On Thursday, May 23rd, 2019, the CDFI Fund announced $3.5 billion in New Markets Tax Credits. For many of my clients, this is the announcement that we’ve rumored about, argued about, bet on, and even caused some to lose sleep! For months and months we’ve been closely listening to the rumors about this award announcement, starting calls with “have you heard anything about when the award will be announced?” and attending conferences in the hope that CDFI Fund staff would offer us one. single. clue.
Now that the announcements are finally here, what should projects in need of NMTC facilitated financing do? Below is a list of five items I suggest as immediate next steps for project sponsors looking to secure allocation from this latest announcement round. In my experience, a lot of the allocation is already spoken for, even before announcements are made! If an Allocatee put your project in their pipeline for their application, you should start by following up with them to see what additional information they request and what are the next steps prior to securing a formal reservation letter. For those projects that are not already known to Allocatees, do not worry! Pipeline projects shift and ‘fall out’ all the time, leaving opportunity for other projects to grab some allocation. I am working with several projects who are eager to start construction now, before it gets too cold and “winter conditions” add expense to the construction contract.
Here is my “Post-Announcement To Do List” that I work through with my clients:
- Carefully review the award book. Pay attention to the geography served by the CDE and their intention with the NMTC. Look up the CDE and see if your project fits within their target. For example, if you are a real estate project in Wisconsin, you are not a good fit for a CDE that exclusively serves operating business projects in the New England region.
- Update your project offering memo. You want to be able to send this current memo with a click of a button during or immediately following a conversation with a CDE. And yes – I always start with a phone call. Always. The project memo should include, at a minimum: project overview, capital stack, timeline, community impacts, and expressed need for NMTC (a/k/a the “but for” statement). Tell your project story and back it up with solid, vetted numbers. Clearly articulate your closing timeline.
- Call or email your CDE contact and request their intake form / mission fit questionnaire. Fill it out – immediately! I aim to turn these forms around within 48 hours if at all possible.
- While you are talking with a potential CDE, ask these three questions:
Do you have any feedback and/or questions about my project?
Is this a good fit for your CDE? Why or why not?
If it IS a good fit: What is the process and timeline for securing a reservation letter? (See above item about intake form request). If it is NOT a good fit? Channel Ariana Grande and offer a “thank u, next.” And then call the next CDE on your list. CDEs and projects, like the stock market, sometimes shift their priorities based on allocation available, projects falling through, application strategy, and more. Always keep your CDE relationships informed of your project, even if their first reaction is that it is not a fit. I always hear that as, “Not a good fit at this time.”
- Continue working through the pre-closing checklist, clearing “lead time items” such as environmental assessment, permitting schedules, zoning confirmations, and more. The most important lead time item is that you have the rest of your capital stack committed.
The few weeks following the NMTC award announcement are crucial for projects that plan to break ground in Q3 and Q4 of 2019. The good news is that CDEs are eager to move allocation so that they can show closings prior to the cut-off date for the 2019 NMTC allocation application (and who knows when that will be announced!).
For projects that do not anticipate a Q3 or Q4 2019 construction start, now is a good time to be submitting your project for CDE pipeline for the next allocation application. Start building those strong relationships now so that when next year’s announcements are made, you will be ready to accept a reservation letter.
Congratulations to the CY 2018 Round Allocatees!