Tax Credit Advisor June, 2006: A total of $4.1 billion in federal New Markets Tax Credits have been awarded in an unusual allocation round that combined $3.5 billion in regular NMTCs and $600 million in tax credits designated for areas hard-hit by Hurricane Katrina.
The 4th Round awards, announced June 1 by the Community Development Financial Institutions (CDFI) Fund, were made to 63 Community Development Entities (CDEs). A total of 254 applicants had requested a total of $28.3 billion in allocations. The 2006 winners represented 25 percent of the total applicants, compared with a 20 percent award rate in 2005. By dollar amount, the latest award rate was 14 percent, compared with 9 percent last year.
Thirteen CDEs will receive the $600 million in hurricane relief allocations authorized by the Gulf Opportunity Zone Act of 2005, which was passed in December. These credits are an addition to the $15 billion in total regular NMTC credits authorized for five allocation rounds by the 2000 enabling legislation. The GO Zone Act authorizes $1 billion in NMTCs in three cycles: $300 million each for the 2005 and 2006 calendar years, and $400 million for 2007.
The average allocation award was approximately $65 million per allocatee. Banc of America and Wachovia Community Development Enterprises each received $143 million, the largest award in this round. The smallest, $2 million, went to Northside Community Development Fund; it was the only award under $10 million. This year’s awards were larger than those in 2005, when the average award was about $50 million. Last year’s awards ranged from $5 million to $100 million.
With four allocation rounds completed, the CDFI Fund has now awarded a total of $12.1 billion in NMTCs. The final $3.5 billion installment of regular NMTCs and $400 million in GO Zone NMTCs will be awarded next year.
Characteristics of Allocatees
A number of CDEs which did not receive allocations in Round 3 – including Banc of America CDE, LLC; National Trust Community Investment Corp., and Structured Products Group CDE (Capmark Financial Group, Inc.) – were allocatees this year. Only two CDEs have now been winners in all four rounds: ESIC New Markets Partners, LP (Enterprise Social Investment Corp.), and Massachusetts Housing Investment Corp.
CDEs receiving allocations included:
- Twenty four nonprofit organizations (38 percent of the total number of allocatees), with $1.41 billion;
- Twelve Community Development Financial Institutions (CDFIs) (19 percent of allocatees), $851 million;
- Fourteen non-CDFI banks or publicly traded institutions (22 percent of allocatees), $1.26 billion;
- Four governmentally-controlled entities (6 percent of allocatees), $269 million.
The 4th Round allocatees are headquartered in 19 different states and the District of Columbia, but expect to make investments in 40 states plus D.C.
Characteristics of Investments
As in past rounds, the 2006 allocatees plan to concentrate their investments in national or multi-state areas, and in urban settings.
- Forty-four allocatees (70 percent)said they would focus investment activities on a national or multi-state area, nine (14 percent) on a statewide service area, and 10 (or 16 percent) on a city-or county-wide area;
- Approximately $2.43 billion (59 percent) of allocation dollars will be invested in major urban areas, $937 million (or 23 percent) in minor urban areas, and $732 million (18 percent) in rural areas;
Most allocatees have pledged to make investments in areas characterized by severe economic distress. Fifty-six of the 63 allocatees said that at least 90 percent of their activities will be provided in these areas; 42 indicated all their activities will be in these areas.
The new NMTC investments will be used to finance a wide variety of activities, including:
- Loans to or equity investments in real estate projects – about $2.37 billion (58 percent) of NMTCs proceeds;
- Loans to equity investments in businesses – about $1.31 billion (32 percent) of NMTC proceeds;
- Capitalization of other CDEs – about $411 million (10 percent) of NMTC proceeds.