Urban Land InstituteUrban Land InstituteNew Markets Tax Credits New Markets Tax Credits and Hibernian Hall – A Case and Hibernian Hall – A Case

StudyStudyMay 26, 2009May 26, 2009

Jeanne Pinado, Madison Park Development Jeanne Pinado, Madison Park Development CorporationCorporation

Peter Roth, New Atlantic DevelopmentPeter Roth, New Atlantic Development

Andrea Daskalakis, Massachusetts Andrea Daskalakis, Massachusetts Housing Investment CorporationHousing Investment Corporation

Stephen Nolan, Nolan Sheehan Patten LLPStephen Nolan, Nolan Sheehan Patten LLP

CONTEXT: MHIC + New Markets CONTEXT: MHIC + New Markets FinancingFinancing

MHIC is a private non-profit created 18+ years ago MHIC is a private non-profit created 18+ years ago to provide sources of sustainable capital for to provide sources of sustainable capital for housing and community development in low-housing and community development in low-income, primarily minority neighborhoods income, primarily minority neighborhoods statewidestatewide

Mission focused initially on affordable housing, Mission focused initially on affordable housing, primarily both debt and equity capital for projects primarily both debt and equity capital for projects financed through the Low-Income Housing Tax financed through the Low-Income Housing Tax Credit (LIHTC)Credit (LIHTC)

MHIC viewed the NMTC as a vehicle for MHIC viewed the NMTC as a vehicle for complementing our >$900 million in affordable complementing our >$900 million in affordable housing to further our goal of creating self-housing to further our goal of creating self-sustaining neighborhoodssustaining neighborhoods

Hibernian Hall represents one of our first 4 NMTC Hibernian Hall represents one of our first 4 NMTC transactions and helped us to qualify for a 2transactions and helped us to qualify for a 2ndnd allocation of NMTC authorityallocation of NMTC authority

A Case Study: Roxbury Center A Case Study: Roxbury Center for the Arts at Hibernian Hallfor the Arts at Hibernian Hall

Project had a history with MHIC Project had a history with MHIC MHIC provided acquisition financing in MHIC provided acquisition financing in

2000.2000. MHIC staff included the project in our first MHIC staff included the project in our first

NMTC application submitted in 9/2002NMTC application submitted in 9/2002 Project was deemed a high priority by the Project was deemed a high priority by the

City and received a commitment of CDBG City and received a commitment of CDBG funds.funds.

The Sponsor, Madison Park Development The Sponsor, Madison Park Development Corporation, had raised substantial equity Corporation, had raised substantial equity capital through a capital campaign.capital through a capital campaign.

Roxbury Center for the Arts at Roxbury Center for the Arts at Hibernian Hall (cont.)Hibernian Hall (cont.)

Project had major underwriting risksProject had major underwriting risks It was a spec building.It was a spec building. A major portion of the building was a A major portion of the building was a

performance venue that was a start-up performance venue that was a start-up business.business.

The project needed a conventional loan, The project needed a conventional loan, but no hard debt lender had been lined but no hard debt lender had been lined up. up.

Madison Park had not completed its Madison Park had not completed its capital campaign.capital campaign.

The financing gap was substantial.The financing gap was substantial.

The Roxbury Center for the Arts The Roxbury Center for the Arts at Hibernian Hall (cont.)at Hibernian Hall (cont.)

Project also had strengthsProject also had strengths Sponsor had organizational depth, Sponsor had organizational depth,

experience in CRE, financial capacity and experience in CRE, financial capacity and operating strength.operating strength.

Sponsor had assembled a strong Sponsor had assembled a strong development team.development team.

Sponsor was contributing $1.415 million in Sponsor was contributing $1.415 million in capital funds.capital funds.

Sponsor had demonstrated that the project Sponsor had demonstrated that the project met a critical unmet need in Roxbury.met a critical unmet need in Roxbury.

The City of Boston had committed $300,000 The City of Boston had committed $300,000 of CDBG funds as subordinate debt.of CDBG funds as subordinate debt.

MHIC’s Approach to MHIC’s Approach to UnderwritingUnderwriting

Required Sponsor to master lease the Required Sponsor to master lease the property, in addition to sub-leasing 3 spaces property, in addition to sub-leasing 3 spaces for its own use – the 5,500 SF performance for its own use – the 5,500 SF performance venue, the ACT Roxbury space, and 3,500 SF venue, the ACT Roxbury space, and 3,500 SF of the basement space for its Computer of the basement space for its Computer Technology Center.Technology Center.

Underwrote rents at below market rent Underwrote rents at below market rent levels.levels.

Minimized hard debt to ensure a back-end Minimized hard debt to ensure a back-end take out by maximizing the NMTC investment take out by maximizing the NMTC investment Maximized the utility of the “leveraged” NMTC Maximized the utility of the “leveraged” NMTC

financing model.financing model. Converted a shallow tax subsidy to a deep one.Converted a shallow tax subsidy to a deep one. Leveraged the value of the HTC.Leveraged the value of the HTC. Result: generated NMTC equity = ~40% of TDC.Result: generated NMTC equity = ~40% of TDC.

Investors

Investors

New Markets Leverage New Markets Leverage StructureStructure

Lender

Lender Loa

Loann

Investment

Investment

s & Loans

s & Loans

Inve

stm

ent

Inve

stm

ent

s & L

oans

s & L

oans

Business

Business

Business

Business

Business

Business

Business

Business

Equity

Equity

Low-Income Low-Income CommunityCommunity

NMTCFund

I

EquityEquityCDE

withNMTC

allocation

Investors

Investors

New Markets Leverage New Markets Leverage StructureStructure

Lender

Lender

Business

Business

Business

Business

Business

Business

Business

Business

Credits

Credits

Cash

Cash

$ Ret

urn

$ Ret

urn

$ Return

$ Return

Low-Income Low-Income CommunityCommunity

NMTCFund

I CreditsCredits

CashCash

CashCash

CDEwith

NMTCallocation

Leveraged Structure with HTCs:Leveraged Structure with HTCs:ChallengesChallenges

Convincing our public partners and hard debt Convincing our public partners and hard debt lenders to accept atypical collateral for CRE loanlenders to accept atypical collateral for CRE loan

Convincing our sponsors that the back-end Convincing our sponsors that the back-end unwind worked for them.unwind worked for them.

Structuring the terms of the hard debt to meet Structuring the terms of the hard debt to meet the requirements of the NMTC program the requirements of the NMTC program

Creating a legal structure that worked – needed Creating a legal structure that worked – needed to satisfy related party test to satisfy related party test

Overlaying additional business terms (e.g. Overlaying additional business terms (e.g. capitalizing the Master Tenant, developing lease capitalizing the Master Tenant, developing lease terms) terms)

Combining the regulatory requirements not Combining the regulatory requirements not difficult – HTC driven by project costs and NMTC difficult – HTC driven by project costs and NMTC driven by investment capitaldriven by investment capital

Center for the Arts at Hibernian Center for the Arts at Hibernian Hall – The NMTC Financing Hall – The NMTC Financing

NMTC qualified equity investment (QEI) in CDE of NMTC qualified equity investment (QEI) in CDE of $6.8 million$6.8 million

CDE First Mortgage Loan of $1.9 millionCDE First Mortgage Loan of $1.9 million CDE Subordinate debt of $1.7 millionCDE Subordinate debt of $1.7 million CDE Equity investment of $2.6 millionCDE Equity investment of $2.6 million Sponsor: Madison Park Development Corp., CDC Sponsor: Madison Park Development Corp., CDC

based in Roxbury, existing MHIC customerbased in Roxbury, existing MHIC customer Acquisition and rehabilitation of 4-story, 35,000 sq. Acquisition and rehabilitation of 4-story, 35,000 sq.

ft. (24,000SF rentable) commercial building with ft. (24,000SF rentable) commercial building with ground floor retail space, office space, and ground floor retail space, office space, and performance venue/ballroom space.performance venue/ballroom space.

MHIC New Markets grant-like equity and HTC MHIC New Markets grant-like equity and HTC equity: 38% of total development costs (40% net of equity: 38% of total development costs (40% net of deferred development fee)deferred development fee)

Center for the Arts at Hibernian Center for the Arts at Hibernian HallHall

Sources and UsesSources and Uses

SourcesSources Hard debtHard debt $1,900,000$1,900,000 33rdrd party soft debt (CDBG) party soft debt (CDBG) 300,000 300,000 Sponsor Loans (NRC and foundations) 1,415,000Sponsor Loans (NRC and foundations) 1,415,000 General Partner capital (non-cash) 320,000General Partner capital (non-cash) 320,000 Limited Partner capitalLimited Partner capital 320,000 320,000 CDE Deferred Payment Loan 2,253,000CDE Deferred Payment Loan 2,253,000 Master Tenant Security Deposit 40,000Master Tenant Security Deposit 40,000 Deferred Development Fee Deferred Development Fee 225,000225,000TotalTotal $6,773,000 $6,773,000

UsesUses Acquisition 539,000Acquisition 539,000 Hard Costs 4,259,000 $122/GSFHard Costs 4,259,000 $122/GSF Soft Costs 1,173,000Soft Costs 1,173,000 Reserves 137,000Reserves 137,000 Development Fee & Overhead Development Fee & Overhead 665,000665,000TotalTotal $6,773,000 $6,773,000

$194/GSF$194/GSF

Types of Types of Projects Projects FinancedFinanced

BusinessBusinessFinanceFinance

Pipeline to Utilize Allocation from Rounds 1-4, and 6

Coffin LoftsCoffin LoftsNew BedfordNew Bedford

Mixed-use w/affordable housingMixed-use w/affordable housingCommunity: New Bedford Units: 18Community: New Bedford Units: 18Sponsor: Hall Keen, LLCSponsor: Hall Keen, LLCNew Markets Financing: $5,358,240New Markets Financing: $5,358,240Closed Financing: March 2004Closed Financing: March 2004Construction Complete: December 2005Construction Complete: December 2005

Lawton’s CornerLawton’s CornerNew BedfordNew Bedford

Mixed use w/affordable housingMixed use w/affordable housingCommunity: New BedfordCommunity: New Bedford Units: 17 Units: 17 Sponsor: Hall Keen, LLCSponsor: Hall Keen, LLCNew Markets Financing: $4,815,502New Markets Financing: $4,815,502Closed Financing: March 2004Closed Financing: March 2004Construction Complete: December 2005Construction Complete: December 2005

Lawton’s Corner,Lawton’s Corner,New BedfordNew Bedford

Warren PalmerWarren PalmerRoxburyRoxbury

Commercial – spec retail and office spaceCommercial – spec retail and office spaceCommunity: RoxburyCommunity: RoxburySponsor: Jubilee Christian ChurchSponsor: Jubilee Christian ChurchNew Markets Financing: $8,376,661New Markets Financing: $8,376,661Closed Financing: December 2004Closed Financing: December 2004Construction Complete: March 2006Construction Complete: March 2006

Holyoke Health Holyoke Health CenterCenter

Community health center Community health center Community: HolyokeCommunity: Holyoke Sponsor: Holyoke Health CenterSponsor: Holyoke Health CenterNew Markets Financing: $18,920,896New Markets Financing: $18,920,896Closed Financing: March 2005Closed Financing: March 2005Construction Complete: December 2005Construction Complete: December 2005

Colonial TheatreColonial TheatrePittsfieldPittsfield

Theatre and performing arts centerTheatre and performing arts centerSponsor: Colonial TheatreSponsor: Colonial Theatre

New Markets Financing: $16,669,313New Markets Financing: $16,669,313Closed Financing: January 2005Closed Financing: January 2005

Construction Complete: July 2006Construction Complete: July 2006

Project HopeProject HopeBostonBoston

Non-profit community service centerNon-profit community service centerSponsor: Project HopeSponsor: Project Hope

New Markets Financing: $4,800,422New Markets Financing: $4,800,422Closed Financing: January 2005Closed Financing: January 2005

Construction Complete: August 2006Construction Complete: August 2006

Project Place GatewayProject Place GatewaySouth End, BostonSouth End, Boston

SRO housing, non-profit offices, restaurantSRO housing, non-profit offices, restaurantSponsor: Project PlaceSponsor: Project Place

New Markets Financing: $11,103,039New Markets Financing: $11,103,039Closed Financing: November 2005Closed Financing: November 2005

Construction Complete: March 2007Construction Complete: March 2007

Egleston Power Station Egleston Power Station

BostonBoston

Community access cable facilitiesCommunity access cable facilitiesSponsor: Urban Edge & Boston Neighborhood Sponsor: Urban Edge & Boston Neighborhood

NetworkNetworkNew Markets Financing: $6,990,232New Markets Financing: $6,990,232Closed Financing: December 2006Closed Financing: December 2006

Construction Complete: October 2007Construction Complete: October 2007

Atlantic WorksAtlantic WorksEast BostonEast Boston

Day care center, artists’ work spacesDay care center, artists’ work spacesSponsor: East Boston CDCSponsor: East Boston CDC

New Markets Financing: $3,432,500New Markets Financing: $3,432,500Closed Financing: December 2005Closed Financing: December 2005

Construction Complete: December 2006Construction Complete: December 2006

• Rare Queen Anne Rare Queen Anne facade facade

• City priority for 8 City priority for 8 yearsyears

• The building will The building will include:include:• 6 state-of-the art 6 state-of-the art

auditoriums (2 with auditoriums (2 with stadium seating), stadium seating), 1000 seats1000 seats

• RestaurantRestaurant• Parking provided Parking provided

behind complexbehind complex• Locating lobby in Locating lobby in

adjacent building adjacent building affords more affords more concession and concession and seating areaseating area

Cinema Center, Cinema Center, PittsfieldPittsfield

Natural KitchensNatural KitchensBrocktonBrockton

Organic salad dressing companyOrganic salad dressing companySponsor: Natural Kitchens, Inc.Sponsor: Natural Kitchens, Inc.

New Markets Financing: $2,100,023New Markets Financing: $2,100,023Closed Financing: June 2006Closed Financing: June 2006

Construction Complete: June 2007Construction Complete: June 2007

Chinatown Community Chinatown Community Education CenterEducation Center

Community education, training center, and Community education, training center, and schoolschool

Sponsor: Asian American Civic Association Sponsor: Asian American Civic Association and Kwong Kow Chinese Schooland Kwong Kow Chinese School

New Markets Financing: $11,995,240New Markets Financing: $11,995,240Closed Financing: June 2006Closed Financing: June 2006

Construction Complete: September 2007Construction Complete: September 2007

Marbury Marbury TerraceTerraceJamaica PlainJamaica Plain

Food service center, classrooms, non-profit Food service center, classrooms, non-profit officesoffices

Sponsor: Community Servings, Inc.Sponsor: Community Servings, Inc.New Markets Financing: $4,809,965New Markets Financing: $4,809,965

Closed Financing: August 2006Closed Financing: August 2006Construction Complete: June 2007Construction Complete: June 2007

Nuestra Casa Nuestra Casa LawrenceLawrence

Community education centerCommunity education centerSponsor: Lawrence CommunityWorksSponsor: Lawrence CommunityWorksNew Markets Financing: $5,520,746New Markets Financing: $5,520,746Closed Financing: September 2006Closed Financing: September 2006

Construction Complete: September 2007Construction Complete: September 2007

Dudley Village Dudley Village North North RoxburyRoxbury

Affordable rental housing and commercial Affordable rental housing and commercial spacespace

Sponsor: Dorchester Bay EDCSponsor: Dorchester Bay EDCAcquisition Financing: April 2003Acquisition Financing: April 2003

LIHTC Financing: $4,038,767LIHTC Financing: $4,038,767New Markets Financing: $1,653,067New Markets Financing: $1,653,067Closed Financing: December 2006Closed Financing: December 2006

Construction Complete: August 2008Construction Complete: August 2008

Boston Health Boston Health Care for the Care for the HomelessHomeless

Health care center and respite facilityHealth care center and respite facilitySponsor: Boston Health Care for the Sponsor: Boston Health Care for the

HomelessHomelessNew Markets Financing: $20,948,716New Markets Financing: $20,948,716

Closed Financing: December 2006Closed Financing: December 2006Construction Complete: March 2008Construction Complete: March 2008

Jean Yawkey PlaceJean Yawkey PlaceBoston Health Care for the Boston Health Care for the

HomelessHomeless

Fenway Fenway Community Community Health CenterHealth Center

Community health center (in mixed-use Community health center (in mixed-use development)development)

Sponsor: Fenway Community Health CenterSponsor: Fenway Community Health CenterNew Markets Financing: $9,500,000New Markets Financing: $9,500,000Closed Financing: December 2006Closed Financing: December 2006

Construction Complete: March 2009Construction Complete: March 2009

Hanover TheatreHanover TheatreWorcesterWorcester

Performing arts theatrePerforming arts theatreSponsor: Chelsea Neighborhood DevelopersSponsor: Chelsea Neighborhood Developers

Loan: $4,009,900Loan: $4,009,900New Markets Financing: $13,585,000New Markets Financing: $13,585,000

Closed Financing: August 2007Closed Financing: August 2007Construction Complete: March 2008Construction Complete: March 2008

Hibernian HallHibernian HallRoxburyRoxbury

Community: RoxburyCommunity: Roxbury Sponsor: Madison Park CDCSponsor: Madison Park CDCNew Markets Financing: $6,303,208New Markets Financing: $6,303,208Closed Financing: March 2004Closed Financing: March 2004Construction Complete: March 2005Construction Complete: March 2005