National Trust
Community Investment Funds
Through its tax credit funds, the National Trust Community Investment Funds, NTCIC has placed more than $144 million in tax credit equity in projets ranging in size from $500,000 to $105 million. NTCIC also pioneered the use of “twinned” historic tax credits and New Markets Tax Credits (NMTCs) in 2003, and was the first “Community Development Entity” (CDE) to sign a NMTC allocation agreement and the first to report a Qualified Equity Investment to the CDFI Fund of the US Treasury.
Terms
Sample Deal Terms and Conditions
| Terms | Typical Ranges and Options |
|---|---|
| Dollar Price Per Federal Tax Credit | $.96 |
| Pay-In Schedule | The timing of the equity contributions is flexible and negotiable. Frequently used pay-in benchmarks include admission to the LLC, placement in-service, Part 3 approval, and project stabilization. |
| Priority Return | 3 percent annually of the equity invested in the transaction. |
| Put Option | NTCIF return calculations always assume the Fund exercises a put option at the end of the five-year compliance period. Put pricing varies from 15 percent of the original investment. |
| Developer Guarantees | Tax credit recapture, cost overruns and operating deficits. |
| Transaction Costs | These costs vary and cost sharing arrangements are negotiable. |
| Asset Management Fee | $6,000 annually |
| Audit Requirements | Annual |
Transaction Structures
National Trust Community Investment Fund typically employs a “Master Tenant” or “credit pass through” ownership structure. While it is relatively complex, and costs more to close, the Master Tenant legal model offers a better deal to both the investor and the developer. On smaller properties or HUD insured mortgage transactions, NTCIF will use the Single-Entity ownership structure.
Single Entity Ownership Structure
In the Single-Entity ownership structure, the developer forms an LLC or Limited Partnership and admits the tax credit investor as a 99.99 percent Limited Partner or Investor Member for the five-year compliance period while retaining a .01 percent General Partner or Managing Member ownership interest. Credits earned and depreciation are distributed according to ownership interests.
Sample Single-Entity Ownership Structure Diagram:
larger image | Excel version | Printable version (PDF)
Master Tenant Ownership Structure
Under the Master Tenant ownership model, the Owner or Lessor earns the credits through the completion of a certified rehabilitation and passes 100 percent of the credits through to the Master Tenant in exchange for the tax credit equity. The credit pass through is allowable under Internal Revenue Code Section 50(d)(5). The Managing Member or General Partner of the Lessor keeps most of the depreciation through a 90 percent ownership interest. Since the credit is taken by the Master Tenant, there is no basis adjustment at the Lessor level. Upon exit, the Investor Member of the Master Tenant, as a lessee, does not have a capital gains tax.
Sample Master Tenant Structure Diagram:
larger image | Excel version | Printable version (PDF)
Nonprofit Master Tenant Transaction
A nonprofit tax-exempt developer can take advantage of the historic tax credit by selling or leasing its property to a for-profit subsidiary for the duration of the tax credit compliance period as shown in the Single-Entity diagram above. Nonprofits may also use the Master Tenant ownership structure, as shown below.
Sample Nonprofit Master Tenant Transaction Diagram
larger image | Excel version | Printable version (PDF)
