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New Markets Tax Credit

Overview

The New Markets Tax Credit (NMTC) program enables qualifying businesses, both for-profit and nonprofit, to finance or reimburse eligible expenditures on a highly subsidized basis. A typical transaction includes an interest-only repayment period of seven years followed by an unwind feature resulting in the complete forgiveness of up to 25 percent or more of the amount borrowed. Although these transactions can be complex, our team at Parker Poe has substantial deal experience and deep knowledge of the process.

Our attorneys have participated in transactions involving various creative structures. For example, Parker Poe lawyers have participated in transactions involving the combination of new markets tax credits with other incentives such as historic rehabilitation tax credits.

The Parker Poe NMTC team can assist project sponsors in the design, undertaking, negotiating and documentation of NMTC transactions and has experience in transactions in North Carolina, South Carolina, New York, Pennsylvania and Florida. One Parker Poe team member was designated as lead counsel to a major Community Development Entity (CDE) and affiliated leverage lender in a program involving numerous projects in multiple states.

Our strong background in our home base markets, coupled with experience beyond our Southeastern footprint, means we can assist in the New Markets Tax Credit process in any part of the transaction, including:

  • Project Sponsor/Project Borrower (QALICB)
  • Community Development Entity (CDE)
  • Leveraged Lenders

We have worked with the following industries:

  • Manufacturing & Distribution
  • Education
  • Hospitality
  • Nonprofits
  • Real Estate
    • Office
    • Retail
  • Health Care
  • Mixed-Use Facilities

Areas of Focus

NMTC Background

With few exceptions, the program is available for loans and investments in any trade or business (known as “qualified active low income community businesses” (QALICBs), satisfying the low income community or targeted population tests. The program provides for a federal income tax credit equaling 39% of the amount invested (taken over a seven year period) in designated “Community Development Entities”(CDEs), which in turn uses the proceeds of such investments together with other potential sources to make loans or investments in low income communities or for targeted populations.  With very limited concessions, both nonprofit and for profit trades or businesses can participate in the program.

In a typical structure, known as the “leverage loan” model, lender loan proceeds (derived from a third-party lender or under certain circumstances the project sponsor or another entity) are combined with proceeds from the tax credit investor into a special purpose investment fund.The investment fund, in turn, invests the combination of such proceeds into a CDE, private enterprises that have qualified to serve as such and have been awarded an allocation of new markets tax credit allocation authorized by the federal government.

The CDE (or multiple CDEs) will typically then deploy the amounts received to make loans or investments into the QALICB. Under a typical structure, the CDE deploys such amounts (net of any CDE or certain other fees) to extend an “A Loan” and a “B Loan” to the QALICB borrower. These loans are required to be interest only for a seven year period, often at substantially below-market rates, and the “B Loan” (which may equal as much as 20-25% of the total loans) is typically subject to a “put/call” feature that is akin to forgiveness of that portion of the debt shortly after the seventh anniversary of the extension of the loan.

Representative Experience

Parker Poe’s NMTC team has extensive experience advising for-profit and nonprofit companies across industries, including:

Manufacturing & Distribution

  • Community Development Entity (CDE) in making new markets loans for the development of a major smoked-fish processing facility in North Carolina and accompanying credit facilities, secured by properties in North Carolina and New York
  • Qualified Active Low-Income Community Businesses (QALICB) in the new markets financing of a lumber processing facility in South Carolina
  • A seed lender and QALICB in connection with a produce distribution facility in South Carolina
  • A CDE in connection with a Qualified Equity Investment (QEI) to an office building and recycling center in upstate South Carolina
  • QALICB and leverage lender for the purchase of new equipment and construction of improvements at the South Carolina manufacturing site of a global consumer product manufacturer involving a qualified equity investment of $22.2 million
  • QALICB and leverage lender for the acquisition of new equipment, and construction of improvements, at the Georgia manufacturing site of a global consumer product manufacturer involving a qualified equity investment of $10 million
  • QALICB in an equipment and real estate financing for a major container-cap manufacturer in South Carolina involving a qualified equity investment of $11 million
  • An affiliate of a Canadian-based QALICB in the timber industry for equipment financing involving a dollar amount of $22.5 million
  • A QALICB involved in the metal-forming industry involving $4 million in financing for a project in South Carolina
  • A QALICB in connection with equipment financing for a global enterprise involved in the production of sustainable wood building solutions involving a $12 million investment in South Carolina

Real Estate

  • QALICB in the transformation of an abandoned library into substantially renovated and improved office space in South Carolina, combining both new markets tax credits with the incentives provided through both federal and state historic rehabilitation tax credits
  • A real estate development QALICB in a financing for the construction and installation of a mixed-use office and residential tower located in a South Carolina downtown area
  • QALICB for renovation of existing distribution facility into office and research and development space for technology startup firms in South Carolina
  • QALICB for construction of new office tower in downtown Greenville, South Carolina
  • QALICB for construction of new retail shopping center in South Carolina
  • QALICB in the establishment of a $10 million new markets financing involving two CDEs for a mixed-use office and residential project in downtown Ithaca, New York
  • QALICB for construction of new office, retail and condominium building in South Carolina involving an investment of $6 million
  • North Carolina county in relation to certain aspects of four low-income community loans for a single project involving two CDEs in the aggregate amount of $11.3 million

Education

  • QALICB in a new markets financing for the construction and installation of a medical school, the first financing undertaken in South Carolina combining the use of NMTCs with tax-exempt bonds
  • QALICB in a new markets financing of a school for the economically disadvantaged located in South Carolina
  • QALICB in financing for the construction of a university alumni center in South Carolina involving an investment of $15 million
  • A college as the QALICB in the financing of a real estate project in South Carolina involving the investment of $10 million
  • A QALICB in South Carolina operating a college for campus improvements involving an investment of $15 million, constituting the second (of only two) financings in South Carolina combining the use of tax-exempt bond proceeds as a source of leverage in the new markets transaction
  • A community college in a new markets financing for transforming an abandoned downtown high school into a satellite community college campus, including two CDEs with an aggregate investment of $15 million
  • A lender in connection with a university affiliate's research and technology development center in South Carolina involving a loan of $7.7 million

Nonprofit

  • A bridge lender relative to a QALICB for a food bank project in North Carolina
  • QALICB in undertaking a new markets tax credit financing for the construction and installation of a museum in South Carolina involving an investment of $18 million
  • QALICB in connection with the financing of a center for abused women and children in Pittsburgh, Pennsylvania, involving a project cost of approximately $12 million and expected to involve multiple CDEs
  • A city in North Carolina involving securitization of its loan to a museum through pledges of interests in the NMTC financing to the museum, and in the refinancing of that loan in conjunction with the unwind of the transaction, which involved a QEI of $19.9 million
  • Special counsel to a women and children's shelter for the abused as well as its leverage lender in a transaction in Pennsylvania

Hospitality

  • A nonprofit QALICB in the major expansion and up-fit of a well-known entertainment venue in South Carolina
  • A CDE relative to post-closing issues arising with respect to a major hotel financing in Florida
  • QALICB in the undertaking of a new markets tax credit transaction for the construction and installation of a downtown hotel in South Carolina for a major national hotel chain
  • A leverage lender in a transaction for a nonprofit QALICB in the construction of a headquarters and multisport facility that included athletic events, tournaments, community and corporate events, fitness training, and more in South Carolina

Health Care

  • A nonprofit QALICB in the refinancing of outstanding tax-exempt indebtedness in blood bank and delivery services

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Professionals

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