1. New Markets Tax Credits
Overview
Wisconsin Housing and Economic Development Authority
Greater Wisconsin Opportunity Fund

2. New Markets Tax Credits Overview
 The NMTC is allocated in an annual competition by the
Community Development Financial Institution Fund
(CDFI Fund, US Treasury). Only about 25% of applicants
win an allocation of tax credits.
 In 2014, WHEDA through the Greater Wisconsin
Opportunities Fund (“GWOF”) was awarded a $50
million allocation of New Markets Tax Credit (NMTC).
Previously, WHEDA has been awarded seven
allocations totaling $500 million.

3. New Markets Tax Credits Overview
 The NMTC is a Federal Investment Tax Credit claimed
over 7 years starting on the date when the equity
investment is made in the Community Development
Entity (“CDE”) and each subsequent anniversary.
 A project usually receives a subordinate seven year
interest only loan that is mostly converted to equity at
the end of the seven year tax credit period. (( This loan
is for approximately 20% of the total qualifying costs of
a project. ))
 A project may also receive a lower interest rate for the
term of the loan.

4. New Markets Tax Credits Overview
 For example, a $5 million project could receive a $1+
million interest only loan with most of the $1+ million
converted into equity, through a “put,” at the end of
the seven year tax credit period.
 Or the interest rate on the total financing is “bought
down” to a below-market rate—usually around 2%
below-market.

5. New Markets Tax Credits Overview
 NMTC projects must also be located in low income
census tracts.
NOTE:
 CDFIFund.gov or novoco.com --- qualifying census
tracts or Google “New Market Tax Credit Mapping
Tool
 Make certain that information is current (2010 census
updated to 2015)

6. 6
New Markets Tax Credits Overview

7. 7
New Markets Tax Credits Overview
Novogradac

8. 8
New Markets Tax Credits Overview
Cohn Reznick

9. New Markets Tax Credits Detail

10. 10
New Markets Tax Credits Overview

11. New Markets Tax Credits Overview

12. New Markets Tax Credits Overview

13. New Markets Tax Credits Overview

14. New Markets Tax Credits Overview
 NMTC projects cannot be “sin businesses”, farms,
undeveloped real estate or residential housing
beyond 20% of the total investment.
 For compliance reasons, NMTC Financing almost
always are loans to finance hard assets such are
buildings and equipment.
 NMTCs can be combined with Low Income
Housing Tax Credits for mixed-use properties by
“condoizing” commercial real estate part.

15. New Markets Tax Credits Overview
 NMTCs can be used for mixed used
developments that include rental housing as long
as no more than 80% of the gross income comes
from the housing.
 At least 20% must come from
commercial/retail or other source.
 Usually will require master lease arrangement
to avoid recapture event if non-housing
tenant leaves or cannot pay lease.

16. New Markets Tax Credits Detail

17. New Markets Tax Credits Detail
Example of Net Tax Credit Equity Generated:
 Sample project with $5 million of qualifying
expenses.
 Nominal value of the tax credit equals 39% of
$5 million which equals $1.95 million.
 If the tax credits are purchased at 78 cents to
the tax credit dollar the tax credits would
generate $1,521,000 (.78x$1.95mm) of gross
equity.
 Assume $271,000 of total transaction costs.
 This leaves $1.3 million of net equity (put/call).

18. New Markets Tax Credits Detail
Seven Year Federal Business Investment Tax credit
 Tax credit allocation is equal to qualifying
expenses—essentially spending on tangible assets
by a business located in a qualifying low income
community.
 The tax credits are sold at a discount to a tax
credit investor.
 The tax credits currently sell around 78 cents to
the tax credit dollar.

19. New Markets Tax Credits Detail
Seven Year Federal Business Investment Tax credit.
 Nominal value of the tax credit equals 39% of total
qualifying expenses provided over seven years
 5% of the qualifying expenses the first three
years (15%)
 Followed by 6% of the qualifying expenses over
the next four years (24%).

23. Tax Credit Investor Economic InvestorInvestment Fund, LLC
GWOF Subsidiary
Community Dev. Entity
Sinking Fund
$2.5 MM $7.5 MM
Interest payments and
principal at end of tax
credit period
$10 MM
$3.9 MM over
Six years and a day
A Note:
$7.5 MM loan
GWOF NMTC: Leverage Model Example
B Note:
$2.5 MM equity equivalent loan:
(all or part is transferred through
put option after seven years)
Greater Wisconsin Opportunity Fund Example NMTC Leverage

24. New Markets Tax Credits
 Further Information:
 United States Department of the Treasury
 CDFI Fund – New Market Tax Credit Program
 https://www.cdfifund.gov/programs-
training/Programs/new-markets-tax-
credit/Pages/default.aspx
 http://www.mycdfi.cdfifund.gov/what_we
_do/programs_id.asp?programID=5

25. Contact Information
Mike Powers
Business and Community Engagement
Wisconsin Housing and Economic Development Authority
201 West Washington Avenue, Suite 700, PO Box 1728
Madison, Wisconsin 53701-1728
Desk and Mobile (608)514-2858 Mike.Powers@wheda.com