The Reinvestment Fund New Markets Tax Credit Portfolio Review 2004-2014
Acknowledgements Report prepared by Lanzi Li New Markets Tax Credit Intern August 2014 For more information, please contact Christina Szczepanski, Senior Portfolio Manager at 215-574-5879 or Christina.Szczepanski@trfund.com
The author would like to extend special thanks to Christina Szczepanski, Senior Portfolio Manager of TRF, for her insightful advice and guidance, and continuous mentoring. The author is also grateful for the support and input given by the following staff of TRF and business owners. The Reinvestment Fund Theresa Irizarry, Financial Manager Caroline Rosch, Risk Analytics Manager Lance Loethen, Research Associate Molly Melloh, Loan Officer Desmond Hudson, Portfolio Manager Arielle Wolfson, Loan Portfolio Associate Maryann Tancredi, Senior Loan Portfolio Associate Mindi Lamb, Loan Closer Kavita Vijayan, Marketing Manager Sara Landis, Development Associate Morgan Spade, Marketing Manager World CafĂŠ Live & Real Entertainment Group Hal Real, Founder and CEO Buccini/Pollin Group Karl Wagner, Co-Chief Investment Officer
Contents Executive Summary
5
Index
7
TRF NMTC Program Highlights
8
01 Project & Investment Attributes
14
02 Geography & Eligibility
20
03 NMTC Deal Structure and Participant Attributes
24
04 NMTC Project Financing
30
05 Outcomes and Impact Assessment
34
06 The Economics of NMTC projects to TRF
40
Appendixes
42
1.1 PROJECT ATTRIBUTES 1.2 QLICI ATTRIBUTES 1.3 INVESTMENT TREND 1.4 PROJECT TYPE PROFILES
2.1 GEOGRAPHIC DISTRIBUTION 2.2 GEOGRAPHIC TREND 2.3 TARGETING AREAS & ELIGIBILITY
3.1 DEAL STRUCTURE 3.2 NMTC PARTICIPANTS 3.3 TAX CREDIT INVESTOR 3.4 TRF ROLES
4.1 FLEXIBLE PRODUCT 4.3 NMTC TRANSACTION COSTS AT CLOSING
5.1 PROJECT-LEVEL OUTCOMES 5.2 CASE STUDY—QUEEN THEATER
INTRODUCTION 6.1 ECONOMIC BENEFITS AS CDE 6.2 ECONOMIC BENEFITS FROM OTHER ROLES
I. SOURCES II. SUMMARY OF CALCULATION ASSUMPTIONS
Executive Summary New Markets Tax Credit is a federal program that was authorized under the Community Renewal Tax Relief Act of 2000 and is jointly administrated by the CDFI Fund of the U.S. Treasury and the Internal Revenue Service (IRS). This program is a community and economic development initiative that aims to attract investment into businesses and real estate in low-income communities. Combining expert knowledge with innovation and determination, TRF identifies the point of impact where capital can deliver its greatest financial and social return. With our most recent award of $43 million in 2014, TRF has been awarded for 11 rounds of NMTC allocation, totaled $408 million Qualified Equity Investment (QEI) since 2004, and deployed $355 million. TRF has financed 39 projects in low-income communities. These projects have created more than 3,200 full-time jobs and 9,600 construction jobs. This report analyzes the portfolio at the project level. All the analysis is based on the data of the 39 closed projects. Below are some key findinds from the analysis:
FAST FACTS •
Tax Credits Awards. TRF has been awarded $408 million tax credit allocation from the CDFI Fund since 2004.
•
Number of Projects. From 2004 to 2014, TRF has invested in 39 NMTC real estate projects.
•
Geography. TRF investments expand over six States, including Pennsylvania, New Jersey, Maryland, District of Columbia, Delaware and Wisconsin.
•
Project Types. TRF NMTC has made investment in four major business sectors: Commercial Real Estate, Education, Food Access and Health Centers.
•
QLICI. TRF has made $355 million qualified investments in low-income communities.
•
Project Size. NMTC project has totaled $696 million in project costs, with a median project cost of $15.2 million.
•
Largest Project. The biggest project that TRF invested was the Sun Center Studio, a commercial real estate art project that costs $61 million.
•
Target Investment Areas. 97% of TRF NMTC projects are located in severely distressed communities populated by low-income and unemployed households.
•
Job Generation. NMTC projects have generated 3,275 full-time and part-time jobs, and have created 9,605 construction jobs.
•
New Construction. TRF has developed 3,008,022 total square feet through its NMTC projects, and has created 81,298 seats for students through the charter school projects.
TRF NMTC PORTFOLIO REVIEW
5
6
TRF NMTC PORTFOLIO REVIEW
Index Year Closed Fund
Project #
Project
2004
I
1
Island Avenue Shoprite
2005
II III
2 3
The HUB Commercial Mixed Use Avenue North Retail Shopping Center
2007
IV IV IV IV IV IV IV V
4.1 4.2 4.3 4.4 4.5 4.6 4.7 5
Crane Arts Jersey City Community Charter School Progress Plaza - Developer Imani Charter School Center for Architecture Community Charter School of Paterson Broadnu Enterprises (Fresh Grocer) University Crossing
2008
VI VI
6.1 6.2
Villita Artes Parkside Shoprite, Haverford Shoprite
2009
VII VIII IX X X XI XII
7 8 9 10.1 10.2 11 12
LCCS - Learning Community Charter School Bucknell University Bookstore Queen Theater Fresh Grocer - 4 Store Buyout Fresh Grocer - New Stores Sun Center Schmidt's Retail
2010
XIII XIV XV
13 14 15.1
Darby Save-a-Lot Homewood Suites Golden Door Charter School
2011
XV XV XV XVI
15.2 15.3 15.4 16
Pan-American Charter School LEAP Charter School - STEM campus Meridian Public Charter School Newark Farmers Market - Phase I
2012
XVII XVIII XIX XX XXI
17 18 19 20 21
MICA Graduate Studio Center PHN - Punxsutawney FQHC Henderson Hopkins School Bottino Shoprite Fare and Square - Philabundance
2013
XXII XXIII XXV XXVI XXVII
22 23 25 26 27
Howard Park Shoprite Wissahickon Charter School - Awbury Campus Episcopal Cathedral Center 11th Street Health Center - Drexel Progressive Health Center
2014
XXVIII XXIV
28 24
Center Theater Eastern Shore Conservation Center
TRF NMTC PORTFOLIO REVIEW
7
TRF NMTC Program Highlights 2004-2014 TEN YEAR OVERVIEW
MILLION $ $100M
80
$75M
60 $38M
40
20
2002
2000
NMTC program was established as part of the Community Renewal Tax Relief Act of 2000.
2001
First round of NMTC award allocation by the CDFI Fund
2003
2005
2004
TRF’s first year to receive NMTC Award
Total NMTC awards to TRF
39
Total NMTC projects invested since 2004 TRF NMTC PORTFOLIO REVIEW
U.S. Housing price peaked in early 2006
2007
The subprime mortgage crisis led to the collapse of the United States housing bubble.
$408M
8
2006
TRF NMTC PROGRAM HIGHLIGHTS
2007-09
GLOBAL FINANCIAL M CRISIS
NMTC AWARD TRF QUALIFIED LOWINCOME COMMUNITY INVESTMENT QEI DEPLOYED
$90M $75M
$42M
2009 2008
Housing and Economic Recovery Act of 2008 was enacted to address the subprime mortgage crisis.
President Obama signed $787 billion economic stimulus package U.S. National Unemployment rate reached the highest—10.1% and started to decrease afterwards
$43M
2014
2010
The Dow Jones Industrial Average finally reached its lowest point on March 9, 2009
$45M
2011
2012
TRF’s first NMTC investment in health sector
2013
2015
YR
TRF’s first NMTC project outside of the MidAtlantic region
TRF’s first QLICI loan was 2012 Home price refinanced after reached the lowest the seven-year compliance period
3,275
Total Full-time jobs Equivalence generated
3,008,022
Total square feet developed
TRF NMTC PROGRAM HIGHLIGHTS
TRF NMTC PORTFOLIO REVIEW
9
COMMERCIAL REAL ESTATE (CRE)
THE HUB
2005
VILLITA ARTES (HANDS)
2008
PHILADELPHIA, PA
ORANGES, NJ
The Hub is a mixed-use, nine-story tower financed with $21.2 million in NMTC loans from TRF. Located in a distressed West Philadelphia community with a 67% poverty rate, the project is designed to serve the long-term interests of community residents and build on the assets of the University of Pennsylvania.
TRF provided leverage loans and NMTC financing for the acquisition and development of four clustered, mixed-use properties in the Valley Arts District. The redevelopments include a 26,000 sqft space that houses a performing arts facility, artist gallery, retail and educational space, restaurant and music venue, and ten residential and artist live/work units.
AVENUE NORTH
2005
QUEEN THEATER
2009
PHILADELPHIA, PA
WILMINGTON, DE
The Avenue North project brought 66,000 square feet of retail space and a 27,000-square-foot, 7-screen movie theater to a highly distressed neighborhood with a 55.3% poverty rate in North Philadelphia. Creating 75 new jobs and 634 construction jobs, this project contributed to the City’s Broad Street revitalization plan.
Returned to its glory, this 45,000-square-foot theater provides arts, entertainment, and educational programs to the community with an emphasis on cultivating local artists. The project created more than 260 construction jobs and up to 50 full-time jobs, and spurred the revitalization of downtown Wilmington.
CRANE ARTS
SUN CENTER
2007
2009
PHILADELPHIA, PA
ASTON, PA
Renovated from a former bath fixtures warehouse and horse stable, Crane Arts building is home to small art studios, workspace and event performance space. The $4.2 million NMTC financing enabled the building to offer belowmarket-rate rent to its tenants. It has spurred additional art development in the neighborhood.
TRF partnered with Consortium America, Commonwealth Cornerstone Group and City First Capital to provide $39 million in NMTC financing for the construction of Sun Studios. This 174,000-square-foot campus houses sound stages, technical shops and management offices for motion pictures and television productions.
CENTER FOR ARCHITECTURE PHILADELPHIA, PA
2007
TRF provided $2.2 million in NMTC financing for the acquisition and pre-construction of the retail front of the historic Young Smithfield Building in Philadelphia’s Center City. The exhibit and gallery space houses the American Institute of Architects (AIA), AIA Bookstore and Design Center, while creating synergies with the Convention Center.
UNIVERSITY CROSSING
2007
BUCKNELL BOOKSTORE LEWISBURG, PA
2008
This project relocated Bucknell University’s campus bookstore to Lewisburg’s historic downtown district as part of the School’s $100 million initiative to strengthen the greater Lewisburg community. The bookstore self-financed the project with HTC and $9 million of NMTC loans from TRF for both construction and permanent financing.
HOMEWOOD SUITES
2010
CHESTER, PA
PHILADELPHIA, PA
TRF and Sovereign Bank provided $19.8 million in NMTC financing to this mixed-use development project in a distressed community. Featuring retail space, a 60-room hotel, 57 apartments and a plaza, this project offers a gateway to Widener University that serves the student body and the surrounding residential neighborhoods.
Homewood Suites is a ten-story, 136-suite extended stay, Hilton managed hotel project financed with $17.5 million in NMTC from TRF and $11.8 million from PIDC. Located in a distressed West Philadelphia neighborhood, this project created 34 full-time jobs and 589 construction jobs.
10 TRF NMTC PORTFOLIO REVIEW
TRF NMTC PROGRAM HIGHLIGHTS
FOOD ACCESS
EPISCOPAL CATHEDRAL CENTER
2013
PHILADELPHIA, PA TRF led the NMTC financing for the $15 million, 41,000 square feet mixed-use development next to the Philadelphia Episcopal Cathedral. Located in a neighborhood with an 83.2% poverty rate, this project and the adjacent 25-story apartment tower under construction will contribute to the continue renaissance of West Philadelphia.
CENTER THEATER BALTIMORE, MD
2014
The project brought NMTC and HTC financing for the $18.7 million historic renovation of the Centre Theater into a multi-tenant commercial property anchored by a joint lease with the Maryland Institute College of Art and Johns Hopkins University for new academic programs in film and gaming.
EASTERN SHORE
2014
EASTON, MD With $7 million in NMTC financing from TRF, this project will transform a long-abandoned 23,000 square feet complex of historic buildings to a hub of offices for nonprofit environmental organizations in a non-metro area. This project also links to other downtown revitalization efforts. FOOD ACCESS
ISLAND AVENUE SHOPRITE PHILADELPHIA, PA
2004
BROWN’S SUPERSTORES
2008
PHILADELPHIA, PA TRF provided $12.5 million in NMTC financing to Brown’s Superstores in order to refinance existing debt, renovate Brown’s existing supermarket facility located on Haverford Avenue and enter into a lease of a newly erected structure on North 52nd Street. This project has created 139 full-time jobs.
FRESH GROCER – 4 STORE BUYOUT 2009 PHILADELPHIA, PA TRF provided $10.5 million of NMTC financing for the ownership buyout of four Fresh Grocer supermarkets in Philadelphia. In addition to the tax credit financing, this project received grant funding from Pennsylvania Fresh Food Financing Initiative (FFFI). The ownership buyout allowed the company to retain 250 full-time jobs.
FRESH GROCER – NEW STORES
2009
PHILADELPHIA, PA TRF provided $8.9 million of NMTC financing to Fresh Grocer for the construction of two supermarkets serving the La Salle and Temple University communities, neither of which had a full-service grocer in many years. This project created 240 full-time jobs and 682 temporary jobs during construction.
SCHMIDT’S RETAIL
2009
PHILADELPHIA, PA
This 57,000-square-foot supermarket was TRF’s first NMTC project. It is located in Southwest Philadelphia’s Island Avenue neighborhood, which is home to some of the City’s poorest communities. TRF provided $5 million in NMTC financing for the project acquisition, fit-out and equipment, which created 258 jobs.
Schmidt’s Retail is a transit-oriented development built on the former Schmidt’s Brewery in Northern Liberties, Philadelphia. The project transformed the former brownfield site into a vibrant complex with seven retail tenants including a 51,000-square-foot full-service supermarket. The supermarket and other retail shops provide 215 FTE for local residents.
PROGRESS PLAZA
DARBY SAVE-A-LOT
PHILADELPHIA, PA
2007
TRF provided $13.7 million in NMTC financing to support the redevelopment of Progress Plaza, the nation’s oldest African-American owned and operated shopping center. The plaza is anchored by a 46,000-square-foot Fresh Grocer supermarket. Located in an area with a 55.2% poverty rate, this project created 283 construction jobs.
2010
DARBY, PA TRF provided $10.3 million in NMTC financing for the construction of a 42,000 SF shopping plaza featuring a Save-a-Lot supermarket, which provides savings of up to 40% compared to conventional grocery stores. This project created 185 jobs at tenant businesses in a severely distressed neighborhood. TRF NMTC PROGRAM HIGHLIGHTS
TRF NMTC PORTFOLIO REVIEW 11
FOOD ACCESS
NEWARK FARMERS MARKET NEWARK, NJ
EDUCATION
2011
JCCCS
2007
JERSEY CITY, NJ
TRF and Consortium Capital provided $18.7 million in NMTC financing for the construction of a $45 million, 180,000 sqft refrigerated warehouse that meets LEED standards. This project features space dedicated to warehousing operations with the capacity to accept 23 million packages of fresh produce for distribution.
JCCCS has been in operation since 1997, making it one of the first charter schools to open in New Jersey. TRF provided $7 million in NMTC financing for the construction of a 17,000 sqft addition onto its existing facility, adding 14 classrooms, a gymnasium and a cafeteria. This project created 102 construction jobs and 596 seats.
BOTTINO SHOPRITE
IMANI CHARTER SCHOOL
VINELAND, NJ
2012
TRF provided $9.2 million in NMTC financing for the construction of a $22.7 million, 79,000 squarefoot retail center anchored by a Bottino’s ShopRite supermarket, a federally qualified health center, and three other retail spaces. The retention of this business saved 135 FTE and created an additional 75 FTE.
FARE & SQUARE
2012
2007
PHILADELPHIA, PA Imani is an African-centered K-8 school in the Germantown neighborhood. TRF provided 7.5 million in NMTC for the acquisition of 61,600 square feet office and retail building which they renovated into a school facility. This project retained 51 full-time jobs and enabled Imani to continue its operation with a renewed charter.
CHARTER SCHOOL OF PATERSON
2007
CHESTER, PA
PATERSON, NJ
Fare & Square grocery store is operated by Philabundance, Delaware Valley’s largest nonprofit hunger-relief organization. The $7 million in NMTC financing from TRF and Non-profit Finance Network brought in a full scale fresh-producefeatured grocery store that has not been available to local residents for more than a decade.
With $7.9 million in NMTC financing toward the acquisition and construction, this 101,000 squarefoot start-up charter school can accommodate 1,080 students. It opened with an enrollment of 350 K-3 grade students. TRF NMTC financing will last through its first charter renewals, helping the school establish credibility for future financing.
HOWARD PARK SHOPRITE
2013
LCCS
2009
BALTIMORE, MD
JERSEY CITY, NJ
In 2013, TRF and City First Bank partnered to provide $14.65 million in NMTC financing toward the construction and permanent financing of a ShopRite supermarket in the Howard Park neighborhood, which has been without a grocery store for over a decade. The ShopRite opened in July 2014 and created 250 jobs.
$6.7 million NMTC financing from TRF enabled the school to move from its former cramped quarters into a three-story facility with resources that reflect the quality of the school’s curriculum. This project involves a leverage loan and NMTC equity from JPMorgan Chase, and created 19 full-time jobs and 558 new seats.
GOLDEN DOOR CHARTER SCHOOL 2010 JERSEY CITY, NJ The Jersey City Golden Door Charter School was among the first charter schools in NJ and the first to benefit from JPMorgan Chase and TRF’s $50 million NMTC Charter School Fund. NMTC loans funded the move into a larger, renovated facility with a gymnasium and specialized classrooms for art, computers and music. 12 TRF NMTC PORTFOLIO REVIEW
TRF NMTC PROGRAM HIGHLIGHTS
PAACS
WISSAHICKON CHARTER SCHOOL 2013
2011
PHILADELPHIA, PA
PHILADELPHIA, PA
With $11.3 million NMTC loans funded through JPMorgan Chase and TRF NMTC Charter School Fund, PAACS moved into a newly constructed education and training center that can accommodate 717 students in K-8. It also provides one of the few dual-language education options for Philadelphia’s growing Latino population.
TRF provided $12.5 million in NMTCs with JPMorgan Chase as the equity provider, to support the construction of a new facility for Wissahickon Charter School, a high-performing Philadelphia K-8 school. The transaction supports WCS’ replication to a second campus that will ultimately serve 478 students.
LEAP - STEM CAMPUS
2011
CAMDEN, NJ LEAP Charter School is the only charter school project in our NMTC portfolio that serves students from 9-12 grades. With $10 million in NMTC financing from TRF, this project created 51 new jobs, retained 103 jobs and created 195 construction jobs in a severely distressed neighborhood with a 56.7% poverty rate.
MERIDIAN CHARTER SCHOOL
WASHINGTON, DC
2011
The $12.5 million in NMTC financing from the Chase Charter School NMTC Fund enabled Meridian Public Charter School to move out from its limited space and perform leasehold improvements to the historic Harrison Building in which they continue to serve 525 students in K-8.
MICA GRADUATE STUDIO CENTER 2012
BALTIMORE, MD
The six-story MICA Graduate Studio Center was transformed from a 100-year-old warehouse, with $12.87 million in NMTC financing from TRF. This renovation has stimulated further investment in the Station North Arts and Entertainment District, a severely distressed neighborhood with an unemployment rate four times the national average.
HENDERSON HOPKINS SCHOOL
2012
BALTIMORE, MD TRF provided $8 million in NMTC financing to the Henderson Hopkins School, a Johns Hopkins Partnership School for the $57.5 million construction of a 118,000 square-foot campus. The K-8 school will accommodate 540 students. It is the first new school built in East Baltimore in 25 years.
HEALTH CENTERS
PHN - PUNXSUTAWNEY FQHC
2012
PUNXSUTAWNEY, PA TRF and JPMorgan Chase provided $11.5 million of NMTCs to Primary Health Network (PHN) for the construction of a 50,400 sqft facility in a highly distressed, non-metro location. The new site features 30 medical and behavioral health exam rooms, and allows PHN to double its total patient visits to 38,000 per year.
11TH ST HEALTH CENTER—DREXEL 2013 PHILADELPHIA, PA A FQHC in a severely distressed community of North Philadelphia used $9.5 million of NMTC financing to increase patient capacity by 43%. The facility began in 1996 as an effort between Drexel University and the Philadelphia Housing Authority to address the health issues of public housing residents through health promotion, disease prevention and access to primary care.
PROGRESSIVE HEALTH CENTER
2013
MILWAUKEE, WI This $12 million project brings a new 42,000-square-foot facility serving more than 30,000 patient visits annually in a medically underserved community. The project began as part of the Community Health Center Financing Initiative, a national partnership with the Low Income Investment Fund and TRF with support from the Kresge Foundation. TRF NMTC PROGRAM HIGHLIGHTS
TRF NMTC PORTFOLIO REVIEW 13
01 Project & Investment Attributes 1.1 PROJECT ATTRIBUTES PROJECT OVERVIEW
COMMERCIAL REAL ESTATE (CRE)
EDUCATION
•
TRF has invested in 39 projects in four major business sectors, including Commercial Real Estate (CRE), Education, Food Access, and Health Centers. Aggregate project cost of our entire NMTC portfolio has amounted to $696 million.
•
CRE, Food Access and Education projects have the largest presence in terms of the total number of projects and total project costs. Together, projects in these three categories take up 95% of the total project costs.
FOOD ACCESS
HEALTH
39
Total NMTC projects invested
$696M
13
12
11
$313
$156
$184
3
# OF PROJECTS
$36 MILLION $
Total NMTC projects costs
MEDIAN PROJECT COST
$15.4M
Median NMTC Portfolio project cost
•
Average project cost largely varies across different project types. The median project cost of our entire NMTC portfolio is $15.4 million.
•
CRE projects had the largest median project cost among the four project types. The median project cost of a CRE project is $18.6 million, 21% above the portfolio average.
•
The median project cost for Food Access projects ($15.5 million) is the closest to the portfolio average.
•
Health Center projects had the lowest median project cost (12 million), 23% below the portfolio average. $18,657,756
CRE FOOD ACCESS
$15,490,630 $12,500,000
EDUCATION
$11,971,646
HEALTH
$15,206,793
AVERAGE 0
14 TRF NMTC PORTFOLIO REVIEW
5
10
01 PROJECT & INVESTMENT ATTRIBUTES
15
20 MILLION $
PROJECT COSTS & DISTRIBUTION $3.8 M
Smallest project cost
$60M
$15.2M
Largest project cost
Median project cost
Total project cost has ranged substantially across all projects. The largest project was a $61 million Commercial Real Estate hotel project in West Philadelphia. The smallest was the $3.8 million Center for Architecture Commercial Real Estate. The median project cost was $15.2 million, and the average was $18.3 million. On a project-by-project basis, total project costs have a fairly balanced distribution. A large number of projects were in the $5 - $10 million or $15 $20 million project cost ranges. PROJECT COSTS # OF (MILLION $) PROJECTS
SHARE OF PROJECTS (%)
0-5 M
2
5.3%
5-10 M
10
26.3%
10-15 M
6
15.8%
15-20 M
10
26.3%
20-30 M
4
10.5%
> 30 M
6
15.8%
Total
38
100.0%
PROJECT COST DISTRIBUTION 15.8%
5.3%
PROJECT COSTS (MILLION $) 26.3%
10.5%
26.3%
15.8%
0-5 5-10 10-15 15-20 20-30 > 30
SUMMARY BUSINESS FUNCTION
# OF PROJECTS
SHARE OF PROJECTS (%)
TOTAL PROJECT COSTS ($)
SHARE OF TOTAL PROJECT COSTS (%)
MEDIAN PROJECT COST ($)
CRE
13
33.33%
$269,299,569
38.69%
$18,657,756
Food
12
30.77%
$216,246,489
31.06%
$15,490,630
Education
11
28.21%
$174,802,860
25.11%
$12,500,000
Health
3
7.69%
$35,775,783
5.14%
$11,971,646
Total
39
100.00%
$696,124,701
100.00%
$15,206,793
Project Attributes Summary
01 PROJECT & INVESTMENT ATTRIBUTES
TRF NMTC PORTFOLIO REVIEW 15
1.2 QLICI ATTRIBUTES FOOD $109M
CRE $121M
QLICI OVERVIEW Since 2004, TRF has made a total of $355 million Qualified Low-Income Community Investment (QLICI). 34% of the total QLICIs are in Commercial Real Estate, which represents our largest investment area. $109 million or 31% of total QLICIs are in Food Access, our second largest investment area. Since our investments in Health Centers started only two years ago, only $23.5 million QLICIs were made in Health Centers.
HEALTH CENTER $23.5M EDUCATION $101M
BUSINESS FUNCTION
QLICI AMOUNT ($)
SHARE OF TOTAL QLICI ($)
CRE
$121,253,380
34.12%
Food
$109,352,593
30.77%
Education
$101,278,674
28.50%
Health
$23,453,160
6.60%
Total
$355,337,807
100.00%
QLICI SIZE & DISTRIBUTION $2.2 M
Median QLICI
SMALLEST QLICI
Largest QLICI
•
Similar to the wide range of project costs, the size of total QLICIs invested in each project ranges greatly. Our biggest investment was the $21 million in QLICIs made to The HUB Commercial Mixed Use project and the smallest was the $2.2 million in QLICIs to the Center for Architecture. The median investment was $8.6 million in QLICIs.
•
Five to ten million is the predominant size of QLICI in our NMTC portfolio. Over a half of the projects fell in this category.
QLICI #OF (MILLION $) PROJECTS
16 TRF NMTC PORTFOLIO REVIEW
$21.2M
$9.2M
SHARE OF PROJECTS
0-5 m
5
12.82%
5-10 m
21
53.85%
10-15 m
9
23.08%
15-20 m
3
7.69%
25-30 m
1
2.56%
> 30 m
0
0.00%
Total
39
100.00%
01 PROJECT & INVESTMENT ATTRIBUTES
QLICI DISTRIBUTION 7.7%
2.6%
12.8%
23%
53.9%
QLICIS (MILLION $) 0-5 5-10 10-15 15-20 20-30 > 30
MEDIAN QLICI SIZE •
Different from the dispersed average project cost across, the average QLICIs are pretty similar across different project types. The median project QLICIs of our NMTC portfolio was $8.6 million.
•
Even though the median project cost of CRE projects are the highest, the median QLICIs we invested in CRE projects was the lowest.
•
MEDIAN QLICI SIZE ($) CRE FOOD ACCESS EDUCATION
$7,275,000 $9,356,297 $8,000,000 $8,453,160
HEALTH
$8,628,916
PORTFOLIO 0
2
4
6
8
10 MILLION $
Surprisingly, our investments in Food Access are usually large projects. The median project QLICIs of Food Access projects were highest among the four project types.
1.3 INVESTMENT TREND CUMULATIVE NUMBER OF PROJECTS # OF PROJECTS 15
CRE
12
•
When TRF started the NMTC investment in 2004, our first investment was in Healthy Food Access.
•
Prior to 2010, projects in CRE grew rapidly, and there has been at least one new investment in CRE every year. From early 2011 to late 2013, since we started to diversify our investment in different project types, no investment was made in CRE projects.
•
From 2010 to 2013, investment in education burgeoned. With the four Chase Charter School transactions closed in late 2010 and early 2011, the total number of education projects doubled and the accumulated investment in Education grew from $34 million to $101 million during 2010 to 2013.
•
In 2012, TRF made its first NMTC investment in Health Centers, thus expanded our NMTC portfolio to this fourth business sector.
EDUCATION FOOD ACCESS
9 6
HEALTH
3 0
04
05
07
08
09
11
10
12
13
14
CUMULATIVE QLICIS ($) AMT OF QLICIS ($) 150 120 90 60 30 0
04
05
07
08
09
10
11
12
13
14
01 PROJECT & INVESTMENT ATTRIBUTES
TRF NMTC PORTFOLIO REVIEW 17
1.4 PROJECT TYPE PROFILES COMMERCIAL REAL ESTATE (CRE)
$121M
•
$18.7M
Commercial Real Estate (CRE) represents TRF’s largest investment sector. 13 out of 39 projects are CRE projects, a total of $269 million in project costs, accounting for 33% of the total project costs of the entire NMTC portfolio. TRF has made $121 million QLICIs, or 34% of the total QLICIs in CRE projects.
•
On a project-by-project basis, project size of CRE is the largest among all project types. Median CRE project costs $18.7 million. On average, CRE project costs $21 million, 20% above the average of the entire portfolio.
•
Five out of 13 (38%) of the CRE borrowers are non-profit entities.
Total QLICIs invested in commercial real estate portfolio
Median CRE project cost
Avenue North Retail Shopping Center, Philadelphia PA
Crane Arts, Philadelphia PA
Primary Health Network, Punxsutawney PA
FOOD ACCESS
$109M
TRF has made more than $77 million QLICIs in supermarkets and other healthy food retail projects.
$9.4M
Median QLICI of Food Access projects are the highest.
18 TRF NMTC PORTFOLIO REVIEW
•
Food Access is the second largest asset class in our NMTC portfolio. TRF has invested $109 million QLICIs in twelve food access projects. These projects cost $216 million in total, or 31% of the total project costs of our entire NMTC portfolio.
•
On average, food access project costs $19.7 million, above the portfolio average of $18.3 million.
•
The median QLICI of Food Access projects are highest among the four project types.
01 PROJECT & INVESTMENT ATTRIBUTES
EDUCATION • •
The average education project cost is well below the average project cost for the entire NMTC portfolio. All but two of TRF’s investments in Education are charter schools, especially K-8 schools. Except for the STEM campus of LEAP Charter School, which serves student from 9-12 grades, all other schools serve student from kindergarten to eighth grade.
•
Education projects have more consistent NMTC equity investment partners than other types of projects.
•
Together, our NMTC Education projects have created more than 6,500 seats for students and nearly one million square feet space of facilities.
$101M
TRF has made $110 million QLICI loans to charter schools.
K-8
Nearly all schools in TRF’s NMTC portfolio are chartered to serve students in kindergarten to eighth grade.
6,500
More than 6,500 high quality seats have been created through the school projects in our Education portfolio.
Fare & Square Supermarket, Chester PA
Bottino Shoprite Supermarket, Vineland NJ
HEALTH CENTERS •
Health Center is a new business sector that TRF started financing through the NMTC program since 2012.
•
With only three projects and a total of $35.7 million in total project costs, Health Centers make up 5% of the total project costs of our NMTC portfolio, our smallest business sector.
•
On a project-by-project basis, the average project size is also the smallest among all project types. On average, health center project costs $12 million, about 35% below the average project cost of the entire portfolio.
•
TRF has invested $23.5 million, or 7% of the total QLICIs in Health Center projects. The average QLICI to health centers is $7.8 million.
Jersey City Community Charter School, Jersey City NJ
2012
Health centers are a new business area that TRF started investing in 2012.
01 PROJECT & INVESTMENT ATTRIBUTES
TRF NMTC PORTFOLIO REVIEW 19
02 Geography & Eligibility 2.1 GEOGRAPHIC DISTRIBUTION
Pennsylvania $ 220M Wisconsin $ 5.5M
New Jersey $ 67.7M
D.C. $ 12.5M Maryland $ 42.4M
Delaware $ 7.3M
TRF NATIONAL QLICI ($) DISTRIBUTION STATE
# OF PROJECTS
QLICI ($)
SHARE OF QLICI (%)
DC
1
$12,500,000
3.52%
DE
1
$7,275,000
2.05%
MD
4
$42,365,674
11.92%
NJ
8
$67,702,382
19.05%
PA
22
$219,994,751
61.91%
WI
1
$5,500,000
Total
37
$355,337,807
•
TRF’s NMTC projects are present in six States, including Pennsylvania, New Jersey, Maryland, Delaware, Washington D.C., and Wisconsin.
•
Our primary investment area is the Mid-Atlantic region. 23 projects or 59% of our total projects are located in Pennsylvania. 17 out of the 23 projects are located in Philadelphia area. New Jersey and Maryland are our second largest investment areas. Together, these three states have 92% of our NMTC projects.
1.55% 100.00%
$355M QLICI in PA, NJ, MD, DC, DE, and WI
Philadelphia TRF’s Primary Investment Area 16 NMTC projects $160 million QLICI (46%)
20 TRF NMTC PORTFOLIO REVIEW
INTRODUCTION
QLICIS •
The geographic distribution of QLICIs is similar to the distribution of number of projects.
•
Pennsylvania represents our major investment state, holding the largest amount of QLICIs of $220 million, taking up 62% of the total QLICIs of our entire NMTC portfolio. $160 million were invested in Philadelphia.
02 GEOGRAPHY & ELIGIBILITY
QLICIS DISTRIBUTION DC
PROJECT TYPES
$12.5M
DE
$7.3M
MD 28% NJ
CRE $42.4M
50%
54%
41%
PA
EDUCATION $67.7M
FOOD ACCESS 33%
45%
14%
8%
$220M
HEALTH
$5.5M
WI
50
0
100
150
$250M
200
PROJECT COST DISTRIBUTION DC
$16M $34M
DE MD 22% NJ
65% 59%
PA
$118M
35%
$115M 33%
50%
WI
11%
$402M
6%
$12M 0
100
200
300
400
$500M
NEW JERSEY •
•
New Jersey has the largest number of education projects and the largest amount QLICIs in our NMTC portfolio, with five education projects and a total of $36.6 million in QLICIs. The total amount of QLICIs invested in New Jersey accounts for 54% of our total investment in education.
Pennsylvania $ 220M
New Jersey $ 67.7M
Even though New Jersey has fewer projects in Food Access than in Education, the amount of total project costs in Food Access is the largest among all the project types.
MARYLAND •
Despite the fact that most of our investments in education are in New Jersey, Maryland has the largest share of total project costs in education.
D.C. $ 12.5M Maryland $ 42.4M
PENNSYLVANIA •
•
Pennsylvania has the largest number of projects and total amount of QLICIs in CRE, Food Access and Health Centers, compared to other states. TRF has made nine NMTC investments in CRE and Food Access in Pennsylvania, respectively. The total amount of QLICIs in CRE has totaled $99 million, much larger compared to the $72 million total investments in Food Access.
Delaware $ 7.3M
QLICI Distribution by business types in the Mid-Atlantic Region
02 GEOGRAPHY & ELIGIBILITY
TRF NMTC PORTFOLIO REVIEW 21
2.2 GEOGRAPHIC TREND •
TRF first started its NMTC investment in Pennsylvania. From 2005 to 2009, the project number and amount of investments in Pennsylvania grew rapidly. Since 2010, as we started to extend the geographic region of our investments, the project growth rate in Pennsylvania started to slow down.
•
In 2007, TRF made its first NMTC investment in New Jersey, which has become our second largest investment state since then.
•
Our investment in Maryland began in 2012, but the number of projects and the amount of total investments has been growing rapidly. Within two years, we have five projects and a total of $42 million in QLICIs present in Maryland.
•
In 2013, the Health Center investment in Wisconsin was our first NMTC investment outside the Mid-Atlantic region, which furthered our plan to expand investment activities nationally.
CUMULATIVE QLICIS IN EACH STATE $250M
200
150
PA NJ MD DE DC WI
100
50
0
2004
2005
2007
2008
22 TRF NMTC PORTFOLIO REVIEW
2009
2010
2011
2012
02 GEOGRAPHY & ELIGIBILITY
2013
2014
2.3 TARGETING AREAS & ELIGIBILITY NMTC program targets investments in low-income census tracts, generally characterized by a high poverty rate and a low median family income relative for Area Median Family Income. Beyond meeting the minimal investment criteria, TRF especially considers the severely distressed criteria during project selection and made almost all of its investments in severe distressed communities. NMTC PROJECT DISTRIBUTION BY POVERTY RATE
POVERTY LEVEL •
30% threshold. Compared to the 40% national level, nearly 60% of our NMTC projects are located in areas with a poverty rate greater than 30%, which immediately qualifies the location as severely distressed.
•
25% threshold. Two thirds of our projects are located in census tracts with a poverty rate higher than 25%.
•
On a project-by-project basis, the median poverty rate of our investment areas is 32%.
14%
POVERTY RATE (%)
32% 19%
27%
8%
0-15 15-25 25-30 30-40 > 40
AREA MEDIAN INCOME (AMI) Another important measurement of a low-income community is the Area Median Income (AMI) as a percentage of the benchmarked AMI. •
•
60% Benchmark. 24 out of 39 (62%) of our NMTC projects are located in census tracts with an AMI under 60% of the benchmarked AMI, which immediately qualifies the communities as severe distressed. On a project-by-project basis, the median AMI of our investment areas is 48% of the benchmarked AMI.
62% Project location with an AMI below 60% of benchmarked AMI
SEVERELY DISTRESSED 97% of our projects were located in severely distressed areas. Most of these projects are located in census tracts that meet one of the three major severe distressed criteria: • • •
Greater than 30% poverty rate Lower than 60% of benchmarked median income Greater than 1.5 times the national average unemployment rate
97%
percentage of projects located in severely distressed communities
NON-METRO AREAS •
Only three projects in our NMTC portfolio are located in non-metropolitan areas.
MULTI-CENSUS TRACT •
Six projects (16.2%) in our NMTC portfolio involve multiple census tracts.
02 GEOGRAPHY & ELIGIBILITY
TRF NMTC PORTFOLIO REVIEW 23
03 NMTC Deal Structure and Participant Attributes 3.1 DEAL STRUCTURE DIRECT NON-LEVERAGE INVESTMENT MODEL The first NMTC project closed in 2004 was a direct non-leveraged deal. The project only involves a single investor that made a QEI in TRF who reinvested the funds in a QALICB. It was completely equity-financed by the parent company of the QALICB.
LEVERAGED INVESTMENT MODEL Except for the first NMTC project, all of the other deals used leveraged structure to bring in debt and equity capital. In a leveraged structure, the “Investment Fund” combines debt from “Leverage Lenders” and equity from a “NMTC Investor”, and then makes a QEI in a CDE that, in turn, makes QLICIs in a QALICB. Major participants in the Leveraged Investment Model are: Leverage Lender (debt investor who are interested in interest returns), NMTC Equity Investor (who receives tax credits deduction and return on capital), CDE and QALICB. Each of these roles can have multiple entities participate. NMTC LEVERAGED INVESTMENT MODEL
LEVERAGE LENDER
+
LEVERAGE LOAN
NMTC EQUITY INVESTOR EQUITY
INVESTMENT FUND
QEI ACRONYMS CDE
Community Development Entity
QALICB Qualified Active Low-Inome Community Business
TAX CREDIT AUTHORITY
QLICI
QEI
Qualified Equity Investment
QLICI
Qualified Low Income Community Investment
24 TRF NMTC PORTFOLIO REVIEW
CDE
TAX CREDIT ALLOCATION
QALICB
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
CDFI FUND
3.2 NMTC PARTICIPANTS CDE Attributes. TRF was the only CDE in 23 or 59% of the NMTC deals. 16 deals or 41% involved multiple CDEs. In the past ten years, TRF has partnered with ten other CDEs to allocate NMTC authority to investors. Trend. Since 2004 to early 2009, TRF used to be the only CDE in our NMTC deals. Queen Theater project closed in late 2009 was the first NMTC project that TRF partnered with other CDEs to allocate NMTC authority. Multi-CDE project is more prevalent now. In the last 13 projects closed most recently, TRF was the sole CDE for only one project. DISTRIBUTION OF NUMBER OF CDES IN EACH DEAL 5
DISTRIBUTION OF NUMBER OF UPPER TIER LENDERS
1
4
1
NUMBER 10
23
1 2 3 4
15
18
UPPER TIER LENDER In the Leveraged Investment Model, Upper Tier Lenders bring debt contribution to the Investment Fund. They typically include leverage lenders and bridge loan lenders. In return, upper tier lenders received •
Nine projects (22%) were leveraged by the same debt and equity investors.
•
Half of our projects were leveraged by one upper tier lender.
•
Nine projects were self-leveraged by the parent companies of QALICBs.
QALICB Organization Structure. Over half of the QALICBs in our NMTC portfolio are non-profit entities. Minority Ownership.11 QALICBs, or 28% of all QALICBs in our NMTC portfolio are minority owned or controlled. Eight out of the eleven, or 73% are charter schools. Minority ownership is also dominant in our Education portfolio, accounting for two third of the total QALICBs in our education projects.
22%
Percentage of deals leveraged by the same debt and equity investor
54%
Percentage of non-profit borrowers in our NMTC portfolio
28%
Percentage of minority ownership
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
TRF NMTC PORTFOLIO REVIEW 25
3.3 TAX CREDIT INVESTOR
97%
OVERVIEW •
97% of the NMTC equity investors that TRF has partnered with were large international banks. Brown’s Superstore was the only corporate investor that made the NMTC equity investment.
•
Nine out of 39 projects (23%) were leveraged by the same debt and equity investor.
•
Among the 39 NMTC projects, TRF has participated with eight different NMTC investors. US Bank, JP Morgan Chase Bank and TransCapital Bank are our most frequent investor partners, and have provided NMTC equity in 32 out of 39 projects.
•
JPMorgan Chase Bank is our most reoccurring equity investor, and has invested in twelve projects in our NMTC portfolio.
Percent of equity investors that are international commercial banks
23%
Percent of total projects that have the same equity investors and leverage lenders
Eight Equity investor partners
NUMBER OF PROJECTS INVESTED 12
US BANK JPMORGAN CHASE
11
TRANSCAPITAL
9
SOVEREIGN BANK
2
TD BANK
2
CITIZENS BANK
1
BROWN’S SUPER STORE
1
PNC BANK
1
This section was removed for confidentiality purposes.
TWO LARGEST NMTC EQUITY INVESTORS
US Bank
Largest NMTC equity investor has made 50% of the total equity investment; biggest investor in CRE and Food Access
+
JPMorgan Chase
=
75%
Total NMTC Equity Investment
Most frequent investor partner, has made 28% of the total equity investment; biggest investor in Education and Health Centers
26 TRF NMTC PORTFOLIO REVIEW
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
INVESTOR EQUITY CONTRIBUTION •
In terms of investment amount, US Bank represents as our largest NMTC investor. It has made $63,729,761 equity contribution, which covers nearly half of the total equity investment of TRF’s NMTC projects.
•
Even though JPMorgan Chase Bank have invested in the largest number of projects in our NMTC portfolio, the total amount of NMTC equity contribution from US Bank is 40% more than that of JPMorgan Chase Bank.
•
JP Morgan Chase Bank contributed to nearly a quarter of the total NMTC Equity. Together, these two investors covered 75% of the total NMTC equity investment. US BANK
$63.8M
JPMORGAN CHASE TRANSCAPITAL TD BANK OTHERS
$38.2M $11.6M
PROJECT TYPES CRE EDUCATION
$8.4M $13.4M
FOOD ACCESS
This section was removed for confidentiality purposes. HEALTH
EQUITY DISTRIBUTION BY PROJECT TYPES •
US Bank is the biggest investor in our CRE and Food Access projects. The investment in CRE is about half of the total CRE investment.
•
TD Bank has only participated on Food Access projects in our NMTC, but the total amount equity investment in Food Access is the second largest among all the investors.
•
JPMorgan Chase Bank is our biggest investor in Education. 63% of its total equity contribution was in education.
•
Even though TRF only started investing in health center since 2012, health center become JPMorgan Chase’s second largest investment area.
CREDIT PRICE & INVESTOR RETURN From 2004 to 2014, the credit price has been increasing. The lowest credit price was $0.54 back in 2005 and 2007. The highest credit price reached $0.85 in 2014. Since 2009, the general trend of Investor’s Internal Rate of Return (IRR) has been moving downward. The highest Investor IRR was 15.63%, whereas the lowest investor IRR was 3.53% of the most recent project closed in August 2014.
$0.85
$0.54
Credit price of 2005
15.6%
Credit price of 2014
Highest Internal Rate of Return
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
3.23% 2014 IRR
TRF NMTC PORTFOLIO REVIEW 27
3.4 TRF ROLES LEVERAGE LENDER
+
NMTC EQUITY INVESTOR
TRF
INVESTMENT FUND
CDE #1
TRF
INVESTMENT FUND
CDE #N
CDEs
QALICB
OVERVIEW TRF has held several different roles in transactions in our NMTC portfolio, beyond providing allocation authority. These roles include (1) being a leverage lender or a bridge loan lender to the Investment Fund, or a participant in the Leverage Fund at the upper tier, (2) as a Community Development Entity (CDE) that issues NMTC allocation authority to tax credit investors at the intermediary level (3) as a direct lender that makes loans directly to QALICBs outside the NMTC structure. Sometimes, TRF is also the disbursement agent.
TRF
QALICB
CDE
UPPER TIER LENDER
The primary role of TRF in its NMTC projects is being one of the CDEs. Some projects involved multiple CDEs, but TRF was the only CDE in 23 projects or 60% of the total projects.
Besides allocating NMTC authority to equity investors, another major role that TRF played is being an upper tier lender to the Leverage Fund. TRF participated as the sole or one of several upper tier lenders in 25 projects, more than half of all projects in our portfolio, with a total of $74 million in debt. In ten deals, TRF was the only leverage lender.
MULTI-CDE PROJECTS • • • • • • • • • • • • • • • •
28 TRF NMTC PORTFOLIO REVIEW
+
NMTC EQUITY INVESTOR
Queen Theater Sun Center Schmidt’s Retail Homewood Suites Newark Farmers Market - Phase I MICA Graduate Studio Center PHN - Punxsutawney FQHC Henderson Hopkins School Bottino Shoprite Fare and Square - Philabundance Howard Park Shoprite Wissahickon Charter School Awbury Campus Eastern Shore Conservation Center Episcopal Cathedral Center Progressive Health Center Center Theater
TRF AS THE ONLY LEVERAGE LENDER PROJECTS • • • • • • • •
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
Crane Arts Progress Plaza - Developer Broadnu Enterprises (Fresh Grocer) Imani Charter School Center for Architecture Community Charter School of Paterson Villita Artes Parkside Shoprite, Haverford Shoprite
LEVERAGE LENDER
+
NMTC EQUITY INVESTOR
LEVERAGE LENDER
INVESTMENT FUND
CDEs
INVESTMENT FUND
TRF
QALICB
+
NMTC EQUITY INVESTOR
CDEs
DIRECT LOAN
TRF
TRF
QALICB
REFINANCE A QLICI NOTES
DIRECT LENDER TO QALICBS
NMTC UNWIND
Occasionally, TRF makes direct loans to QALICBs outside of the NMTC Structure. TRF has participated as a direct lender in four of its NMTC projects, with a total of $4 million in debt.
After the seven-year compliance period, QALICBs typically refinance the A QLICI notes. Sometimes, TRF refinances the loans to continue provide funds to QALICBs. Of the ten projects that have unwound, TRF has provided debt for refinancing to four QALICBs.
SAMPLE PROJECTS • • • •
Community Charter School of Paterson University Crossing Homewood Suites Newark Farmers Market
TRF
PROJECTS REFINANCED - TRF • • • •
JCCCS - Jersey City Community Charter School Broadnu Enterprises (Fresh Grocer) Imani Charter School Community Charter School of Paterson
03 NMTC DEAL STRUCTURE AND PARTICIPANT ATTRIBUTES
TRF NMTC PORTFOLIO REVIEW 29
04 NMTC Project Financing 4.1 FLEXIBLE PRODUCT INTRODUCTION TRF offers more flexible and non-conventional QLICIs to QALICBs. Typically, these QLICI loans have lower interest rates, higher loan-to-value (LTV) ratios, and lower debt service coverage ratios (DSCR). These offerings greatly support start-up businesses and help low-income neighborhoods attract investors. FLEXIBLE PRODUCT TYPES
(%)
Subordinated debt
94%
Below market interest rate
100%
Lower than standard origination fee
100%
Higher than standard Project LtV Ratio
97%
Lower than standard debt service coverage ratio
94%
Percent of projects that meet flesible product criteria
4.36%
TRF average interest rate
VS.
6.93% Comparable
INTEREST RATE TRF offers loans with below-market interest rates for all QLICI loans. The blended interest rate of TRF’s QLICI financing is much lower than market financing received by comparable projects. On average, the blended interest rate is 4.36%, which is 37% lower than the rate of comparable projects (6.93%). The highest blended project interest rate is 7.72%, and the lowest is 0.75%. INTEREST RATE COMPARISON FOR EACH PROJECT INTEREST RATE
0.10
COMPARABLE INTEREST RATE TRF BLENDED INTEREST RATE
0.08 0.06 0.04 0.02 0
94%
Percent of loans requiring lowerthan-standard DSCR
30 TRF NMTC PORTFOLIO REVIEW
PROJECT IN CHRONOLOGICAL ORDER
DEBT SERVICE COVERAGE RATIO •
94% of our QLICIs require lower than standard DSCR. On a project-byproject basis, the median DSCR of our QLICIs is 1.19, about 15% lower than the median for a standard project (1.43). On average, our DSCR is 1.40, which is also lower than the standard (1.60).
04 NMTC PROJECT FINANCING
LOAN-TO-VALUE RATIO Project LTV • 97% of TRF’s NMTC projects have higher-than-standard project LTV Ratio. The average project LTV is 107%, higher than the real estate industry standard average of 73%. Nearly half of TRF’s NMTC projects have higher than 100% LTV. The highest project LTV is 180%.
97%
Percent of loans with a higher than standard loan-to-value ratio
Senior Loan LTV • Since subordinate loans will eventually be fully or partially forgiven, it is important to look at the LTV of the senior loans. •
Senior loan LTV across our portfolio is much lower than the project LTV. Only 19% of senior loans have a higher-than-standard LTV. No senior loan LTV exceeds 100%.
•
On a project-by-project basis, the average senior loan LTV is 55% and the median is 53%.
80% Benchmark • According to the CDFI Fund NMTC Evaluation report, most lenders do not make loans to projects with an LTV ratio greater than 80%. While 89% of TRF’s NMTC projects have a project LTV greater than the benchmark, only 5% of the senior loans have an LTV ratio above the benchmark. LOAN-TO-VALUE RATIO COMPARISON 200%
150%
PROJECT LTV STANDARD PROJECT LTV SENIOR QLICI LTV
100%
50%
0
PROJECT IN CHRONOLOGICAL ORDER
04 NMTC PROJECT FINANCING
TRF NMTC PORTFOLIO REVIEW 31
4.3 NMTC TRANSACTION COSTS AT CLOSING
$15.4 M
Accumulated NMTC transaction costs of our portfolio
NMTC deals are complex and during the reviewed period, transaction costs have been increasing in dollars amount as a percentage of total project costs. The whole closing process often requires significant professional assistance for all participants, which is costly and can be a burden to borrowers. Typical QALICBs transaction costs include legal, accounting, consulting fees and QLICI structuring fees. CONSULTING LEGAL COSTS 73.6%
5.8% 9.7% ACCOUNTING
10.9% OTHERS
•
The transaction costs of our NMTC portfolio totaled $15.4 million, accounting for 2% of the total project costs in aggregate.
•
On a project-by-project basis, the transaction cost of a median project is $300,000, takes up 2% of the total project costs.
•
It was anticipated that the transaction costs at closing will decrease as all participants of the NMTC program become more familiar with the application, deal structuring and transaction process. However, the transaction cost as a percentage of total project cost has been generally increasing.
Trend-- Transaction Costs as a % of Total Project Cost at Closing
This section 8%was removed for confidentiality purposes. 6%
4%
2%
0%
LEGAL COSTS
32 TRF NMTC PORTFOLIO REVIEW
PROJECT IN CHRONOLOGICAL ORDER
•
Legal costs represent the largest share of transaction costs at closing. Total legal costs of our NMTC portfolio comprised 74% of the total transaction costs.
•
On a project-by-project basis, legal costs have ranged from $42,000 to $1.5 million, or 0.32% to 6.09% of the total project costs of each project. The average legal cost was $355,014, about 2% of the total project cost. The medium legal cost was $280,650, about 1.7% of the total project costs.
•
During the reviewed period, legal cost as a percentage of total project cost has been increasing. Since legal cost is the dominant transaction cost, the trend of project transaction costs basically follows that of legal costs.
04 NMTC PROJECT FINANCING
ACCOUNTING COSTS
$24,250
•
Accounting costs totaled $0.9 million, only making up 6% of the total transaction costs, and the amount has remained fairly steady.
•
On a project-by-project basis, accounting costs have ranged from $1,000 to $96,000, or 0.01% to 0.64% of the total project costs. The average accounting cost is $27,109, or 0.18% of the total project cost; the median is $24,250, or 0.13%.
CONSULTING COSTS •
Even though consulting service are not frequently used, it contributes to the second largest share of transaction costs.13 QALICBs (35%) in our NMTC portfolio paid consulting fees at closing, totaled $1.5 million, or 10% of the total transaction costs.
•
On a project-by-project basis, consulting fees have ranged from $37,000 to $250,000, or 0.05% to 1.44% of the total project costs. On average, consulting fee is $114,566, or 0.58% of the total project costs; the median is $109,186, or 0.55%.
median accounting cost
$109,186 median consulting cost
This section was removed for confidentiality purposes. PARTICIPANTS & TRANSACTION COSTS •
•
One important factor affect the transaction cost is the complexity of the deal structure. Generally, as the number of participating CDE and number of upper tier lenders increases, the transaction cost increases.
Average transaction Costs vs. # of CDEs 3.5%
Same debt and equity investor. Same debt and equity investors seem to 3% have lowered the NMTC transaction costs. Eight projects were financed by the same debt and NMTC equity investors and involved only one CDE. On a project basis, the median transaction cost of these eight projects is 1.84% of the total project costs, compared to 1.98% of the entire portfolio; 2.5% on average, the transaction cost is 2.04% of the total project costs, lower compared to the portfolio average of 2.49%. 2%
1
2.04%
Transaction cost of deals of the same debt and equity investor
04 NMTC PROJECT FINANCING
2
VS.
3 # OF CDE
2.49% Portfolio average transaction cost
TRF NMTC PORTFOLIO REVIEW 33
05 Outcomes and Impact Assessment 5.1 PROJECT-LEVEL OUTCOMES INTRODUCTION As the NMTC program is a community economic development tool, economic outcomes and impacts are important measurements of the program effectiveness. In the past ten years, our NMTC projects have generated 3,275 full-time equivalent jobs (FTEs), supported 9,605 construction jobs and developed or renovated 3,008,022 square feet real estate space. While some outcomes are applicable to all types of projects, different types of project typically have different outcomes. This section presents project-level outcomes, including (1) job generation, (2) real estate development and (3) facility capacity improvements.
JOB OUTCOMES Job outcomes are important measures of project outcomes. The measurement separates full-time equivalent jobs (FTE) from construction jobs. Some of our projects are real estate development projects, which do not have direct job creation; therefore jobs created at tenant businesses are taken into account. Below is a summary of the job outcomes of our NMTC portfolio.
3,275
Total full-time jobs created
Full-Time Equivalents (FTE)
With 1,189 non-tenants FTE and 2,086 FTE created at tenant businesses, our NMTC projects have generated 3,275 FTE jobs in total.
Our projects also retained 1,169 current employees at existing businesses.
9,605
Total construction jobs supported
34 TRF NMTC PORTFOLIO REVIEW
Construction Jobs
Our NMTC projects have created a total of 9,605 construction jobs. On a project-by-project basis, a median project generates 210 construction jobs.
05 OUTCOMES AND IMPACT ASSESSMENT
CONSTRUCTION AND REHABILITATION OUTCOMES Much of our NMTC financing was used towards the construction or rehabilitation of real estate. An important project measurement is the development production outcome. Below is a summary of the basic development outcomes of our NMTC portfolio. •
Our NMTC projects have developed or rehabilitate 3,008,022 square feet. The median square feet that each project developed is 57,366.
•
Considering the total project costs and the total square footage developed in our NMTC portfolio, the development cost per each square foot is $231.
FACILITY CAPACITY IMPROVEMENTS Facility capacity is an important measurement for both Charter School projects and Health Center projects. •
Our twelve NMTC Charter School projects have created 81,298 seats for students. On average, each project creates 507 seats.
•
Our three NMTC Health Center projects have added 64 medical exam rooms and increased 35,000 annual patient visits.
3,008,022
Total square footage developed or renovated
81,298
Seats created for students in our NMTC Charter School Portfolio
35,000
Number of accumulated annual patient visits increated in our Health Center portfolio
05 OUTCOMES AND IMPACT ASSESSMENT
TRF NMTC PORTFOLIO REVIEW 35
5.2 CASE STUDY—QUEEN THEATER
Location: 500NMarketSt,Wilmington,DE Project Costs: $33.9 million Equity Investor: US Bank Leverage Lender: Line-up the Queen Foundaotin CDEs: TRF, City First Capital, Brownfield Revitalization
INTRODUCTION
In 2009, The Reinvestment Fund, Inc (TRF) invested $7.3 million in NMTC financing for the renovation of the Queen Theater, which had been vacant for nearly five decades. The Queen Theater is located on the Market Street Corridor in downtown Wilmington, DE. As a historic renovation project, Queen Theater leveraged both New Markets Tax Credits (NMTC) and Historic Tax Credits (HTC). The $33.9 million redevelopment project brings together a strong local developer, the Buccini Pollin Group, and a qualified operator, the World Café Live. Restored to her glory, this 45,000-square-foot theater venue provides arts, entertainment, and educational programs to the local community with an emphasis on cultivating local artists. The project created 50 full-time jobs and more than 260 construction jobs, spurred the revitalization of downtown Wilmington, and furthered the vision of creating a creative design community.
LOCATION CONTEXT
Queen Theater is located on the Market Street Corridor in the Lower Market (LOMA) design district of downtown Wilmington, DE. LOMA is a severely distressed neighborhood with a median family income less than 50% of the benchmarked area median income. Market Street is the main transit artery connecting the offices and cultural attractions of the central business district to the city’s transportation hub and waterfront. Market Street was the commercial and culture corridor of downtown Wilmington for over two centuries before “urban flight” and the suburban mall explosion of the 1950s . After the government’s failed attempt to convert this district into an urban pedestrian shopping mall in the 1970s, this district reopened to vehicles in 2007, and subsequently began to see new business developments.
PROJECT DEVELOPMENT
Originally built in the 1800s, Queen Theater is a historic landmark that had been vacant for 50 years before the grand opening of Word Café Live, the tenant and operator of the theater since April 2011. The renovation took three years to complete, and was redeveloped by Buccini/Pollin Development Group, the most active real estate developer in Wilmington. Some historic features of the building were preserved, including the original stage and three murals; however it was obvious where later additions to the building were located. “We intentionally did not want to create the artificial historic appearance with the new addition,” Hal Real of Real Entertainment Group explained. 36 TRF NMTC PORTFOLIO REVIEW
05 OUTCOMES AND IMPACT ASSESSMENT
Queen Theater inside before
Queen Theater inside after, 2011
PARTNERSHIP AND FINANCING This project was born from public-private collaboration among Real Entertainment Group, Buccini/Pollin development Group, the City of Wilmington, banks, corporations and private citizens. In 2009, TRF partnered with City First and Brownfield Revitalization to provide $22 million in NMTC financing to the project, covering 65% of the total project costs. US Bank was the New Market and Historic Tax Credit equity investor and made an $11 million equity contribution. Light Up the Queen Foundation provided a $19.7 million leverage loan. Chris Buccini, a local developer, stated that the “makeover of LOMA district would not be possible without federal New Markets Tax Credits.” NMTC and Historic Tax Credits enabled the turnover of Queen Theater, an anchor that spurred the economic development in the entire community.
Total Project Cost Total QLICI Loan % of Project Cost from QLICI Loans TRF QLICI contribution
$33,913,580 $21,975,000 64.80% $7,275,000
Other Funding Sources Federal Historic Tax Credit Equity $4,885,286 Grant from Light Up the Queen $240,784 Master Tenant Loan $5,713,429 Queen Theater SCP, LLC Equity $2,846,495 Real Entertainment-Wilmington Equity $1,350,000
BUSINESS OPERATION The WCL Wilmington is a 45,000 square feet venue for live music, dining, and events, which also shares space with the WXPN public radio station. TRF recently made a site visit to the Queen Theater where staff received a guided tour from operator Hal Real. His enthusiasm for this venue and his optimism of the business operation was clearly evident. Hal reported that the business is growing and the venue is expected to stabilize and become profitable by 2016. Food, music performances, and private events are the three major revenue streams, each of which accounts for nearly one-third of the total revenue. The World Café Live has been making an effort to advertise its private events services. With in-house catering capacity and four dining areas in the theatre, the venue has held many private and corporate events. Private events marketing materials on display
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TRF NMTC PORTFOLIO REVIEW 37
Outreach Music Education Program—Bridge Sessions
AREA-WIDE IMPACTS The theatre is a major contributor to the social and economic life of the community. Besides creating 50 full-time jobs and having generated 120 jobs during the eighteen month construction period, Queen Theater has been a true community asset to downtown Wilmington, an anchor for art and music education, and a catalyst for downtown revitalization.
Outreach Music Education Programs The Queen Theater is not only home to the WCL, but also to a community “clubhouse” whose purpose is to engage the community in art and music. With the aim to “foster long-term interest, appreciation and learning in the arts”, Light Up The Queen Foundation (LUQ), a Delaware non-profit corporation, started the Outreach Music Education Program to provide hands-on music programs to local schools with limited education funding. One of the outreach programs is Bridge Sessions, which are interactive performances that bring together professional musicians and local elementary and middle school children. This innovative program provides the opportunity to expose the children to music and culture as well as potential careers in the music industry. LUQ has partnered with twelve local schools and served 3,000 local students through its Bridge Sessions since 2011.
Creative Community As an anchor art entertainment venue, WCL stimulates the establishments of other art and culture entertainment venues. Before the Queen Theater project, the entire ground floor of the 200 Market Street block was vacant. By the end of 2012, over twelve retailers occupy the space. Together they furthered the vision of creating a vibrant creative community in the LOMA design district, from 2nd Street to 6th Street along Market Street.
“
I think we will see dramatic changes over the next 18 to 30 months. The Queen is so huge in this equation. The LOMA area isn’t completely there yet, but it has vibrant potential.
”
—Don Meginley, the president of Preservation Initiatives 38 TRF NMTC PORTFOLIO REVIEW
05 OUTCOMES AND IMPACT ASSESSMENT
“
A lot of people are looking at the Queen as the catalyst to bring Market Street back to life.
”
–Hal Real, President of Real Entertainment Group Market Street Corridor Revitalization The restoration of Queen Theater is seen as the cornerstone for a $250 million effort underway to revive the historic Market Street Corridor in the heart of downtown Wilmington, according to Mr. Jeff Flynn, Wilmington’s deputy director of economic development. Following the opening of Queen Theater, downtown Wilmington saw the opening of several other businesses. One of which is the La Fia bistro and bakery, located at the corner right across from the Queen Theater. Renowned chef Bryan Sikora and his wife Andrea brought their well-crafted artisan cuisine to LOMA district in June 2013. This French-inspired hybrid boutique bistro with modern and delicate interior design is the kind of dining place that you can find in the most vibrant district in a big city. It has been a popular lunch destination for professionals and businessmen as well as young people from the local Art and Design Schools. Queen Theatre and La Fia have created this perfect synergy that will surely bring more excitement to downtown Wilmington. As Newsworks reported in May 2014, Bryan plans to launch a Latin grille close to La Fia in September 2014. In addition to La Fia, the renovation of the Queen spurred other construction projects and attracted several retailers. A local developer transformed the vacant, collapsing building directly across 5th Street from the Queen into a beautiful apartment building that opened in 2012. Delaware College of Art and Design has completed a 100-bed dormitory renovation project in an abandoned hotel two blocks away from the Queen.
La Fia Bakery+Bistro+Market
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TRF NMTC PORTFOLIO REVIEW 39
06 The Economics of NMTC projects to TRF INTRODUCTION The economic benefits of NMTC program to TRF come from fees generated from each NMTC deal associated with different roles that TRF participated. They typically include: As CDE • Upfront Fees •
Sub-allocation fee from the Leverage Fund Sub-allocation fee from QEI QLICI structuring fee Post-compliance Fees
•
Exit fee Ongoing Fees
Asset Management Fee As Leverage Lender • Loan Origination Fee As Bridge Loan Lender • Bridge Loan Origination Fee As Disbursing Agent This section was for confidentiality • removed Disbursing Agent Fee purposes. Except for asset management fees that last throughout the seven-year compliance periods, all other fees are one-time fees.
6.1 ECONOMIC BENEFITS AS CDE Since 2004, TRF has generated $36.4 million income from its NMTC deals, about 10% of the total amount of QEI. The median income to TRF from each project is about 8.95% of the QEI allocated. Incomes to TRF from the early deals are generally higher than that from the later deals. Since 2012, the income rate has been stabilized around 8.25%-9.00%.
QLICI STRUCTURING FEE
QLICI loan structuring fee is an upfront fee charged to QALICBs at closing, the median was 0.75% of QEI. TRF received QLICI structuring fees from nine of its projects. Staring from 2010, TRF has no longer charged QLICI structuring fees.
ASSET MANAGEMENT FEE
The median asset management fee used to be 0.85%for the very early deals. Staring from late 2007, asset management fee has been stabilized at 0.5%. It is a regular fee to CDE in the NMTC deals.
EXIT FEE
Exit Fee ranged from 0% to 6 %, and averaged 0.91%. The median exit fee was 0.01%. TRF charged an exit fee for 16 projects. 40 TRF NMTC PORTFOLIO REVIEW
06 THE ECONOMICS OF NMTC PROJECTS TO TRF
SUB-ALLOCATION FEE INCOME Sub-allocation fees are the primary income of NMTC program to CDEs. TRF’s sub-allocation fees ranged from 3% to 8%, and averaged 4.75%. In early deals, this fee used to be retained by the CDE from the QEI approximately 3% on average. From 2009 to 2012, the sources of sub-allocation fees started to be a combination of leverage fund and the QEI. For the nine most recent closed projects, the source for TRF sub-allocation fee income came entirely from the Leverage Fund, and has been around 5% of total QEI. In these deals, 100 percent of the QEI were deployed as QLICIs. SOURCES OF SUB-ALLOCATION FEES DISTRIBUTION % OF QEI
9.00% 8.00% 7.00% 6.00%
SUB-ALLOCATION FEE FROM QEI SUB-ALLOCATION FEE FROM THE LEVERAGE FUND
5.00%
This section was removed for confidentiality purposes.
4.00%
Sub-allocation fee from QEI 3.00%
Sub-allocation fee from Leverage Fund
2.00% 1.00% 0.00% 1
3
4.2
4.4
4.6
5
6.2
8
10.1 11
13 15.1 15.3 16
18
20
22
25
27
PROJECT #
6.2 ECONOMIC BENEFITS FROM OTHER ROLES Besides the income generated from participating as a CDE, TRF also generate income from loan origination fees by participating as leverage lenders to the leverage fund and direct lenders to QALICBs. TRF has received $385,441 loan origination fees from participating as a leverage lender. When a sponsor of a QALICB decides to self-finance or provide their own leverage through the structure, TRF sometimes provides bridge loans to grants and other sources for the sponsor. The origination fees for both the leverage loans and bridge loans are generally 1%.
06 THE ECONOMICS OF NMTC PROJECTS TO TRF
TRF NMTC PORTFOLIO REVIEW 41
Appendixes I. SOURCES About LUQ. (n.d.). Light Up The Queen. Retrieved August 11, 2014, from http:// www.lightupthequeen.org/about-luq/ Abravanel, Martin D., Nancy M. Pindus, Brett Theodos, Kassie Bertumen, Rachel Brash and Zach McDade. 2013. New Markets Tax Credit Program Evaluation Final Report. Washington, DC: The Urban Institute. http://www.urban.org/ publications/412958.html Amadeo, K. (n.d.) What Was Obama’s Stimulus Package? About News. Retrieved August 11, 2014, from http://useconomy.about.com/od/ candidatesandtheeconomy/a/Obama_Stimulus.html Bureau of Labor Statistics, 2003. Conway, T. (2014, May 29). Growing Season: Bryan Sikora has an eye for expansion in Wilmington - NewsWorks. Newsworks.org. Retrieved August 11, 2014, from http://www.newsworks.org/index.php/delaware/item/68458-growing-seasonwilmington-chef-bryan-sikora-has-an-eye-for-expansion&linktype=cf_share Hal Real, Founder - World Cafe Live Philadelphia. (n.d.). Hal Real, Founder - World Cafe Live Philadelphia. Retrieved August 11, 2014, from http://philly.worldcafelive. com/info/about-wcl/hal-real.html Schlegel, J. (2011, May 17). A Once-Empty Theater Plays A Leading Role in a Revival. The New York Times. Retrieved August 11, 2014, from http://www. nytimes.com/2011/05/18/realestate/commercial/queen-theater-a-sign-of-life-inwilmington-del.html?_r=0 Standard & Poor. The New Wilmington - The Residences in Wilmington, Delaware 19801. (n.d.). Live Work Play Wilmington Delaware Apartments Townhomes and Condos. Retrieved August 11, 2014, from http://www.liveworkplaywilmington.com/about-us/ U.S. Bureau of the Census, U.S. Wagner, K. (2012, November 16). Queen Theatre – Third HTC Equity Installment.
PHOTO CREDITS Page 39 Queen Theater before. Photo by Ryan Cormier. Retrived from Delaware Online http://archive.delawareonline.com/blogs/2009/05/workin-on-queen.html Queen Theater inside after, 2011. Photo by Joe del Tufo. Courtesy of Light Up The Queen. 2011 Page 40 Outreach Music Education Program—Bridge Sessions. Photos by Joe del Tufo. Courtesy of the World Cafe Live at The Queen. Page 41 La Fia Bakery+Bistro+Market. Photo courtesy of La Fia. 42 TRF NMTC PORTFOLIO REVIEW
APPENDIXES
II. SUMMARY OF CALCULATION ASSUMPTIONS •
Collateral Value. The collateral value of a project is assumed to be the total stabilized value of all properties at all locations according to its original appraisal.
•
Deal Structure vs. Transaction Costs. NMTC deal structures are complex and vary a lot. Since our portfolio is not large enough to isolate each variable in the deal structure to do statistical analysis, the general arguments about the relationship between deal structure and transaction costs were made simply by comparing each variable and the transaction costs, without controlling other variables.
•
Economic Benefits to TRF. While calculating the economic benefits to TRF, the income from Asset Management Fees refers to the total amount charged during the seven-year compliance period, which is calculated by multiplying the amount of annual asset management fees by seven years.
•
Loan-to-Value Ratio (LtV). The Project LtV is calculated by dividing the total amount of debt made to the QALICBs, including QLICI loans and other loans, by the project collateral value.
•
Multiple geographic locations. For projects with multiple geographic locations, only one location and its associated attributes are considered in calculations and mapping.
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Senior Loan LtV. Senior Loan Ltv is calculated by dividing the senior QLICI loan by the project collateral value.
•
Transaction Costs Comparison. In order to make reasonable comparisons of the transaction costs of projects different in sizes, the share of transaction costs as a percentage of total project costs is calculated and used as a measurement.
•
Transaction Costs. It is assumed that transaction costs at closing for QALICBs includes legal fees for all NMTC participants, accounting fees, NMTC consulting fees, and other fees paid by QALICB. Other fees generally include QLICI loan structuring fees and disbursement fees.
•
Year Closed. For projects that made QEI closing and QLICI closing, the Year Closed is assumed to be the year of the QLICI closing.
APPENDIXES
TRF NMTC PORTFOLIO REVIEW 43
THE REINVESTMENT FUND www.trfund.com www.policymap.com 215.574.5800