Program set to stimulate construction
For the second time in four years, the Michigan Magnet Fund has been awarded $60 million worth of New Market Tax Credits from the federal government, credits that go to equity investors for projects they undertake in low-income communities throughout the state.
“The city has done a rather remarkable job with this tool,” said City Economic Development Director Kara Wood last week.
The first $60 million was awarded to the state in 2005; those credits assisted in getting 10 construction projects done. Three of the 10 were in Grand Rapids; a fourth had direct ties to the city.
- Clear Water Place, 1430 Monroe Ave. NW, received $6.6 million.
- The Inner City Christian Federation headquarters, 920 Cherry St. SE, received $5.8 million.
- The Bicycle Factory, 201 Front Street SW, received $4 million.
- Michael Houseman, Marcel Burgler and Thomas O’Hare, all of Grand Rapids, designed and built Studio One in Detroit, a project that received $5 million.
Fifth Third Bank was the investment partner in Clear Water Place, The Bicycle Factory and Studio One, while the National City Community Development Corp. was the lending partner involved with the redevelopment of the ICCF building.
“We have another $60 million,” said Al Bogdan, who manages the MMF.
“Congress loves this program. They had a study done and found it to be the most innovative program in history,” he added.
Bogdan is traveling across the state explaining the benefits of the tax credits. The city of Grand Rapids hosted him last week. He said the program offers investors a tax credit that totals 39 percent over a seven-year period. A 5 percent credit is awarded each year for the first three years, and 6 percent is given annually for the next four years.
And the credits are guaranteed, at least for the equity or debt investor.
“If a business goes bankrupt, the tax credit still goes to the investor,” he said.
Bogden said MMF is requiring that 70 percent of the $60 million in credits go toward real estate projects, with the remaining 30 percent targeted for business lending. The minimum for financing is $2 million. The maximum is $10 million. But if a project’s cost tops $10 million Bogden said MMF would try to partner with another group in the country to get the additional financing for it.
Three-quarters of the entire payout has to be invested in distressed areas, which are determined by median family income or the poverty rate. Downtowns, commercial districts, neighborhoods and rural areas all qualify as long as the sectors meet the income guidelines and other criteria.
“We expect that most of our $60 million will end up outside of southeast Michigan because it got $50 million,” said Bogden of a separate award that went to Wayne County.
Almost any project can qualify for the New Market Tax Credit financing, including hotel construction — but liquor stores, gambling houses, golf courses and rental residential don’t.
“Mixed-use is OK,” said Bogden. “As long as more than 20 percent is coming from commercial, it’s mixed-use.”
Bogden said MMF is accepting applications now and that most of the agency’s tax-credit commitment will be awarded by September. He said developers should begin the process by going to mm1.org and filling out the pre-application, which he emphasized was easy to do. But he added that a developer also needs an interest letter from an investor at that point, which he acknowledged could be a drawback for some.
“All the banks I’ve talked to in this business aren’t lending,” he said. “Who can be an investor? Anybody who pays taxes. The toughest part is trying to bring in a lender.”
The typical time it takes a developer to go from filing a pre-application to final approval is seven to eight months. But Bogden said MMF tries to move the process along as fast as it can, and a promise of new jobs will make it move even faster.
“I can tell you if a firm comes to us with a project that would create 200 jobs, we get that approved in a few weeks and close within three months,” he said. “It moves along faster if you’ve got the money. If we’re creating jobs, we’re going to move fast.”
For more information, go to mm1.org. Bogden can be reached at firstname.lastname@example.org or (313) 445-1843.
“The role we play is a facilitator,” he said. “We bring the parties together and try to close the deal.”