Habitat Chicago Awarded New Markets Tax Credits for West Pullman Project

Habitat for Humanity Chicago recently closed on $$$$ in federal New Markets Tax Credits (NMTCs). The NMTCs, which are believed to be the first awarded to an Illinois Habitat affiliate, will help to fund the West 115th Street Townhome Project, a 20-unit development Habitat Chicago is building in the West Pullman neighborhood of Chicago. Habitat Chicago is building the townhomes in phases, with the NMTCs generating $$$$ for phases one and two, consisting of eight three-bedroom, two-bath units.

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 housing development – in low-income communities. NMTCs typically finance approximately 15% to 20% of a project’s total development costs.

Habitat Chicago applied through Habitat Capital to access the NMTC Program. HFHI has a certified Community Development Entity (Habitat CDE) that applies for NMTC allocations from the CDFI Fund, staffed by the Habitat Capital team who provide technical assistance and support. There also are private-sector consultants who can help organizations to connect with CDEs and access NMTCs.

“New Markets Tax Credits are complex. You need to engage experienced professionals to structure the transaction and to ensure ongoing program compliance,” said Jennifer Parks, Habitat Chicago’s Executive Director.

The Habitat Capital 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. They generally group multiple affiliates and their respective projects into one transaction, with each affiliate contributing to, and benefitting from the transaction in proportion to their respective deal size.

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 115th Street 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.

In addition to providing access to NMTCs and technical assistance for Habitat Chicago’s project, Habitat Capital provided Habitat Chicago with 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 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.”