The New Markets Tax Credit program delivered $5 million in equity to help finance construction of the $30 million Baldinger Bakery in St. Paul, built at a time when the credit freeze had stalled most development. (File photo: Bill Klotz)
Once again, developers and development agencies are wondering whether the New Markets Tax Credits will be around much longer.
The popular federal tax credit program has fueled development projects in financially marginal communities throughout the nation for the last decade. Those projects include some landmark local examples of community development, including the Midtown Exchange, the $200 million redevelopment of the sprawling former Sears site on Minneapolis? Lake Street. New Markets credits of more than $17 million provided a crucial piece of the Midtown?s financing.
But with lawmakers in Washington, D.C., facing $16.3 trillion in federal debt, the New Markets program is a candidate for elimination, along with countless other tax ?loopholes? that reduce federal revenue and contribute to that yawning debt.
?The program is a tax expenditure and it?s fair to say that?s on the table with everything else,? said John Peterson, a lawyer and real estate finance specialist with Minneapolis-based Winthrop and Weinstine. Peterson worked on the Midtown financing package in 2006.
Industry groups such as the New Markets Tax Credit Coalition are asking lawmakers to extend the program for another two years to support $3.5 billion in development each year.
In the past, the program often won those battles because of the broad-based political support from small businesses, developers and large financial institutions, which were frequent investors.
?We didn?t think this was a danger a few years ago,? said Julia Nelmark, director of New Markets Tax Credit Financing for the Detroit Lakes-based Midwest Minnesota Community Development Corp.
But the cost-cutting models Washington lawmakers are considering, like those offered by the Simpson-Bowles deficit commission, would eliminate most or all tax credit programs, Nelmark said. ?We think all bets are off now in Washington.?
Her community development organization was actually scheduled to sunset at the end of 2011, but was continued as part of legislation that gave a one-year reprieve to many tax-code related programs.
If lawmakers finally let the tax credits expire, they?ll be closing a program created in 2000 to attract private investment to developments and businesses in low and moderate-income neighborhoods, which can?t generate capital in conventional markets.
Seventy-two percent of investments in the program went into areas of extreme economic distress, according to program data, and 300,000 jobs were created in those communities between 2003 and 2010.
Minnesota nonprofits and public agencies have been active users of the program. Washington allocated tax credits for $365 million in projects to four Minnesota Community Development Entities (CDEs) in 2009 and 2010, the most recent years for which data are available. The state as a whole received $581.4 million in equity.
Those four organizations deliver the credits to developers or business owners to sell to investors. The proceeds provide equity to the development. In the current market, credits authorized for a $1 million project would generate about $290,000 in equity over the seven years of the credit, according to Bruce Gehrke, vice president for lending at the St. Paul Port Authority.
The Port Authority has been one of the big local New Markets Tax Credit users, directing its allocations toward the city?s lowest-income neighborhoods, particularly on St. Paul?s east side.
It made its largest New Markets investment in 2010 to subsidize construction of the 145,000-square-foot Baldinger Bakery. That development brought 70 full-time jobs to the Beacon Bluff redevelopment area and served as a catalyst for three subsequent projects on the site, which used to be home to 3M Co.
?Remember, that was back in the credit freeze in 2009 and 2010,? Gehrke said. ?The credits made a project possible that wouldn?t have gotten off the ground otherwise, and it was one of the biggest projects ? built in the Twin Cities that year,? he said.
The tax credits ? from the Authority and from the local office of the Local Initiatives Support Corp. ? delivered about $5 million in equity to help build Baldinger?s $30 million building.
Plymouth-based Dominium Development is working on a large project in St. Louis, Mo., now that?s well into the planning stages but will probably be built only if it can obtain New Markets credits.
The roughly $100 million would redevelop a century-old, 550,000-square-foot building into about 260 apartments and 51,000 square feet of commercial space.
?But if that?s going to be feasible, it will rely to a significant degree on New Market Tax Credits,? said Jeff Huggett, a partner with Dominium in charge of The Arcade project. ?If we don?t get those, I don?t know if we can finance it.?
New Markets Tax Credits, totals 2003-10
Capital invested in NMTC national projects: $45B
Jobs created/retained through NMTC: 300,000
NMTC equity to Minnesota projects: $581.4M
Source: New Markets Tax Credit Coalition; Community Development Financial Institutions
This entry was posted on Tuesday, December 4th, 2012 at 4:31 pm and is filed under Construction & Development, Finance & Banking. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
swain match day nene dark shadows trailer nate mcmillan clooney arrested southern miss
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.