The Michigan Magnet Fund, Inc is a broad based statewide nonprofit 501-c-3 organization organized by a consortium made of the Michigan Economic Development Corporation, Great Lakes Capital Fund, and the Michigan State Housing Development Authority to compete for an allocation of new market tax credits from the CDFI Fund. In 2005, it won an allocation of $60,000,000 and invested the funds in 10 projects located in 6 cities. Each one had a brownfield tax credit, 6 had federal historic tax credits, and six had mixed use developments.
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The MMF, as of September 1, 2007 has closed on $60 million in loans to ten projects. In 2009 it won an additional $60 million.
The Michigan Magnet Fund is made up of a Board of Directors which includes the economic development leaders of several of the key urban areas of the state and the northern rural community, the three statewide organizations plus CEDAM which effectively represents the community development corp-orations throughout the state. To this mix we add representatives of the financial community that made a commitment to finance the corporation's investments. Approximately 30% of the members are designated as representatives of low income communities.
See Organization for a list of the members.
Under the program, investors in the MMF receive a 39% tax credit spread over seven years. It is distributed at 5%/year for the first three years and 6%/year for the following four years. The capitalized market value of the tax credit is approximately 26% to 30% of the Qualified Equity Investment (QEI) in MMF. MMF must in turn make a Qualified Low Income Community Business Investment (QALICI) in a Qualified Low Income Community Business (QLICB).
Based on current financial markets, the major priority of financial institutions is to make relationship investments instead of transactional investments. They are looking to manage the business’ total investment and fund transfers. The biggest hurdle, will be obtaining the debt portion of a leveraged transaction. In today’s market there appears to be access to the equity portion of the tax credit structure – the major issue will be pricing. |
QUALIFIED LOW INCOME COMMUNITY
A Qualified Low Income Community is defined as a census tract having a median family income less than 80% of the median family income of the metropolitan area or the state or has a poverty level of 20% or more. In addition 75% of the investment must have at least one additional indicator of distress such as being in an SBA HUB Zone, HOPE VI site, Enterprise Community, state TIF area or state identified redevelopment area, or has a median family income of less than 60% or a poverty level of 30% or more. You can check your project's eligibility by following the process under Eligible Areas. 23% of the Magnet Fund’s investment must be in projects located in non-metropolitan (rural) area.
QUALIFIED LOW INCOME BUSINESS
A Qualified Low Income Business is almost any business located in a low income community that provides services in the low income community. Most real estate projects are self fulfilling since they are physically in the low income community. The details can be found as you prepare the Preapplication and Full Application. The businesses or its tenants cannot be golf courses, gambling establish-ment, liquor store, collectibles, or rental housing. Mixed-use develop-ment where the commercial part generates more than 20% of the annual revenue can contain apartments. The NMTC investment must be at least $2 million and MMF has a cap of $10 million.
The structure of a typical financing is described in two documents – Michigan Magnet Fund NMTC Financial Description and Michigan Magnet Fund NMTC Historic Finance Description. |
The MMF has a two step process. Under Step 1, the QLICB prepares a Preapplication which is a short application submitted for staff and Investment Committee review. All of the Preapplications are presented to the Investment Committee for review and recommendation. The Investment Committee then makes a recommendation to the Board of Directors to invite the best projects to submit a Full Application and a non refundable check for $5,000.
Based on the Full Application, the staff will make a recommendation to the Investment Committee. Depending on the structure of the project, the MMF investment will generally be a loan or a loan and equity with a combined interest only cost equal to about 75% of the market interest rate for the seven year holding period. Depending on the need of the project it will either sell the loan at a deep discount to the Developer at the end of seven years or negotiate a repayment of the loan.
The Board of Directors of the MMF hired AAB Development Strategies, LLC to help manage the investment portion state's New Markets Tax Credit financing program. Great Lakes Capital Fund acts as the servicing and compliance reporting arm of MMF.
A fuller description of the program is outlined in the attached Power Point presentation. Any Developer searching for information on the operation of the program should view it.
If you don't have Power Point on your computer you may down-load the free Power Point Viewer from Microsoft in order to view this presentation. |
