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Description
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Eligible Areas
Underwriting Criteria
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MMF's New Market Tax Credit
Underwriting Criteria
MMF must make its investment in Real Estate Projects. A new building for a business
is not considered a real estate project, i.e., factory for a manufacturer, building for
nonprofit to conduct its own business. If the MMF receives a new 2007 NMTC allocation, it will be permitted to invest in operating businesses.
MMF must make its investment in Michigan.
The following are the criteria used to determine the selection and size of the
Qualified Equity Investment to be Offered each Qualified Low Income
Community Business (QLICB)
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Creating job opportunities for residents of low-income communities (census tracts) is the top priority,
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90% of the MMF investments must be made in targeted distressed areas which have
more than just 20% poverty or 80% median family income, i.e., Brownfield,
Redevelopment Area, 30% poverty, 60% median family income, HOPE VI area,
Empowerment Zone, etc.
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Located in traditional down towns and/or in support of significant development “nodes”,
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needed to support low-income neighborhood development initiatives supported by Michigan State Housing Development Authority (MSHDA) or Great Lakes Capital Fund (GLCF)
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Must be able to demonstrate that project construction will be able to begin within six months of the MMF commitment.
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Geographic Diversification - the projects financed by MMF should represent the different
geographic areas of the state including urban and rural areas with the total allocation limit of no more than 40% allocated to any one municipality.
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The project must meet MMF's "but for" test which is defined as costs exceeding
value of the project as determined by appraisal. The new market tax credit portion of
the investment will cover the deficit between total cost (after deducting other tax credit
investment and grants) and value as determined by appraisal. In these cases, the
portion of the NMTC needed to cover the gap will be putted to the QLICB
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If the shortfall is due to lack of equity, the MMF will receive a return of its
investment using an equity investment or a subordinated low interest loan, interest only for 7 years and with a
no more than a 15 year amortization, thereafter.
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The Developer shall make a minimum equity investment that meets the following
criteria, whichever is larger.
......a. As a rule, the NMTC portion must be equal to the Developer's Equity
......b. The Owner Equity must be at least 5% of Total Source of Funds, or
......c. In all cases, the Owners' Equity Investment must be equal or greater than the
Developers’ Fee, and/or
.....d. If the Owner invests equity larger than any of the above, it will be accepted.
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For non profits, the Developer Fee is included as an Equity Investment in the
Sources of Funds to calculate NMTC needed to balance out the Sources of Funds.
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Smallest NMTC Investment Allocation = $2 million
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Largest NMTC Investment Allocation = $10 million
At no time can the aggregate investment be made to related entities
Preference will be given to financial institutions and investors which have previously committed to invest in the MMF as evidenced in its NMTC application.
95% of all MMF investment shall be flexible, non conventional, or nonconforming to
the MMF’s underwriting guidelines or standard practice in the marketplace.
An business must pass the following regulatory tests to be eligible
to receive a NMTC
allocation.
- Separate Business Test
The ownership entity must maintain a complete set of books and records for the
eligible site?
- Ongoing Business Test
The ownership entity must have revenue within three years of closing on the
allocation, submit letter.
- Gross Income Test
At least 50% of the total gross income of the ownership entity will be derived
from the active conduct of a qualified business within the low income area
- Tangible Property Test
40% of the use of tangible property of the ownership entity be within the low
income community described herein
- Low Income Community Test
At least 40% of the services performed for the ownership entity by its employees
are performed in a low-income community. (% is determined based on a fraction
the numerator of which is the total amount paid by the entity for employee
services performed in the low income community and the denominator of which is paid by the entity for employee services
- 5% Asset Test
Less than 5% of the average of the aggregate unadjusted basis of the property of
such can be entity attributable to non qualified financial property such as debt,
stock, partnership interest, options, futures, forward contracts, warrants, annuities,
etc.
- Related Party Test
In order to assure that MMF is not a related party, the Capital Contribution by
the MMF must always be less than 50% including the reduction of its partner's
Capital Account due to the depreciation of the property.(during 7 year holding
period).
- Profit Motivation Test
If historic tax credits are used, the business must demonstrate that it is profit motivated. The financial projections must indicate
that the total equity (including HTC + NMTC) can be repaid over the duration of
the debt financing plus a 3% IRR to the Investment Fund and at least 0% to
the Owner. We need to check with the investor to determine what they find
acceptable. In some cases, the Investor may find a 2% return acceptable.
These projections can exceed the 7 year holding period and are normally for the
term of the financing. There is no profit motivation test for a NMTC project that does not include Historic Tax Credits
- Real Loan Test
This test is primarily needed when financing nonprofit organizations. The Project
Financial Analysis must indicate that the loan can be paid off over the term of the
loan or that the property will have a value in excess of the loan thereby indicating
the ability to refinance or to sell the property to repay the loan. The repayment of
the loan can be proven by showing that the property value will increase and then
can be sold to satisfy the debt while at the same time making principal payments to
reduce the debt after the 7 year holding period. The CAP rate used to project
value should be the same one used in the appraisal unless a different one can be
clearly justified. MMF requires an appraisal that indicates that the after
construction value of the property be equal to or greater than the QLICI loan.
The MMF cannot invest in apartments or in Low Income Housing Tax Credit Projects. Investment in for-sale housing is a "business investment" and not considered a real estate investment. The MMF can invest in mixed-use developments where the residential rental income is less than 80% of the total gross income.
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