"How Real Estate Developers Subsidize 10% to 30% of Their Projects"
This is how my real estate clients put deals together using tax credits.
My first ever Twitter thread... 👇
This is how my real estate clients put deals together using tax credits.
My first ever Twitter thread... 👇
I'll be discussing:
Turning Tax Credits (TC) into cash at closing
Brownfield TCs
New Markets TCs
Low Income Housing TCs
Historic TCs
Tax Increment Financing
Building out the capital stack
Turning Tax Credits (TC) into cash at closing
Brownfield TCs
New Markets TCs
Low Income Housing TCs
Historic TCs
Tax Increment Financing
Building out the capital stack
First, the 3 types of tax credits
Refundable: It’s a grant. You get a cash “refund” as though you had overpaid your taxes
Assignable: You can sell the tax credit to another tax payer for cash
Regular: You can use it to offset your tax liability
To get cash for regular TCs..
Refundable: It’s a grant. You get a cash “refund” as though you had overpaid your taxes
Assignable: You can sell the tax credit to another tax payer for cash
Regular: You can use it to offset your tax liability
To get cash for regular TCs..
How to turn TCs into cash at closing
Enter the Tax Credit Investor: These are usually banks but can also be corporate tax payers. They will buy the tax credits from you directly or will form a special purpose entity (SPE) with a developer and invest the cash into the SPE…
Enter the Tax Credit Investor: These are usually banks but can also be corporate tax payers. They will buy the tax credits from you directly or will form a special purpose entity (SPE) with a developer and invest the cash into the SPE…
How to turn TCs into cash at closing (cont.)
The developer gets to use the cash at closing and the investor gets the tax credits generated by the project. It’s a win-win.
Also, many TCs are earned after project completion, so an investor can provide this cash sooner.
The developer gets to use the cash at closing and the investor gets the tax credits generated by the project. It’s a win-win.
Also, many TCs are earned after project completion, so an investor can provide this cash sooner.
Brownfield Tax Credit
Many states award BTCs for remediating contaminated sites. They are usually valued as a % of the cleanup costs + a % of the development costs
New York’s pre-2008 BTC program still awards a 20% CASH REFUND for all development on specific sites
Amazing!!!
Many states award BTCs for remediating contaminated sites. They are usually valued as a % of the cleanup costs + a % of the development costs
New York’s pre-2008 BTC program still awards a 20% CASH REFUND for all development on specific sites
Amazing!!!
New Markets Tax Credit (NMTC)
NMTCs are awarded to projects in eligible census tracts that provide a benefit to the Low-Income Community. If your project creates jobs, housing, healthcare, food etc., it could qualify.
Investors pay 10%-20% of a project’s budget for NMTCs
NMTCs are awarded to projects in eligible census tracts that provide a benefit to the Low-Income Community. If your project creates jobs, housing, healthcare, food etc., it could qualify.
Investors pay 10%-20% of a project’s budget for NMTCs
Low Income Housing Tax Credits.. pronounced “Lie-tech”
These are issued by the federal government, but managed by the states through an annual application. TCs are awarded in return for creating low income housing. A tax credit investor will pay you cash in return for these TCs.
These are issued by the federal government, but managed by the states through an annual application. TCs are awarded in return for creating low income housing. A tax credit investor will pay you cash in return for these TCs.
Historic Tax Credits
The federal government will award your project these TCs if you rehabilitate a qualified property. Some states (NY) offer a refundable TC in addition.
TC investors pay you for the tax credit = 20% of qualified development costs (plus any state benefit)
The federal government will award your project these TCs if you rehabilitate a qualified property. Some states (NY) offer a refundable TC in addition.
TC investors pay you for the tax credit = 20% of qualified development costs (plus any state benefit)
Tax Increment Financing (TIF)
TIFs allow you to get a loan that is paid for by the future property tax payments generated by your project. Sometimes this includes sales tax.
The last time I negotiated a TIF, it provided a $20M loan at closing against a $150M project.
Nice!!!
TIFs allow you to get a loan that is paid for by the future property tax payments generated by your project. Sometimes this includes sales tax.
The last time I negotiated a TIF, it provided a $20M loan at closing against a $150M project.
Nice!!!
Building the Capital Stack
Determine which tax credits your project qualifies for
1.Consult the maps for each program
2.Determine if your final use/tenants qualify
3.Make sure your legal structure works
4.Get a bank on board
Then go get 20% or more out of these programs
Determine which tax credits your project qualifies for
1.Consult the maps for each program
2.Determine if your final use/tenants qualify
3.Make sure your legal structure works
4.Get a bank on board
Then go get 20% or more out of these programs
If you do this right, you can use several of these tax credits to fund one project. The bottlenecks are often finding a qualified site with an end use that also qualifies.
Yet, it's very possible to carve out a niche in this space and to score some home runs.
Yet, it's very possible to carve out a niche in this space and to score some home runs.
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