National Gets The Historic Credits

July 16, 2004
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LANSING — Commercial lending can take on different forms and National City Corp., a Midwest regional bank holding company, has probably been involved with a very distinctive method longer than any other local lender.

Through its Community Development Corp. (CDC) established 22 years ago, National City has turned investments into commercial lending that has led to the revitalization of low and moderate income neighborhoods in urban areas. And Grand Rapids is no exception.

The National City CDC has been involved as a financial partner in many local renovation projects including Ferguson Hospital, 201 Sheldon Ave., The Boardwalk, the American Seating Park, Genesis housing, and most recently the Avenue of the Arts project that aims to rehabilitate four buildings on a block of Division Avenue into housing and work space for local artists.

“Our Community Development Corp. was the first Community Development Corp. to establish nationwide back in 1982 and it was actually developed to help us to assist with the revitalization of communities in which we do business,” said Michael Young, president of the National City CDC, from his office in Lansing.

When asked why the bank did this, Young said it profits the bank on two levels.

“One is the short-term profit that we’re all familiar with — the profit that has an impact on the bottom line. But we do have long-term profit as well, when you’re actually developing a better community and a more vibrant marketplace, which will then assist in the overall growth of a community and will actually make us stronger as a financial institution,” he said.

How does it work? First, you would find out it works pretty well if you asked some of the developers that have partnered with the CDC.

For instance, Dwelling Place CEO Dennis Sturtevant has long sung the praises of the National City CDC for its participation in projects in the Heartside Business District, where National City has a branch office.

Second, it works by having the CDC purchase historic tax credits, low-income housing tax credits, brownfield tax credits, and new market tax credits from developers who either can’t use the credits or don’t need the deduction. When the CDC does that, it enters into a partnership with the developer for the project that is generating the credits.

“Investing in those credits is one of those tools that we use in our efforts to stimulate development,” Young said.

“There is legislation that allows for that to occur. The federal government and state government — it depends on the credit — provides these credits to these developers as an incentive to put older buildings back in use,” said Young.

The National City CDC then becomes a limited partner in a project, while, say, Dwelling Place retains its position as the project’s general partner.

“Through this partnership arrangement, the credit is passed on to us,” Young said.

“We take that credit against our income from a corporate standpoint and we exchange that credit for cash that we would give Dwelling Place, and they use that cash on the development,” he explained.

The face value of a credit depends on what type of credit it is and how much is being spent on the project. Historic tax credits can be worth from 20 percent to 25 percent of a project’s total value, while new market tax credits can be worth up to 39 percent of that value.

The Avenue of the Arts — which will renovate 106, 120, 122 and 126 S. Division Ave. — is the first time the new market credit is being used in West Michigan. The project has a value of $7.5 million, meaning the credits under the federal new market program can be worth up to $2.925 million. National City would then the credit to offset income at the corporate level.

Young said when CDC becomes a limited partner in a project, it takes on the responsibility of making sure a project remains solvent during a tax credit’s recapture period. For historic tax credits, that timeframe is five years. For new market credits, it’s seven years.

The National City CDC also invests in business development funds, making bridge and conventional loans, equity investments and investing venture capital.

CDC is an Ohio corporation headquartered in Cleveland, with regional offices in Detroit, Lansing, Ohio, Indiana, Kentucky, Pennsylvania and Illinois.

Young was recently promoted to CDC president. He was a senior vice president and director of the Michigan CDC and stationed in Lansing. Young will be moving soon to Cleveland to oversee the entire National City CDC operation.    

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