Overview
Locke Lord attorneys have closed more than $1.5 billion new markets tax credit (“NMTC”) financings and represented investors, community development entities (“CDEs”), lenders, borrowers and other participants since the inception of the NMTC program. We maintain a continuous dialogue with the IRS, the US Department of the Treasury, the Community Development Financial Institutions Fund (“CDFI Fund”), and other governmental agencies.
Our attorneys have closed many transactions involving highly complex “capital stack” structures that balance minimizing the cost of capital and nontraditional and flexible financing terms to borrowers, maximizing the internal rate of return to investors and lenders, and maximizing community impact. For example, our attorneys have closed transactions involving:
- Identifying all sources and uses of financing to maximize economic returns and minimize costs of capital, including construction and permanent financing; taxable and tax-exempt bonds; tax-increment financing; grants; venture capital; historic tax credits; renewable energy tax credits; state subsidies (including state NMTCs); HUD subsidies; SBA subsidies; and USDA subsidies etc.;
- Using multiple CDEs;
- Combining NMTCs with HTCs, renewable energy tax credits;
- Bifurcating NMTCs and LIHTCs in the same transaction;
- Using “targeted population” rules in NMTC transactions; and
- Prefunding “qualified equity investments.”
With respect to our representation of any transaction participant, we offer all legal services involved in a NMTC financing, including those relating to:
- Evaluating and negotiating term sheets to identify potential business and economic issues;
- Advising clients with respect to their business, legal and federal and state tax and regulatory issues; negotiating and closing original NMTC transactional documents with respect to real estate financing and business operation loans, as well as subsequent syndication transaction documents;
- Advising and assisting clients with respect to title, environmental, zoning and land use issues;
- Assisting transaction participants with compliance reviews;
- Providing applicable enforceability, tax and other opinions;
- Counseling in the event or threatened event of recapture, default, foreclosure, and refinancing;
- Providing expert testimony or other services in litigation or IRS or CDFI Fund audits; and
- Providing updates regarding change in law or other guidance.
Investors
Locke Lord works closely with investors (including large, regional and local financial institutions and widely-held corporations) in:
- Assisting in creation of underwriting criteria;
- Drafting form documents;
- Assisting in evaluation of CDEs and borrowers with respect to underwriting criteria;
- Assisting in structuring to maximize internal rate of return and reduce payment default and recapture risk;
- Evaluating whether NMTC financing has “economic substance;”
- Identifying and negotiating specific guarantees and indemnifications needed;
- Negotiating secondary market transactions; and
- Assisting with establishing a “track record” to apply for their own allocation of NMTCs.
Leverage Lenders
Locke Lord works closely with leverage lenders (including large, regional and local financial institutions and widely-held corporations; bond issuers; and borrower affiliates) in:
- Assisting in creation of underwriting criteria;
- Drafting form documents;
- Structuring to minimize risk of industry standard 7-year forbearance (including exceptions, first mortgages, reserve requirements, permitted accelerated principal payments inside and outside the NMTC financing structure and alternative sources of guaranty and indemnification); and
- Assisting with establishing a “track record” to apply for their own allocation of NMTCs.
CDEs
Locke Lord works closing with potential CDEs and existing CDEs, including:
- Assisting entities with respect to forming, qualifying and being certified as CDEs by the CDFI Fund;
- Assisting CDEs in preparing, reviewing, and filing allocation applications with the CDFI Fund;
- Assisting CDEs in negotiating allocation agreements with the CDFI Fund;
- Assisting in creation of underwriting criteria consistent with CDE mission, allocation agreement and application, and recapture anti-abuse rule;
- Drafting form documents;
- Assisting tax-exempt organizations with respect to special issues (such as consistency with charitable purpose, private inurement, parameters for any joint venture to avoid revocation of tax-exempt status; and guarantee and indemnification issues); and
- Assisting cities, states and other governmental authorities to comply with their applicable tax, governmental, administrative and regulatory requirements.
Borrowers
Locke Lord works closely with developers and borrowers, including:
- Evaluating eligibility for NMTCs (such as the “but for” test, “shovel ready” requirement, and available CDE and investor underwriting criteria);
- Assessing risks (such as construction, operating deficits, payment, environmental and recapture guarantees and indemnifications);
- Evaluating economic and noneconomic benefits;
- Assisting in identifying investors, leverage lenders and CDEs based on the type and location of project or business;
- Assisting to prepare initial packet presented to investors and CDEs (such as executive summary, borrower and development team resumes and proposed sources and uses of funds (and flowchart thereof));
- Evaluating NMTC financing terms to confirm such terms (directly or indirectly) are nontraditional and flexible within the meaning of the NMTC program, including minimizing cost of capital;
- Negotiating “exit” strategy to minimize adverse tax consequences and risk of investor/CDE failure to “put” their interests;
- Assisting in organization of borrower, single purpose vehicles and divisions that receive NMTC financing;
- Assisting and reviewing CDE and investor intake forms;
- Assisting tax-exempt organizations with respect to special issues (such as consistency with charitable purpose, private inurement, parameters for any joint venture to avoid revocation of tax-exempt status, monetizing charitable donations as source of leverage; and guarantee issues);
- With respect to property acquisition, coordinating acquisition closing with NMTC financing, structuring and drafting acquisition documents, and negotiating bridge, construction or permanent financing; and
- With respect to developers, negotiating amount, terms and timing of developer fee.
Other Tax Credits
Locke Lord represents all transaction participants involving federal and state historic tax credits, low-income-housing tax credits and renewable energy tax credits. We are involved in all areas of community development.
Historic Tax Credits
The federal 10% and 20% historic tax credits (“HTCs”), as well as many state HTCs, continue to be a significantly successful and cost-effective subsidy for real estate investment and community revitalization. HTCs are based on the “qualified rehabilitation expenditures” of either buildings placed in service before 1936 or certified historic structures.
Our attorneys handle all aspects of HTC transactions, including but not limited to analyzing and recommending optimal structures for the transaction (such as direct investment or master lease structuring), providing federal and state tax advice, counseling clients and working with accountants to ensure the proper treatment of HTCs and other tax benefits, providing customary enforceability, tax and other opinions, and advising with respect to compliance with federal and state securities and other regulatory laws. Our attorneys have structured, drafted, reviewed, documented, negotiated, and closed numerous HTC transactions representing investors, developers, lenders and other transaction participants. Additionally, our attorneys are involved in reviewing project compliance with standards established by the United States Secretary of the Interior; facilitating communications with the National Park Service and State Historic Preservation Officer (or consulting firms with respect thereto).
Renewable Energy Tax Credits
Federal and state energy tax credits for qualifying renewable energy facilities, such as wind, solar and geothermal power plants, continue to create valuable subsidies to owners and valuable investments to investors. Additionally, Section 1603 of the American Recovery and Reinvestment Act provides cash grants for qualifying renewable energy facilities.
Locke Lord represents developers, investors and other sources of financing of renewable energy facilities, including all aspects of federal and state tax law, including structuring the transactions (such as flip partnerships, master lease structures, or sales-leaseback), and we negotiate contracts with power purchasers, equipment installers and utility companies.
Low-Income Housing Tax Credits
The federal low-income housing tax credit (“LIHTC”) provides a 4% (in the case of tax-exempt bond financing) or 9% (if the applicable state agency has provided an allocation) tax credit based on “eligible basis” and “qualified basis.”
Locke Lord has substantial experience using various financing vehicles, such as low-income housing tax credits, tax-exempt bonds, traditional commercial loans, and HUD programs, for the development of multifamily and single family housing. We utilize a team approach, providing our clients with solutions in real estate, tax, finance, construction, and related matters as needed. Our attorneys combine this legal experience with industry knowledge and professional contacts to serve our clients efficiently and effectively. Together, we have worked on hundreds of affordable housing finance transactions for properties across the country.
In addition to our transactional work, we actively represent clients in administrative matters before local, state, and federal housing agencies. Our clients include for-profit and non-profit developers, lenders, investors, governmental agencies, trade associations, and bond issuers, underwriters, and trustees. Representing a variety of parties in the affordable housing industry gives us a breadth of contacts and perspective that benefits our clients in each and every matter.
Real Estate Practice
Locke Lord is involved in all aspects of the real estate component common to many tax credit transactions, including negotiating key project contracts relating to acquisition, finance, leasing, zoning, tax abatement, property management and entity formation.
Our attorneys recognize today's real estate transactions are increasingly complex, and timing is everything. Our attorneys represent a diversified client base in real estate transactions including real estate investment trusts, pension funds and their advisors, public and private university and healthcare systems, development companies, investors, homebuilders, contractors, hotel companies, commercial banks, insurance companies, savings and loan associations and finance and leasing companies. Our services include legal representation in connection with:
- Acquisitions and dispositions;
- Ground leasing;
- Commercial leasing and subleasing;
- Acquisition, development and construction financing;
- Conduit loans;
- Participating and convertible loans;
- Land use, entitlements and natural resources;
- Development representation involving consultants, contractors, engineers, architects and joint use and access issues;
- Partnership and joint venture structuring and negotiation;
- Property sales, leasing and management;
- Development risk management and tax counseling;
- Public and public/private improvement projects, including cost sharing, development and reimbursement agreements;
- Tenant in common structures and related tax free exchanges;
- Equity participations;
- Defeasance transactions;
- Sharia compliant transactions;
- Intercreditor agreements, loan syndications, participations and subordinations;
- Co-lending agreements, senior/subordinate, pari-passu;
- Letters of credit and credit enhancement transactions;
- Interest rate caps, swaps and collars;
- Financial derivatives;
- Master servicer, special servicer, REMIC issues;
- DUS lending, Fannie Mae/Freddie Mac financing;
- Military housing;
- Campus housing;
- Sale/leasebacks;
- Mortgage warehousing;
- Tax credits, affordable housing, new markets, historic;
- Lines of credit (secured and unsecured);
- Mezzanine and subordinate tranche financing; and
- Workouts, foreclosures, creditor’s rights and bankruptcy.