Indiana Redevelopment Corporation

1. Indiana Redevelopment Corporation

2. New Markets Tax Credits Indiana Statewide Conference on Housing and Community Economic Development September 14, 2005 Julian Rodgers House Investments 317.580.2546 jrodgers@houseinvestments.com Paul Jones Ice Miller 317.236-5959 Paul.jones@icemiller.com

3. New Markets Tax Credits • The New Markets Tax Credit ("NMTC"), provided in Section 45D of the Internal Revenue Code, provides federal tax credits with respect to $15 billion in qualified investments made from 2001 to 2007.

4. New Markets Tax Credits • Annual qualified investment pool which generates NMTCs: • 2002 - $2.5 billion (combined 2001 and 2002) • 2003 - $3.5 billion (combined 2003 and 2004) • 2005 - $2 billion • 2006 - $3.5 billion • 2007 - $3.5 billion

5. New Markets Tax Credits • NMTC allocations are awarded by the Community Development Financial Institutions (“CDFI Fund”) to Community Development Entities (CDE’s). The CDE’s will make loans and capital investments in businesses in underserved geographic areas. • Investors (such as local corporations, banks, insurance companies or individuals) invest cash in the entity that is awarded tax credits.

6. New Markets Tax Credits • The capital from investors is in turn invested in qualifying businesses located in the qualified areas. • This may be in the form of equity investments or loans to qualifying businesses.

7. Qualifying Businesses • A wide range of businesses are eligible for assistance, including for-profit retail, manufacturing, service businesses and nonprofit businesses. • Exclusions include: residential rental housing, country clubs, golf courses, gaming venues, liquor stores, massage parlors, tanning establishments, and hot-tub parlors.

8. Qualifying Businesses (cont.) • In general, a qualifying business must meet the following criteria: • At least 50% of its total gross income derived from activities in a low income community; • At least 40% of its tangible personal property is used in a low income community; and • At least 40% of its services are performed in a low income community.

9. Low Income Communities • A "low income community" is defined as a census tract where: • the poverty rate exceeds 20%; or • the median income is below 80% of the greater of: • Statewide median income; or • Metropolitan area median income (for metropolitan tracts only)

10. Qualified Equity Investment • The NMTC is equal to 39% of a qualified investment and is claimed over a seven year period starting on the date when the investment is made. • Investors may claim NMTCs equal to 5% of their investment in years one to three and 6% of their investment in years four to seven.

11. Qualified Equity Investment (cont.) • Example: A $1 million qualified investment would generate NMTCs as follows: • $50,000 in 1st Year – $60,000 in 5th Year • $50,000 in 2nd Year – $60,000 in 6th Year • $50,000 in 3rd Year – $60,000 in 7th Year • $60,000 in 4th Year • Total of $390,000 in NMTCs, with a present value of about $300,000.

12. Investment Structure • IACED and House Investments formed Indiana Redevelopment Corporation (IRC), a nonprofit CDE that is certified by the CDFI Fund. • IRC formed Indiana Redevelopment Fund (IRF), a limited liability company to serve as an investment pool. • IRF makes loans to qualifying businesses.

13. Layering with Other Subsidies • The NMTC can be combined with other federal and state tax and nontax subsidies (e.g., historic rehabilitation tax credits). • The NMTC cannot be combined with: • Low-income housing tax credits

14. NMTC Structures • Below-market senior debt; • Subordinated debt; • Equity or equity-like investments; • Financial counseling and technical assistance; and • More flexible underwriting.

15. A Leverage Structure

16. General Benefits • Increased interest in areas once perceived as marginal. • Adds boost to make the deal work. • Possibility of increased property values. • Possibility of increased employment.

17. Incentives of NMTC’s for the Lender An opportunity for increased : -Business -Fee Income -Deposits -Community involvement

18. Investor’s Incentive • Attractive after-tax returns.

19. NMTC Process • Preliminary Discussion and Review • Meetings and Detailed information • IRC loan approval • Closing Timing: 30-90 days

20. Information Required • Preliminary Discussion • Project/Investment Description • Location • Community impact (jobs created or retained) • Principals involved • Estimated financial needs

21. Example of NMTC Transaction • New Construction • Two single use buildings • Different Locations • A non-profit ownership • Approximately $6,500,000 in combined development costs • Loan guaranteed and collaterized

22. The Loan Structure

23. Example (cont.) Traditional Bank Loan First Mortgage Bank Loan $6,500,000 Interest Rate LIBOR + 150 (Say an average of 6%) Term 5 Years Amortization 20 Years Annual Debt Service Amortized $558,816 Loan Balance end of Term $5,035,880

24. Example (cont.) Traditional NMTC Bank LoanStructure First Mortgage IRC Loan 6,500,000 7,000,000 NMTC Investment 2,101,890 Interest Rate LIBOR + 150 LIBOR + 150 Bank Loan Investment 4,898,110 (Say an average of 6%) 7,000,000 Term 5 Years 7 Years Amortization 20 Years Less NMTC Costs 445,000 Net to Project 6,555,000 264,930 Principal Deposited in savings account 293,886 Interest Payments Annual Debt Service Amortized 558,816 558,816 Annual Costs Loan Bal. End of 5 year term 5,518,500

25. The Benefits of NMTC Increased Loan Term Reduced Guarantee by reduced required annual payments. Reduced loan balance