Sample NMTC Transaction
A company has decided to build a new manufacturing facility in the City of Atlanta. The new facility would be located in a distressed Census tract and the project demonstrates strong community impact, including job creation and job training services to low-income residents. However, there is a significant funding gap.
Manufacturing Facility: Before NMTC GAP Financing
| Project Uses | |
|---|---|
| Total | $10,000,000 |
| Site Acquisition | $3,100,000 |
| Construction Costs | $5,700,000 |
| Soft Costs | $1,200,000 |
| Project Sources | |
|---|---|
| Funding Gap | $2,000,000 |
| Sponsor Equity or Capital | $2,500,000 |
| Debt or Grants | $5,500,000 |
| Total | $10,000,000 |
step-by-step summary
The company is interested in New Markets Tax Credits (NMTC) financing and approaches Atlanta Emerging Markets, Inc. (AEMI) for assistance. AEMI is very interested in supporting the project and agrees to commit $10,000,000 in NMTC allocation for the facility. AEMI then finds a NMTC investor, typically a large national bank, who is interested in providing the equity for the project and willing to purchase the NMTC allocation for $0.79 a credit.
| NET NMTC BENEFIT TO PROJECT | $2,081,000 (estimated) |
|---|---|
| AEMI commits NMTC allocation to project | $10,000,000 |
| NMTC program provides a 39% federal tax credit to the investor | $3,900,000 ($10,000,000 x 39%) |
| Investor purchases NMTCs for $0.79 per dollar of allocation | $3,081,000 ($3,900,000 x $0.79) |
| NMTC Closing Costs and Compliance Fees | $1,000,000 (estimated) |
Purchasing the NMTC allocation for $0.79 results in $3,081,000 of equity that travels to the project. However, there are significant fees to complete a NMTC transaction, including:
– Closing costs (attorney fees, financial modeling, etc.)
– Compliance costs (audit and tax expenses, program compliance fees for 7 years)
AEMI is proud to offer below market rates on all fees, however fees can still range from $500,000-$1,000,000 depending on the size and complexity of the transaction. After all fees are deducted, the NMTC net benefit is about $2,000,000. This amount covers the entire financing gap and 20% of the total project costs.
The $2,000,000 in equity is then combined with the company’s capital and debt sources to cover project costs.
