
Id. § 45D(a)(2)(A)-(B). In addition, many municipalities provide tax-increment financing (TIF) and tax abatements to stimulate economic development and growth, which can be readily combined with EB-5 capital, as can bonds and other public financing. Further, the author completed a financing that combined an EB-5 loan with a senior loan guaranteed by the Department of Housing and Urban Development. Conclusion The availability of EB-5 capital and tax credits can bridge the gaps in the capital stack and allow a project to have an achievable return on investment and be fully funded.
The investment from EB-5 sources can take various forms, including an equity investment in the form of a Direct Investment from the foreign investors or a Regional Center, or a loan from a Regional Center that the developer owns, rents, or receives on an arm’s length basis. Incorporating EB-5 financing facilitates LIHTC housing rental projects while providing an incentive for private developers to make affordable rental housing available. As more states and cities realize the benefits of EB-5 to supplement their traditional funding efforts, the author anticipates an increase in the number of housing authorities and other public entities creating a Regional Center or partnering with an existing center to provide EB-5 financing to leverage these sources of foreign dollars.
n Published in Probate and Property, Volume 30, Number 2, ©2016 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 9 .
The NMTC was designed to give private investors the financial incentive to invest in low-income communities. Id. § 45(D)(e).
The federal government awards NMTCs based on the size and equity commitments of qualified investor groups. Projects that have typically received NMTC allocations include renovations or construction of office buildings, commercial and retail buildings, shopping centers, hotels, art centers, charter schools, hospitals, college campuses, high-tech and biotech facilities, homeless shelters, transitional housing, facilities to assist educating the homeless, and homeownership assistance. In general, the NMTC benefit ranges from 15% to 25% of total project costs, assuming that the deal is structured efficiently and enough NMTC credit allocation can be identified.
Id. § 45D(a)(2)(A)-(B). In addition, many municipalities provide tax-increment financing (TIF) and tax abatements to stimulate economic development and growth, which can be readily combined with EB-5 capital, as can bonds and other public financing. Further, the author completed a financing that combined an EB-5 loan with a senior loan guaranteed by the Department of Housing and Urban Development. Conclusion The availability of EB-5 capital and tax credits can bridge the gaps in the capital stack and allow a project to have an achievable return on investment and be fully funded.
The investment from EB-5 sources can take various forms, including an equity investment in the form of a Direct Investment from the foreign investors or a Regional Center, or a loan from a Regional Center that the developer owns, rents, or receives on an arm’s length basis. Incorporating EB-5 financing facilitates LIHTC housing rental projects while providing an incentive for private developers to make affordable rental housing available. As more states and cities realize the benefits of EB-5 to supplement their traditional funding efforts, the author anticipates an increase in the number of housing authorities and other public entities creating a Regional Center or partnering with an existing center to provide EB-5 financing to leverage these sources of foreign dollars.
n Published in Probate and Property, Volume 30, Number 2, ©2016 by the American Bar Association. Reproduced with permission. All rights reserved.
This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 9 .
