NMTC Allocation Trends
By Mark Fogarty
6 min read
Support Services for Housing, Minority Ownership
The traditional wisdom is that the New Markets Tax Credit (NMTC) and the Low Income Housing Tax Credit (LIHTC) operate in two separate arenas: housing for the LIHTC and business/commercial for the NMTC. And while that’s mostly true, a look at the most recent NMTC allocations shows that almost one-third of proceeds will likely go to projects that involve real estate in one way or another.
According to the CDFI Fund, which allocates NMTC credits, fully $1 billion of total investment proceeds of $3.42 billion from the calendar year 2017 awards announced in February of this year are likely to go to finance and support real estate projects in low-income communities. The rest should go for loans to, or investments in, businesses in low-income communities.
One such real estate-related entity is the Corporation for Supportive Housing of New York City (CSH), which received a $50 million allocation in the round. It will use its allocation, “to invest in projects that serve low-income, high-health-need individuals and families who are homeless, at risk of homelessness or reside in permanent supportive housing,” the CDFI Fund says.
The scope of the effort is national. “These projects will include community health centers; projects that offer supportive services, such as social, educational and/or workforce development services; and mixed-use projects with onsite PSH. The organization will offer a flexible debt product.”
CSH has received four NMTC allocations, including this one, for a total of $180 million.
According to Robert Friant, managing director of the nonprofit community development financial institution, the corporation’s NMTC deals support the non-housing part of a mixed-use project. So, while LIHTC money might go towards the actual building of housing units, NMTC proceeds would go to build associated supportive services, like a healthcare facility. The New Markets money could also go to a health facility with no associated onsite housing.
“The need is for easy access to community-based services,” says Friant, fitting the model of supportive housing, which includes mental health and chemical dependency services for the residents of the permanent housing.
Combining with LIHTC
One such CSH deal cited by Friant is the Blackburn Building in Portland, OR that used both NMTC and LIHTC money to support local economic development and has even acted as an economic development accelerator, since local healthcare providers contributed another $21.5 million to build even more supportive services.
That deal was a $15 million allocation to Central City Concern for the Blackburn Building, a 51,000-square foot health facility that includes a pharmacy and 51 respite beds. LIHTC money is going towards housing in the same building – 124 units of single-room occupancy and studio units.
“CSH staff are proficient in both kinds of tax credit,” says Friant, “as well as other financing sources, like their own loans.”
“CSH provides financial products to supportive housing developers,” the nonprofit says, “as well as technical assistance and training to nonprofits that may not customarily work with agencies, such as mental health, substance use and medical services providers.”
The group says it has, “used its prior rounds to leverage other sources of capital to finance projects that have created hundreds of supportive housing units and set the stage for nearly 100,000 new healthcare visits annually by people who most likely lacked care in the past. In addition, CSH investments have poured millions of dollars into economically depressed areas and generated close to 2,000 high-quality construction and permanent jobs.”
Another real estate effort funded by the NMTC is the Housing Partnership Network (HPN), Boston, also national in scope, which received a $30 million allocation, “to invest in affordable housing developers that revitalize and stabilize neighborhoods riddled with vacant and foreclosed properties by rehabbing and constructing homes and then selling them, thus creating homeownership opportunities for low-income persons and residents of low-income communities,” according to the Fund.
“The organization will offer an equity-equivalent debt product with below-market rates and flexible terms,” the Fund says. HPN, a collaborative of about 100 housing and community development nonprofits, also received $40 million in NMTC allocations in the 2016 round.
Rebuilding Detroit
A 70-unit new and rehabbed home effort in the North End and Grandmont-Rosedale neighborhoods of Detroit used the HPN NMTC approach, using a single-family housing model developed by Smith NMTC Associates, “to grow our members’ single-family for-sale housing business,” says Thomas Bledsoe, group CEO, in a blog.
The project is part of nonprofit Develop Detroit’s, “multi-faceted approach to stabilizing and strengthening targeted neighborhoods with mixed-income and mix-use projects,” writes Bledsoe. “The preservation of Marwood apartments, a naturally occurring affordable housing property, is already underway in the same neighborhood, and the development of these abutting and nearby single-family homes is part of a comprehensive revitalization effort being spearheaded by Develop Detroit.”
The project’s groundbreaking in the North End and Grandmont-Rosedale, “is more than a celebration of 70 new homes, it’s the celebration of the momentum of the revitalization of Detroit,” writes Bledsoe.
Reading the tea leaves
Besides the abundance of real estate projects, what else might developers, syndicators and investors be on the lookout for as they read the NMTC tea leaves for next year?
Further analysis of the 73 allocatees by the Fund indicates they are based in 29 states, the District of Columbia and Guam. The geographic scope of their activities ranges from national to as small as the city or county level Thirty-five have a national service area, 15 a multi-state footprint, 11 will focus on a single state and 12 are zoned in cities or counties.
Urban areas will see most of the investment, at $2.75 billion in proceeds, while rural areas take down the other $680 million.
Investors that have cultivated relationships with community development financial institutions may have shown some savviness, as fully 40 percent of February’s allocatees were CDFIs or units of them and received $1.44 billion.
Another good area for investors to be familiar with is minority-owned institutions, as 13 of the allocatees for last year were minority- or Native American-owned. They took down $555 million in allocations. And non-urban is a significant cluster as well. Fourteen of the allocatees are rural community development entities.
Story Contacts:
Robert Friant, Managing Director, External Affairs
Corporation for Supportive Housing, New York
robert.friant@csh.org
Thomas Bledsoe, CEO
Housing Partnership Network, Boston
HPN blog, https://housingpartnership.net/ideas/articles/breaking-ground-on-new-homeownership-indetroit
