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2006 Corporate Sponsors American Engineering Testing, Inc. The Avalon Group Barna, Guzy & Steffen, Ltd. news Bremer Bank, N.A. CB Richard Ellis Volume 20, Number 1 January 2006 CSM Corporation Cambridge Commercial Realty Colliers Feature The Collyard Group, L.L.C. What Every Real Estate Professional Should Dalbec Roofing Know About New Market Tax Credits Fantastic Sams General Growth Properties, Inc. by Tony Pasko, Bremer Bank, N.A. Great Clips, Inc. hat if you could borrow 100% of the New Market Tax Credits (NMTC) came into Griffin Companies cost of developing or substantially being in December of 2000 as part of the renovating your new shopping Community Renewal Tax Relief Act of 2000. H.J. Development, Inc. W center project, only pay debt service on 70% These tax credits are intended to stimulate J.E. Dunn – North Central and have the government pay a return on the investment in “low income communities” as Jones Lang LaSalle remaining 30%? While it may take some time defined by census data. While NMTC’s are and effort, New Market Tax Credits can help directed at businesses, many commercial KKE Architects, Inc. you do just that. Landform Tax Credits continued on page 2 Larkin Hoffman Daly & Lindgren Ltd. M & I Bank Madison Marquette Snapshot Messerli & Kramer, P.A. Shops at Plymouth Creek – Lot 5 Midwest Maintenance & Mechanical, Inc. Location: Southwest Corner of Project Morcon Construction Entrance at Hwy 55 and Vicksburg, Plymouth Northstar Partners/Cushman & Wakefield Month/Year to Open: Under Construction. Oppidan, Inc. Anticipated Tenant Delivery: April ‘06 Opus Northwest LLC Lot 5 Ownership: Plymouth Creek PCL Construction Ventures, LLC Park Midwest Commercial Real Estate Underlying Owner: CSM Corporation Paster Enterprises, LLC Lot 5 Developer & Managing Partner: RLK Incorporated Mosborg Ventures, LLC RSM McGladrey, Inc. Center Manager: Allied Properties & 99% leased, and occupied by Lowe’s, RSP Architects Management, LLC Michaels, Walgreens, M & I Bank, Chin’s Asia Reliance Development Company, LLP Fresh, Potbelly Sandwich Works, Salsarita Leasing Agent: Steven Mosborg Fresh Cantina, Super Cuts, T-Mobile, Palm Robert Muir Company (651) 209-9626, Suntide Commercial Realty, Inc. Beach Tan, Massage Envy and Jamba Juice Solomon Real Estate Group Inc. Architect: Architectural Consortium Market Areas Served: Plymouth, Wayzata Stahl Construction Company Construction Contractor: Stotko Speedling and Western Suburbs TCF National Bank Minnesota Construction Construction Style: Masonry & Steel U.S. Bank GLA: 6,000 sf United Properties Additional Facts: Only one 1,200 sf space left in this padsite development at the primary Venture Mortgage Corporation Current Occupancy: 1,800 sf Dunn Bros with drive-thru and outdoor patio; 3,000 sf Umbria entrance to the project. The building is highly Weis Builders, Inc. Pizza with outdoor patio visible from Vicksburg and directly adjacent to Wells Fargo Bank, N.A. Plymouth Crossings, a new 96-unit senior hous- Number of Stores: 3 Welsh Companies, LLC ing project. Highway 55 pylon signage is still Project Tenants: This 230,000 sf project is available for this last space in the entire project. Westwood Professional Services, Inc. TAX CREDITS continued While $15 billion in NMTC’s may seem a with a lender. But, if the investor and lot of money, it is really a very scarce lender are related entities, that may give properties qualify. In fact, 52% of the resource. The first two allocations of $1 the investor enough comfort to services proposed by allocatees in the first billion and $1.5 billion were combined in compromise on the no-foreclosure NMTC offering were for development or the initial offering. Applications were requirement. rehabilitation of real estate. The latest 2005 submitted by 1,033 CDE’s totaling nearly So what should you do as a real estate awards included $1,340,000 (67%) to $26 billion. Only 66 allocatees received professional interested in NMTC’s? Community Development Entities (CDE) NMTC’s totaling the $2.5 billion offered. Norman L. Jones of the Minneapolis law whose predominant financing activities are Once a CDE receives an allocation it has firm of Winthrop & Weinstine, P.A., who real estate. The largest allocations by the ability to direct the New Market Tax has completed several of these NMTC real property type are mixed-use at $587 Credits to projects that are consistent with estate transactions, makes the following million and retail at $556 million. Multi- its mission. And as you might imagine, a suggestions: family rental properties are specifically successful allocatee is suddenly inundated excluded from NMTC benefits. with many investment opportunities. Determine whether your project(s) is in a low-income area. You can find this A low-income community is defined as at Albert Einstein once said man’s greatest information on the CDFI Fund website least 20% of households are below poverty invention was compound interest. The real after first finding the correct census tract level or median family income below 80% magic in NMTC is achieved through for your project. of the statewide or metropolitan median another one of man’s great inventions — family income level. About 39% of census leverage. For example if you have a $1 Call a NMTC-knowledgeable banker, tracts nationally qualify as low-income million project and are fortunate enough to lawyer or accountant to see how NMTC’s areas. The same 39% applies to Minnesota connect with a NMTC allocatee that has could financially benefit your project. where 510 of 1303 census tracts fall in this available allocations it can use for your See how you can connect with a current category. An investor in a “Qualified project, you can raise $300,000 in equity NMTC allocatee (again listed on the CDFI Equity Investment” receives tax credits from a third-party investor and obtain a Fund website), whether by having your totaling 39% of its investment over a $700,000 loan from your financial banker, lawyer or accountant introduce you seven-year period. institution. This results in the investor’s and your project, by contacting the qualifying investment of $1 million. The The program is administered by the allocatee yourself, or by attending one of financial institution has what should be a Community Development Financial several New Markets Tax Credit conferences. Institutions (CDFI) Fund in coordination sound loan at 70% of project cost that with the IRS and US Treasury. The total of should also translate into good loan-to- Read more at NMTC established by the 2000 legislation value and debt service coverage that will www.newmarketstaxcreditcoalition.org. is $15 billion over seven-years, beginning produce a cash return to the developer. The Those who want to master all the details in 2001. The NMTC’s are distributed via third-party investor is credited with a $1 themselves should get the 2005 New CDE’s that are certified by the CDFI. million qualifying investment that generates Markets Tax Credit Handbook $390,000 of NMTC’s that are taken as www.novoco.com. CDE’s are entities whose primary mission credits against payment of the investor’s In preparing this article, I have been is providing capital to low-income federal income taxes over the next seven surprised at how little application this communities or persons. Some of these years. At the end of seven years, the third- powerful tool has found in the Twin Cities’ entities are community development arms party investor accepts perhaps some small marketplace. Those who have worked with of financial institutions. There are 12 Twin residual interest, but it has essentially it are convinced of its effectiveness in Cities’ based CDE’s on the CDFI Fund’s received its return through NMTC. website. However, it is not necessary to stimulating investment in low-income deal with a local CDE. A full 33% of There is a catch in these leveraged deals areas through its strong benefits to NMTC’s awarded in the first round were called recapture. If the lender were to investors/developers. The program’s for entities that proposed uses in multiple- foreclose on the real estate during the first scarcity is probably due to the lack of state or national locations. seven years, a recapture event would be available allocations, which may not end triggered. In that event all previous tax any time soon. But the good news is there Each year these CDE’s submit competitive credits resulting from this transaction is still time to learn about NMTC and applications for that year’s allocation of would be recaptured. Not surprisingly the position yourself and your project to use NMTC’s. The total authorization of $15 NMTC industry has developed a response the existing allocations or the fresh 2006 billion was divided as follows. 2001: $1 to that potential threat – forbearance. The allocations that come out in April/May. billion, 2002 and 2003: $1.5 billion each, financial institution loan needs to be 2004 and 2005: $2 billion each and 2006 structured in a fashion where the lender and 2007: $3.5 billion each. A CDE cannot will not foreclose and repay its loan in the apply for additional credits until it has used first seven years. Depending on the MSCA And The 50% of the previous years’ allocations. negotiation between investor and lender, Newsletter Committee Currently, applications are in for the sixth the lender may be allowed to take certain Wish You And Yours year (2006) allocations of $3.5 billion that enforcement actions short of foreclosing A Happy New Year! will be awarded in April/May of 2006. and retiring its loan. That’s a tough sell msca news 2006 2 www.msca-online.com MemberBrad Steiner Profiles Title: Relationship Manager Company: Bremer Bank, N.A. Education: Finance degree from University of Wisconsin - LaCrosse Family: Wife, Beth, and daughters Melanie (7) and Katie (5) 2006 LEADERSHIP Dream Job: Professional race car driver or owner of my own hardware store OFFICERS or restaurant President Sara Stafford, LandAmerica Commercial Services Favorite Food: Anything Asian, Mexican, or Spanish 1st Vice President Jay Scott, Solomon Real Estate Group 2nd Vice President Bruce Carlson, United Properties Janele Taveggia, P.E.