Transaction terms vary greatly by investor, deal size, competitiveness and risk, and the overall supply and demand conditions in the tax credit marketplace.
Master Tenant Structure
NTCIC typically employs the industry standard “Master Tenant” or “credit pass through” ownership structure. While it is relatively complex, and costs more to close, the Master Tenant legal model offers a better deal for both the investor and the developer. Nonprofits may also use the Master Tenant ownership structure, as shown below. The for profit subsidiary must make the 168(h) election under the IRC to avoid the creation of tax-exempt use property and a disallowance of the credit.
Sample Master Tenant Structure Diagram (click to enlarge):
Leveraged Transaction Structure with NMTC and HTC
Transactions involving the New Markets Tax Credit are increasingly using leverage structures to maximize the amount of NMTC allocation available to a project. While each leverage transaction often requires a unique structure, the basic premise is that multiple project sources — such as developer equity, conventional loans, and any grants or fundraising — are pooled together by lending them as a series of Senior and Subordinate Leverage Loans to a Leverage Investment Fund. The Tax Credit Investor also contributes the NMTC tax credit equity generated by these sources to this Investment Fund and becomes the 100% owner, thus entitling the Investor to 100% of the tax credits that will be passed through the structure. The aggregated funds are contributed as a Qualified Equity Investment (QEI) to the CDE, which enables the Leverage Investment Fund to claim the NMTC. The CDE then passes the QEI on to the QALICB as Qualified Low-Income Community Investments. Typically, there will be a number of QLICIs, including one or more loans directly to the Owner or Lessor (the QALICB) and an equity investment through the Master Tenant ownership model discussed above, enabling the pass-through of the historic tax credits through the structure, as well.
Sample Leverage Structure Diagram (click to enlarge):