3 rd Annual NYS Redevelopment Summit Albany NY Keys to Successful Brownfield Redevelopment Tax Credits and Other Financial Incentives June 13, 2018

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1 3 rd Annual NYS Redevelopment Summit Albany NY Keys to Successful Brownfield Redevelopment Tax Credits and Other Financial Incentives June 13, 2018

2 National Development Council Who We Are National non-profit Since 1969 Works in over 100 communities Increase the Flow of Capital in Underserved Areas Creates EDF systems Business credit Investment real estate Affordable housing Deal structuring, negotiation and loan packaging Finance and development affiliates Training Tax Credit Syndication - RTC, LIHTC, NMTC, Small Business Lending Public Private Partnerships for Public Facilities 2

3 NDC How We Work 3

4 Financial Incentives and Tax Credits Overview Using Financial Incentives Promote Incentives and Be Willing to Use Guidelines But For Test Net Financial Benefit to City/Town Minimize Financial Risk to City/Town No Unduly Enrichment of developers Federal Tax Credits - Dollar for dollar reductions to federal tax credits Federal rehabilitation Tax Credits Low Income Housing tax Credits New Markets Tax Credits 4

5 Using Incentives Effectively Reduce Development Costs Discounted sale of land and building Offset infrastructure costs Parking, utilities, remediation Reduce Taxes and Fees NYS IDAs provide exemption on sales tax and mortgage recording tax Accelerate Review and Approval Process Time is money Land use approval process can be better coordinated and streamlined Reduce Cost of Capital Long-term, lower rate Stretches borrowing capacity Senior and subordinated debt instruments from government agencies 5

6 Using Incentives Effectively Make capital more readily available Additional credit leverages private investment by lowering equity requirements Instead of 75/25, 50/40/10 Know all lending and capital sources CDFIs, Empire State Development Homes and Community Renewal (HCR) NYSERDA Industrial Development Agencies (IDAs) Reduce Operating Costs Payments in Lieu of Taxes (PILOT) through IDAs Reduce Real Estate Taxes so as to expand borrowing capacity 6

7 Federal Rehabilitation Tax Credits (RTC) Historic Tax Credits 20 percent credit on rehabilitation costs Credit spread over 5 years Must qualify Certified historic structure or contributing building in National Register historic district Commercial, industrial or rental housing Substantial rehabilitation Get credits on all rehabilitation done within 24 months prior to certificate of occupancy or within 60 months under Approved Plan Follow Secretary of Interior standards 7

8 Federal Rehabilitation Tax Credits (RTC) Monetizing the Credit Rehabilitation $5,000,000 Basis Credit % Credit Price/$ RTC Equity 20% Historic Credit $5,000, % $1,000, % $870,000 8

9 General Organizational Structure For Tax Credit Development Limited Partnership General Partner 0.1% Developer Limited Partner 99.9% Investor

10 State Rehabilitation Tax Credit Program Supplements tax credit equity raised from federal tax credit In NYS, state rehabilitation credit 20% of eligible basis Capped at $5 million Property needs to be in Qualified Census tract Rehabilitation $5,000,000 20% Federal 20% State Total Basis $5,000,000 $5,000,000 Credit % 20.00% 20.00% Credit $1,000,000 $1,000,000 Price/$ RTC Equity $870,000 $870,000 $1,740,000 35% 10

11 Low Income Housing Tax Credits (LIHTC) HTC Single largest resource for the construction and/preservation of affordable housing in country Introduced after Tax Reform Act of 1986 Dollar for dollar credit, spread over 10 years Project must qualify based on 3 criteria Income/occupancy 20% of the units must be occupied by tenants with incomes below 50% of AMI, OR 40% of the units must be occupied by tenants with incomes below 60% of AMI Rent Rent cannot exceed 30 percent of the income qualifier (either 50 or 60 percent) for the assumed household size, including all utilities State approval 11

12 Low Income Housing Tax Credits (LIHTC) 9% competitive LIHTC Each state gets $2.70 per capita in LIHTC Program managed by Homes and Community Renewal 4% as of right LIHTC Must be coupled w private activity tax exempt bond Program managed by Housing Finance Agency (HFA), a division of HCR State Low Income Housing Credit (SLIHC) State tax credit that supplements equity raise Investment from investors in exchange for state tax credits Units can be workforce (60 90% AMI) Need other sources of soft financing HOKME/CDBG Other sources from HCR/HFA Federal Home Loan Bank 12

13 Ponemah Mills Norwich CT One of largest industrial mills in country, 340,000 SF under roof Vacant and/or underutilized for decades Reuse involves rehab for 314 residential lofts 3-phase project 13

14 Ponemah Mills, Norwich CT Adaptive Reuse into Residential Lofts 14

15 Challenge Ponemah Mills Evolution of a Deal Structure Cost ($28 million) > As Complete Fair Market Value ($14 Million) To cover $14 million appraisal gap, needed to maximize tax credits, both historic and housing, as well as city and state incentives But..City officials wanted to limit affordability 15

16 Final Capital Structure SOURCES OF FUNDS % of Uses Commercial Loan 7,500,000 24% Developer Equity 4,411,258 14% Federal Historic Tax Credit Equity 5,090,663 16% State Historic Tax Credit Equity 4,140,000 13% Federal Housing Tax Credit 3,901,418 13% Deferred Developer Fee 945,743 3% State of Connecticut CHAMP 4,979,027 16% TOTAL 30,968, % 60% Equity 16

17 Monetizing Federal Tax Credits Equity from Federal RTC Equity from Federal LIHTC RTC Basis $26,792,963 LIHTC Basis $26,792,963 Credit 20% Less RTC ($5,358,593) Credits $5,358,593 Adjusted Basis $21,434,370 Price/$ 0.95 Applicable Fraction (Affordable Units) 59% RTC Equity $5,090,663 Adjusted Basis $12,539,107 Credit 3.31% Annual Credit $415,044 Years 10 Credits $4,150,444 Price/$ 0.94 LIHTC Equity $3,901,418 17

18 Ponemah - Lessons Learned Developer Capacity Critical Financial strength to cover upfront predevelopment work and carrying costs Experience w complicated tax credits Need tenacity and patience Mixed-income often winning formula 100% affordable not desirable Difficult to get subsidy on all market rate housing Present program for Phase I is 60/40 affordable/market Recreating a marketplace requires cutting edge public private partnership Much coordinating between all agencies involved Tax Credits were difference maker Could not attract sufficient equity with just historic tax credits Program needed affordable units in order to raise equity off of LIHTC State rehabilitation credit was crucial to supplement the equity form federal rehabilitation tax credit 18

19 Completed Photos 19

20 Completed Photos 20

21 Completed Photos Common Area Space 21

22 Wyandanch Rising Suffolk County, NY 22

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25 Wyandanch Rising Suffolk County, NY Wyandanch one of most distressed areas in Long Island and all of NYS Very little private investment attracted to Wyandanch in several decades Development Program Walkable Suburban Transit Oriented Development (TOD) Mixed-Use Mixed-Income Asset Based Development Train Station Initial Steps before development Land Assemblage Infrastructure Investment by Town Remediation Sewer Service Land Use Approvals Form-Based Code Land Disposition Process RFQ/RFP 25

26 Mixed-use and Mixed-Income Wyandanch Rising Mixed-Use and Mixed-Income 40,000 square feet ground floor retail Multi-tiered affordability structure Market, Workforce, and Affordable Building A Building B TOTAL PERMANENT SOURCES OF FUNDS 9% LIHTC 4% LIHTC 1st Mortgage and Tax Exempt Bond 13,850,000 14,000,000 27,850,000 37% Federal Housing Tax Credit Equity 12,516,400 9,892,925 22,409,325 30% State Housing Tax Credit Equity 4,500,000 4,500,000 9,000,000 12% Developer Equity 1,636,560 3,500,000 5,136,560 7% Deferred Developer Fee 635,155 2,050,885 2,686,040 4% NYS Housing Trust Fund 2,088, ,088,000 3% NYS Neighborhood Stabilization Fund 0 370, ,000 0% NYS Homes for Working Families 0 1,976,000 1,976,000 3% Town HOME 0 330, ,000 0% Suffolk County Infrastructure Fund 1,540,000 1,725,000 3,265,000 4% TOTAL 36,766,115 38,344,810 75,110, % 89% 11% Private Public 26

27 Wyandanch Rising LIHTC Equity Building A Building B 9% LIHTC 4% LIHTC Basis $32,000,000 Applicable Fraction 64% Boost % Adjusted Basis $26,416, % 3.21% Annual Credit $847,954 Years 10 Total Credit $11,000,000 $8,479,536 Price/$ $1.14 $1.17 LIHTC Equity $12,516,400 $9,892,925 27

28 Wyandanch 28

29 M&F Bank Adaptive Reuse Bridgeport, CT Before After 29

30 Former Bank Vacant for 25 years M&F Bank Bridgeport, CT Cost ($18 million) > As complete FMV ($9 million) Remediation Need, both asbestos and PCB Federal and state historic tax credits and Brownfields funding were crucial funding sources USES OF FUNDS $18,510,914 SOURCES OF FUNDS Bank $5,475,000 30% State of CT CHAMP $3,500,000 19% State of CT Brownfields $400,000 2% City of Bridgeport Brownfields $800,000 4% Federal Historic Tax Credit Equity $3,176,944 17% State Historic Tax Credit Equity $2,214,000 12% Developer Equity $1,523,334 8% Deferred Developer Fee $1,421,636 8% TOTAL $18,510, % 30

31 M&F Building 31

32 New Markets Tax Credits (NMTC) Federal Commercial Tax Credit NMTC program is operated through the Community Development Financial Institution (CDFI) Fund, a division of the U.S. Treasury Designed to spur investment and promote economic development in rural and urban low-income communities Provides investors a credit against federal income tax liability for a qualified equity investment (QEI) Annual awards made to Community Development Entities (CDE) The CDE is a pass-through entity for the credits Primary mission of the CDE must be to benefit LICs NMTC = 39% of the QEI taken over 7 years 5% for each of the first 3 years 6% for each of the next 4 years Private investment of.30 for every $ 32

33 Bijou Square - Bridgeport Before After 33

34 Bijou Square USES OF FUNDS $4,800,000 SOURCES OF FUNDS Loan $2,450,000 Developer Equity $700,000 TOTAL $3,150,000 Two Tax Credits Used To Fill Gap Rehabilitation Tax Credit (RTC) Historic Building Historic District New Markets Tax Credits (NMTC) In deeply distressed census tract Commercial development Used as basis to strengthen and reestablish market in CBD GAP ($1,650,000) 34

35 Monetizing Historic Tax Credit and NMTC Historic Tax Credit Historic Tax Credit Basis $2,800,000 20% $560,000 Price/S 85% Equity Raised $476,000 New Market Tax Credit Investor Loan $2,450,000 NMTC Equity Investment $1,174,000 Total Investment (QEI) $3,624,000 NMTC Investment $1,174,000 NMTC $1,413, % of QEI NMTC Price/$ 83% 35

36 NMTC Structure 36

37 Bijou Square Interior Photos Bijou Theater Repurposed Former Ballroom 37

38 Winner of 2013 Timmy Award Best Historic Rehab w New Construction Historic Rehab New Construction 38

39 Real Estate Tax Exemptions through PILOTs In NYS, through Industrial Development Agencies (IDAs) Uniform Tax Exemption Policy Payment in Lieu of Taxes (PILOT) If Pay Taxes at Full Assessment, development often is not feasible But for the use of PILOT, development not financially feasible Size PILOT in order to create financial feasibility Cost-Benefit Analysis Tax Increment Benefit to Development UTEP provide guidance for targeted development 39

40 New Rochelle Story Ambitious redevelopment plan for downtown Approvals for 12 million square feet of development 6,370 residential units 1,200 hotel rooms 2 million SF of office space 1 million square feet of retail space 40

41 New Rochelle Story Ingredients for success Master development agreement Form-based code and Zoning Update Predictability w land use approval Generic Environmental Review SEQRA for entire downtown overlay zone Predictability w RE taxes Guidance w PILOT policy Updated UTEP Overlay zone Live/Work and Cultural facilities Affordable Housing 41

42 Schedule A New Rochelle PILOT Policy Uniform Tax Exemption Policy Uniform Tax Exemption Policy (UTEP) RESIDENTIAL - % ABATEMENT COMMERCIAL - % ABATEMENT Year of 20 Years 15 Years 10 Years 485(b) 20 Years 15 Years 10 Years 485(b) TCO Maximum benefit Maximum benefit intended for early intended for early On-going benefit Maximum benefit Maximum benefit intended for early intended for early On-going benefit years of overlay years of overlay years of overlay years of overlay Scaled down benefit intended for mid years of overlay Scaled down benefit intended for mid years of overlay 1 90% 100% 100% 50% 100% 100% 100% 50% 2 70% 100% 100% 45% 95% 93% 90% 45% 3 50% 55% 55% 40% 90% 87% 80% 40% 4 50% 51% 48% 35% 85% 80% 70% 35% 5 50% 47% 41% 30% 80% 73% 60% 30% 6 50% 42% 34% 25% 75% 67% 50% 25% 7 50% 38% 28% 20% 70% 60% 40% 20% 8 50% 34% 21% 15% 65% 53% 30% 15% 9 50% 30% 14% 10% 60% 47% 20% 10% 10 50% 25% 7% 5% 55% 40% 10% 5% 11 50% 21% 0% 0% 50% 33% 0% 0% 12 45% 17% 0% 0% 45% 27% 0% 0% 13 40% 13% 0% 0% 40% 20% 0% 0% 14 35% 8% 0% 0% 35% 13% 0% 0% 15 30% 4% 0% 0% 30% 7% 0% 0% 16 25% 0% 0% 0% 25% 0% 0% 0% 17 20% 0% 0% 0% 20% 0% 0% 0% 18 15% 0% 0% 0% 15% 0% 0% 0% 19 10% 0% 0% 0% 10% 0% 0% 0% 20 5% 0% 0% 0% 5% 0% 0% 0% 42

43 Creating Predictability w RE Taxes Works 43

44 For More Information Kevin F. Gremse Senior Director Eastern U.S. National Development Council 24 Whitehall Street New York, NY