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U.S. Bancorp
Community Development Corporation
(“USB CDC”)
Presented by:
Robert Wasserman
Western Region Manager
June 1, 2006
(213) 615-6647
Robert.wasserman@usbank.com
1
USBANCORP COMMUNITY DEVELOPMENT
CORPORATION
• Overview
• Low-Income Housing Tax Credits
• Historic Tax Credits
• New Markets Tax Credits
• State Tax Credit Clearinghouse
2
OVERVIEW
3
OVERVIEW - WHAT ARE TAX CREDITS?
• Tax Credits provide a REDUCTION/METHOD OF PAYING
federal and/or state income tax liabilities
• Tax Credits are NOT a reduction of taxable income
4
OVERVIEW - HOW DO TAX CREDITS RAISE CASH EQUITY?
• Real Estate Projects or CDE’s are awarded tax credits
• Developers need cash equity (not tax credits)
• Large corporate tax payers acquire the tax credits by paying
cash equity
• Large corporate tax payers receive tax credits, net losses and
some “upside”/return on investment
– Deal structures are often very complicated and expensive
5
LOW-INCOME HOUSING TAX CREDITS
6
WHAT ARE LIHTC?
• Federal program started in 1986 to create more affordable
housing; overview of program
• A ten year reduction in Federal income taxes for owners of
qualified rental housing projects.
• For Qualifying Projects:
– Tenant income is limited to 60% or less of the Area Median
Income
– Unit rental rate (including a utility allowance) cannot exceed
30% of this income limitation
– New construction or rehab
7
LIHTC PROJECT TYPES:
• Must be RENTAL housing
– New construction
– Rehabilitation
• Senior housing
• Single family, scattered site rental
• Multi-tenant rental
• Single room occupancy
• Housing for mentally or physically handicapped
8
LIHTC ALLOCATION PROCESS – how do you get them??
• ALLOCATION CREDIT - Tax credits are issued
annually by the local state housing agency through a
COMPETITIVE PROCESS. DEVELOPMENTS are
awarded tax credits based on total cost of the project
and how its development meets each separate
states’ criteria
• Amount of credits based on population of state
– $1.75 per resident for 2002, indexed for inflation after 2002
• Each state determines its own allocation process and its own
“needs” assessment
9
LIHTC FINANCING STRUCTURE:
Traditional LIHTC Apartment Financing
Conventional Apartment Financing 50%
Equity
20% Permanent
50% Debt
Equity
Permanent
80% Debt
Urban or Very Low Income LIHTC Financing
50%
Equity
Permanent
20% 30% Debt
Soft Debt
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Highland Park
Milwaukee, Wisconsin
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Highland Park
Milwaukee, Wisconsin
• Developer: Housing Authority of the City of Milwaukee
• Total Development Cost: $12 million
– USB TE Equity: $7,300,000
– USB loan: $1,790,000
– Federal HOPE VI funds $5,500,000
• 114 units
• Tenants: low-income seniors and disabled
• Unique features of project:
– “Green roof” covering the building made from special type of living
plant. This captures a significant amount of the storm water runoff, and
provides insulation to the building, reducing the heating and cooling
cost of the building. Believed to be the largest green roof on any
residential development in the nation
– First floor of the Project includes 15,000 square feet of community
space, including a medical clinic, counseling center, dining area, beauty
and barbershop, spiritual center and fitness center
12
8 NW 8 Project
Portland, Oregon
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8 NW 8 Project
Portland, Oregon
• Developer: Central City Concern (CCC)
• Total Development Cost: $18.4 million
– TIF financing: $10mm
– USB TE Equity: $4.4mm
– USB loan: $3mm
– Developer Equity: $1m
• 180 units: 120 SRO and 60 Studio
• Tenants: formerly homeless or at risk of becoming homeless
– 10 units reserved for tenants with HIV/ AIDS
– 10 units reserved for women exiting jail
• Unique features of project:
– First two floors are occupied by a drug and alcohol treatment facility
• Project built on an underutilized site between the older part of town and the
trendy Pearl district.
• Fully occupied in 75 days.
14
HISTORIC TAX CREDITS
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WHAT ARE HISTORIC TAX CREDITS?
• 20% Federal Credit for Historic Rehabilitation
– Calculated on the amount of the historic rehabilitation
• 100% of the Federal Tax credit is earned in the year the building is
completed and “placed in service”
• Administered by the National Park Service, U.S. Department of the
Interior
• Minimum of 5 year holding period
16
HISTORIC PROCESS: how do you get them?
• “ENTITLEMENT” CREDIT – Tax Credit is allocated to
“eligible” buildings that comply with the program
requirements:
• Part I - Building must be on National Register of Historic Places or
contribute to a Certified Historic District
• Part II - Department of Interior/State Historic Preservation Officer
approves final rehabilitation plans and specifications for program
compliance
• Part III - Department of Interior certifies that building rehabilitation
was done in conformance with historic standards.
17
HISTORIC PROJECT TYPES
• Must be RENTAL Property:
– Office
– Retail
– Housing
– Hotel
– Mixed Use
18
10th Street Lofts
Des Moines, Iowa
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10th Street Lofts
Des Moines, Iowa
• Transaction Type: Federal Historic Tax Credits
• Developer: Massman Group
• Total Development Cost: $10,300,000
US Bank Federal Historic Tax Credit Equity: $1,700,000
Glaser Financial / HUD 221(d): $6,500,000
Developer Equity: $1,600,000
City of DesMoines TIF $500,000
• Historic Use: Herring Motor Car Company Building; New Use: Residential/94-
Unit Market Rate, Loft-Style Apartments
• 10th Street Lofts is serving as a catalyst for a once light industrial neighborhood
which has slowly been converting to a desirable residential and job producing
neighborhood. Recent neighborhood employers and attractions include:
Wells-Fargo headquarters
Allied/Nationwide Insurance headquarters
New Science Center
New Library
Iowa Events Center
Riverwalk 20
NEW MARKETS TAX CREDITS
21
NEW MARKETS TAX CREDITS
• Initial guidance issued by CDFI Fund in April 2001
• Financial incentive to attract $15 billion of private equity
investment over next 7 years into distressed communities
• Amount of NMT is based on 39% of qualified investment in a
specific authorized governmental approved entity - “CDE”
• Program uses include both real estate and business lending and
investments in certain specified qualified census tracts
22
NEW MARKETS TAX CREDITS
• Allocation Credit – Tax credits are initially
allocated to governmental approved entities
Community Development Entities (“CDE’s”)
that determine which projects to allocate tax
credits
• What can the credit do for your community?
– Increased Equity Funds
– Reduced Hard Debt
– Reduced Interest Rates
– Increased Reserves
23
New Markets Tax Credit
Basic Rule: Program is administered by Community
Development Financial Institutions Fund (CDFI).
Investors make Cash Qualified Equity Investments
(QEIs) into qualified Community Development
Entities (CDEs) that make Qualified Low Income
Community Investments (QLICIs) by investing
Substantially All of the cash proceeds into Qualified
Active Low Income Community Businesses
(QALICBs)
24
NMTC –CDFI
(Community Development Financial Institutions Fund)
• US Treasury agency responsible for certification of
CDE’s, the allocation of tax credits and the oversight
of the NMTC program
25
NMTC – QEI (Qualified Equity Investment)
• Cash equity investment as to which a tax credit
allocation has been received, “substantially all” of
which is used to make a QALICB.
26
NMTC – CDE – (Community Development Entities)
• Application Process – must be certified by CDFI Fund
• Mission - must serve or provide investment capital to
Low Income Communities
• Accountability - must have representation of low
income community individuals on governing or
advisory board.
• Structure – can be LLC, Partnership or Corporation
– Managing Member (.01%) with Non-Managing Member
(99.9%)
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NMTC – QLICI (Qualified Low Income Community Investments)
• Equity investment or loan to QALICB
• Purchase of qualifying loan from a CDE
• Equity investment or loan to CDE
• Financial counseling or other services
28
NMTC - QALICB (Qualified Active Low Income Community
Business)
• Low-Income Community
– Census tract with poverty rate of 20% or
– Median family income is less than 80% of
avg. median family income of metropolitan
area of state
• Excludes certain “sin” businesses
29
Three Tiers:
UPPER TIER: “QEI” $$$’s come in and must be
INVESTED into a:
MIDDLE TIER: “CDE” ENTITY: COLLECTION OF QEI
$$$’S which must make a “QLICI” into a:
THIRD TIER: “QALICB” PROJECT LEVEL ENTITY
30
NMTC BASIC STRUCTURE
NMTC Investor
$3.9M Tax Credit and
$10M QEI Cash return
Operating costs, fees, etc. Allocates 3.9M
$1,000,000
CDE
Tax credits for
10M investment
CDFI Fund
$9M Loan @ 7% Return – Annual
Interest
QALICB
31
NMTC LEVERAGED MODEL
NMTC Investor Lender
Tax Credit $7M
$3.9 M Economic return
$3M Equity loan
7% (80% LTV)
Investment LLC
$10M QEI Return
Allocates 3.9M
Operating costs, fees, etc.
Tax credits for
$1,000,000 CDE 10M investment
CDFI Fund
$7M Loan @ 7% Return – Annual
$2M Equity or 0.5% Loan Interest
QALICB
32
33 East Main
Madison, Wisconsin
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33 East Main
Madison, Wisconsin
• Transaction Type: New Market Tax Credit
• Developer/CDEs: Urban Land Interests
• Total Development Cost: $23,000,000
US Bank New Market Equity $6,500,000
Johnson Bank Debt $16,500,000
• Office Building: 133,000 square foot, 9-story office building on the
Capitol Square of Madison, Wisconsin. Also includes 793 below
ground parking spaces.
• Anchor tenants include: Various law firms, bank offices, and
architecture & design firms. First floor includes walk-up banking
and restaurant retail.
• Building is presently being considered for various architectural
achievement and design awards.
34
Armory Theatre
Portland, Oregon
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Armory Theatre
Portland, Oregon
• Transaction Type: New Market and Federal Historic Tax
Credits
• Development Team & Financing Managed by Portland Family
of Funds:
Portland Development Commission
Art Theater Fund
Portland Historic Rehabilitation Fund
Armory Real Estate Holding
• Total Development Cost: $36,000,000
US Bank Historic Tax Credit Equity: $3,150,000
US Bank New Market Tax Credit Equity: $8,400,000
US Bank Debt: $13,000,000
Portland Development Commission: $4,600,000
Art Theater Fund: $4,000,000
Other Contributions: $2,850,000
36
Armory Theatre
Portland, Oregon
• Historic Use: First Regiment Armory Annex – Original home of
the Oregon National Guard
• New Use: A performing arts theater to house Portland Center
Stage, Portland’s largest regional theater company
• In addition to serving as the home for Portland Center Stage,
the Portland Armory rehabilitation is being undertaken with the
goal of creating a facility that is open to the community during
non-theater hours and contains educational programming
presented through video, audio, and live events (speakers,
performances, etc.), a café, and rental opportunities.
• The Portland Armory is targeting Platinum LEED certification,
an accomplishment which, if achieved, would make it the only
building on the National Register of Historic Places to be
certified at the highest level of sustainable design.
37
City Center
Salt Lake City, Utah
• Transaction Type: New Market and Federal Historic Tax Credit
• Developer: Artspace
• Total Development Cost: $8,000,000
US Bank New Market Tax Credit Equity: $1,900,000
US Bank Federal Historic Tax Credit Equity: $1,200,000
US Bank Debt: $2,700,000
Developer Equity: $650,000
Fundraising: $1,550,000
• Historic Use: Railway warehouse built in 1904.
• New Uses: Residential Units: 18 market rate
• Commercial: 23,000 square feet, consisting of 8 artist studios and office
• Located adjacent to a burgeoning arts and entertainment district, City Center
serves to compliment the surrounding area. Artspace is a 501(c)(3) dedicated to
mixed-use developments which include affordable housing, cultural amenities and
commercial activity
• Dedication and ribbon-cutting scheduled for September 15, 2006
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