Habitat Chicago Awarded New Markets Tax Credits for West Pullman Project

Habitat for Humanity Chicago recently closed on $3.75 million in federal New Markets Tax Credits (NMTCs). The NMTCs, which are the first awarded to an Illinois affiliate through HFHI’s NMTC Program, will help to fund the West 115^th Street Townhome Project, a 20-unit development Habitat Chicago is building in the West Pullman neighborhood of Chicago. Habitat Chicago is building the townhomes in phases, with the NMTCs generating just over $600,000 in new equity for phases one and two, consisting of eight three-bedroom, two-bath units.

NMTC Program

The NMTC Program, administered by the CDFI Fund within the US Department of the Treasury, was created to incentivize private investment in businesses and real estate developments in low-income communities (Census Tracts with a poverty rate of 20% or higher, or a median family income of 80% of the area median or lower).

The CDFI Fund awards NMTCs to certified, specialized financial intermediaries called Community Development Entities (CDEs).  A CDE applies to the CDFI Fund for an NMTC allocation through a highly competitive process. Financial institutions and other private investors who then invest in the CDE receive a 39% federal tax credit, spread over seven years.

CDEs, in turn, deploy the funds raised from the investors in a wide range of eligible development activities – including single-family housing development – in low-income communities. NMTCs typically finance approximately 15-20% of a project’s total development costs.

Habitat and NMTCs

Habitat Chicago applied through Habitat Capital to access the NMTC Program. Habitat Capital manages HFHI’s certified Community Development Entity (Habitat CDE), which administers Habitat’s NMTC Program. Habitat CDE was the first to use the NMTC Program for homeownership, as it is more widely used for commercial projects. Since its inception almost 20 years ago, Habitat CDE has received $330 million in NMTC allocations and has provided low-cost flexible capital to affiliates for the acquisition, construction, and rehabilitation of affordable for-sale housing. To date, Habitat’s NMTC Program has financed over 3,200 affordable homes across 30 states and territories.

Habitat Capital’s NMTC process begins with affiliates completing a Capital Interest Form. Habitat Capital uses that information to support Habitat CDE’s future NMTC applications to the CDFI Fund. If Habitat CDE receives an NMTC award, Habitat Capital then invites those affiliates who expressed interest to apply for funding. They prioritize and select projects that best align with the NMTC Program and their investment strategy.

“New Markets Tax Credits are complex and expensive. You need to have a project large enough to make the return worth it, while also having solid accounting systems to provide the detail required on the front and back ends of the transaction. We relied on Habitat Capital and a myriad of experienced professionals to structure the transaction, which also requires ongoing program compliance,” said Jennifer Parks, Habitat Chicago’s Executive Director.

There also are private-sector consultants who can help organizations to connect with CDEs and access NMTCs.

Breathing New Life Into Communities

Given that demand for NMTCs often exceeds supply, CDEs look for projects that closely align with the NMTC Program’s goal of financing developments that breathe new life into neglected and underserved low-income communities. The West 115^th Street Townhome Project is part of Habitat Chicago’s multi-year, holistic commitment to the West Pullman community, and will align with other significant investments in the neighborhood, including mixed-income housing, healthcare, and retail developments, as well as the City’s extension of Red Line rail service. Habitat Chicago will sell the homes to households with incomes between 60% and 80% AMI.

New Ways to Fund Builds

In addition to providing access to NMTCs and technical assistance for Habitat Chicago’s project, Habitat Capital provided Habitat Chicago a low-cost $1 million construction loan to help facilitate Chicago’s liquidity during the process. This transaction is also Habitat Chicago’s first construction loan. The NMTC and construction loan financing package is part of Habitat Chicago’s recent exploration into new financing mechanisms, given the more challenging development environment of recent years.

“With construction costs escalating, our Habitat affiliate is continually exploring new ways to fund our builds,” Parks noted. “For qualifying projects, NMTCs can fill a significant gap in an affiliate’s development capital stack while also maturing the tools we use to invest in neighborhoods.”

For a more detailed explanation of NMTCs, affiliates can visit the Habitat Capital page on MyHabitat.