Those who work in the community development field know that funding delays are to be expected. With the recent government shutdown, anxiety around the timing of NMTC awards has been amplified.
On Monday, February 11, The CDFI Fund announced that New Markets Tax Credit allocation awards for the calendar year 2018 NMTC Program application round will be delayed. The CDFI Fund anticipates that the allocation awards announcement will occur during spring 2019. Womp womp.
Hope Community Capital is working with several NMTC-facilitated financings that are scheduled to close in spring 2019, with a construction start in early summer. With NMTC award announcements anticipated in spring, this could create a 4 – 8 week delay in closing. If your project is in a similar situation, here are five things (plus a bonus item) you can do right now as you eagerly await the allocation announcement
1. Keep your project in front of prospective CDEs. Make sure that you keep the relationships with prospective CDEs “warm” and inform them about any changes in project budget or scope due to the announcement delay. I like to check in about every 3 weeks with prospective CDEs. Use this opportunity to clarify the CDEs’ allocation reservation process, investment approval process, and provide any diligence information they may request
2. Start working through the closing checklist. Ask for a sample closing checklist from your anticipated NMTC Investor. Start working on “gating” or “lead time” items so that when award announcements are made, you can get busy securing allocation reservation letters from CDEs and represent a “closing ready” project. Items such as survey and title, environmental assessment, and municipal approvals often cause delays to closing. Get started on these items now so that closing will be efficient.
3. Work with your General Contractor to anticipate and plan for the impact of funding delays. Are bids still valid? Will the cost of materials increase or decrease? In some cases, the project owner may elect to go ahead with construction even though allocation announcements have not been made and allocation has not yet been secured for the project. I recommend avoiding this route since it is assumed that “but for” the NMTC allocation, the project would not move forward. Early start construction often complicates closing.
4. Review pre-incurred costs. Remember, only those costs incurred within 24 months of closing may be considered as leverage source in NMTC transactions. Will the delay cause some of these pre-incurred costs to become ineligible as a source of leverage? If so, how will this impact the project sources and uses?
5. (Nonprofit projects sponsors) Update your Board of Directors. For many nonprofits, NMTC facilitated financing is a new prospect. As Boards of Directors become more familiar with the program, it is important to keep them in the loop in terms of what this closing delay may mean for construction start. I recommend inviting your project consultant and GC to join the Executive Director in briefing the board on how the project timeline will be managed in light of a potential delay in the start of construction.
BONUS: Add your organization to this sign-on letter to our 116th Congress calling for a permanent extension and expansion of the NMTC. Letter available at the NMTC Coalition.
If you have any questions about what you could be doing to keep the momentum of your project moving ahead during this announcement delay, please reach Carrie Sanders at: firstname.lastname@example.org