There’s a lot of buzz around Opportunity Zones (“OZone”), a tax-driven investment program created in 2017 by the Tax Cut and Jobs Act.  By most accounts, the program has been developing rapidly, with a tremendous amount of capital potentially available to be invested through the program.  The intent of the Federal program is to allow recently-harvested capital gains to be reinvested in economically depressed areas across the country.  It is estimated that there is about $6 trillion in such capital gains available domestically, which sit in investment accounts of banks, insurance companies, corporations, individuals, retirement accounts, and other taxpayers.  Only a small fraction of these funds would be considered for Opportunity Zone investment.  But even if only one-tenth of one percent of this money were committed to the program, the size would rival that of the Federal Low-Income Housing tax credit program as well as the Federal New Markets tax credit program.

Much has been written about the technical rules of the program (as well as the lack of current guidance).  But investors, hungry to shield their current capital gains from taxation, are pushing investment fund operators to quickly set up and activate Opportunity Funds.  Some of these fund sponsors come from the tax credit industry, while others emerge from other asset management or hedge fund origins.  It will be fascinating to see how the market develops, and the level of integration of traditional fund management with the tax credit universe more familiar with the rules of tax-advantaged investment.

In our estimation, the current demand for tax shelter is overwhelming the supply of well-structured, shovel-ready projects that can benefit from Opportunity Zone financing.  One important factor in assessing a project’s interest in OZone funding is the duration of the investment.  Funds seeking to maximize tax benefits want to keep their capital invested for the ten-year period that eliminates any tax on gain, the largest tax benefit.  Few traditional market-rate real estate projects are comfortable committing to that partnership timeframe, whereas NMTC and LIHTC projects are more accustomed to the 7- to 15-year horizons required under their program rules.

Investment returns are another area of interest.  Fund sponsors appear to be targeting returns in the range of 10-15% after-tax, which are generally in excess of most tax credit funds.  However, this may be below the rate required by typical hedge fund investors, and above the threshold that banks accustomed to CRA-driven investments require.  As in many new ventures, the first participants out of the box deliver the highest returns, and then over time, as investors become more comfortable and familiar with the program, returns drop and the more conservative money wins out, willing to accept lower returns for lower risk.  This is especially true in the current environment, where the industry is sorely lacking guidance from the US Treasury Department on key issues, but some very impatient money is seeking these early opportunities.

Clocktower Tax Credits, LLC is well-positioned to help develop this exciting new investment vehicle.  With 25 years of experience in tax-advantaged project financing, Clocktower will be helping developers obtain OZone funding, and helping OZone fund sponsors identify worthwhile and profitable projects in which to invest.

Please contact Jeff Jacobson at (978) 823-0200 or JJacobson@ClocktowerTC.com to discuss the current marketplace.

It takes a village to develop or rehab an affordable rental property.  The Low-Income Housing Tax Credit (LIHTC) Program was created in 1986 to encourage investment of private capital in the development of affordable rental properties.  To date, fifteen states have adopted their own State LIHTC program alongside the Federal Program.  This has created a substantial benefit to developers in those states.  The reliance on hefty prices from tax credit equity has recently changed due to tax reform that was enacted in December of 2017.  Developers are currently assuming lower pricing due to this change, which means that developers will have to find alternative sources of capital to fill the gap created by this reduction in tax credit equity.  Historically, tax credit financing has played a major role in successful affordable housing project funding, but that’s only half of the story.  It takes many other subsidies from state and local municipalities to make the numbers work.  For example, on one of Clocktower’s recent projects, 98 Essex Street in Haverhill, MA, the redevelopment of an historic Shoe and Leather Association Building into sixty-two apartments for low -and moderate-income households, the developer is using a myriad of financing to achieve its end goal.  Financing included $19.5 million in state and federal LIHTC equity, with Massachusetts Housing Investment Corp. syndicating the federal tax credits while Clocktower Tax Credits, LLC brokered the state tax credits.  The Massachusetts Housing Finance Agency provided a $1 million permanent loan and $600,000 from the agency’s Workforce Housing Initiative.  The Massachusetts Department of Housing and Community Development contributed an additional $2.5 million in direct affordable housing subsidy.  The Affordable Housing Trust Fund contributed $1 million, while the City of Haverhill and the North Shore Home Consortium contributed an additional $365,365.  Eastern Bank is providing $16.3 million in construction loan financing.  When completed, there will be fifteen one-bedroom, forty-one two-bedroom, and six three-bedroom apartments available for residents between 30 percent and 80 percent of area median income (AMI).  It truly took a village to make this project happen.

For more information, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.

We receive weekly calls from film producers inquiring about the film tax credit transfer process and the best way to monetize their credit.  Let’s take a look at a few common situations and solutions that Clocktower Tax Credits can offer to producers when they anticipate earning, or have already earned, their Massachusetts Film and Television Tax Credit.

The most common situations we encounter are:

• A producer is considering filming in Massachusetts and needs to monetize their tax credit;
• A producer is in the middle of production or has filed for the tax credit and wants the benefits of the tax credit immediately and not after the film is made;
• A producer has a tax credit in hand and is looking to sell as soon as possible

It is advantageous for producers to contact Clocktower as soon as they know that they’ll be filming in Massachusetts.  This creates a number of benefits that producers can realize early on. First, we can either write the producer a Letter of Intent, stating our interest in selling their tax credit.  A Letter of Intent is a powerful tool for producers when they approach investors or lenders as the Letter of Intent demonstrates a third party’s involvement and the producer’s ability to partially finance the production.  Second, if a producer is already filming, or has a track record of completing productions, we can formally engage the producer and start marketing their tax credit.  This is extremely beneficial to the producer because we can identify a buyer for their tax credit even before it is issued by the state.   We will draft Purchase and transfer documents, and once the credit is issued, the transfer will occur. If a producer needs the proceeds from the tax credit transaction immediately, Clocktower can facilitate a loan against the tax credit for post-production expenses.  Finally, many producers call us with tax credits already issued by the Massachusetts Department of Revenue that they are looking to immediately sell.  We have a network of experienced tax credit buyers with Massachusetts Income, Personal, or Premium Tax liability that we contact in order to obtain the best offer to purchase the tax credit.  Purchase documents are signed by both parties and the transfer forms are submitted to the state.  Once the buyer of the credit receives the transfer confirmation in their MassTax Account or via mail, the buyer wires the funds to the producer to complete transaction.

Producers may note that the Massachusetts Film and Television Tax Credit Program provides for an optional rebate from the state. The state will pay out $0.90 per tax credit dollar to the producer in the form of a rebate check.  However, to receive the rebate from the state may take a year or longer.  Given this long timeframe, only about 3% of producers elect to use the rebate, while about 97% sell their tax credits on the private market via a broker like Clocktower Tax Credits.  Third-party transactions are much more efficient, take about half the amount of time, and can yield higher prices for the producer.

Please call Nathan Howe at (978) 460-4244 or NHowe@ClocktowerTC.com with any questions that you may have regarding monetizing your Massachusetts Film Tax Credit – or to get started!

The State legislature in Missouri has recently taken steps for the worse in both the state low-income housing tax credit and historic tax credit arenas.  Recently, the legislature enacted SB 590, which pared back the total annual allocation of State Historic Tax Credits to $90 million, down from $140 million previously.  While the bill also includes an additional $30 million in credits for qualifying census tracts, the decrease in total volume has led to concern of a slowdown in the historic rehabilitation boom in the state.  In addition, the new bill requires Tax Credit project applicants to be approved by the Missouri Housing Development Commission, versus the current “first come, first served” method of issuing credits.  This has led to concern amongst developers about the fairness of the Commission in awarding Credits to particular developments, and a concentration of awardees in the large cities with better connections to the Commission.

The recent modification to the Historic tax credit program is just the latest in a series of changes in the Missouri Tax Credit landscape, as former Governor Eric Greitens attacked the Low-Income Housing Tax Credit program throughout the last few months of his governorship until his resignation in June.  Under pressure from the Governor, the Commission did not award any state LIHTC awards for 2018, halting numerous developments and decreasing the available options for low-income tenants.  In addition, the move has altered Midwest developers’ plans, with eyes shifting towards stable and expanding programs from neighboring states such as Illinois, where the state legislature is expected to vote soon on a bill expanding the state Historic Tax Credit.

Clocktower Tax Credits, LLC possesses the expertise and investor base to assist any Missouri developers navigating the tricky current Tax Credit situation, helping developers monetize their Credits while the Show-Me state programs continue their volatility.

If you have questions on the status of the Missouri programs or for help monetizing any Missouri tax credit assets, please contact David Curtis at (978) 440-0742 or DCurtis@ClocktowerTC.com.

The Empire Building, built in 1910 as a movie palace with offices above the theatre in downtown Syracuse, NY, was originally known as the Empire Theatre.  The theatre’s marquee is no longer visible, however this 7-story building still maintains its glorious original art-deco façade.  After the theatre was demolished in 1961, the upper floors were either left vacant or used as office space.  In 2018, the upper floors of the building have been converted into 52 one-, two-, and three-bedroom apartments with a new floor added for loft-style penthouse suites offering high ceilings and large sunlit windows with modern day conveniences.  The first floor remains as commercial space with long-term tenants.  This historic structure has been revitalized utilizing the New York State and Federal commercial rehabilitation Tax Credit programs.

The Developer, Derek Persse, converted the building into apartments with a $10 million budget utilizing State and Federal Historic Tax Credits to fund approximately 25% of his budget.  Clocktower Tax Credits, LLC introduced the historic tax credit investor to the project.  The investor, a syndicator which was admitted into the partnership for the majority ownership of the investment structure, will use the allocation of State and Federal Credits as currency in one of its Tax Credit funds and will remain invested in the project partnership for five years.  As in all partnership structures, the allocations of income, loss, tax credits and cash flow are made to the partners in proportion to the partnership interests, after the payment of developer and management fees.

For more information, please contact Sue Ellyn Idelson at (978) 793-9574 or SIdelson@ClocktowerTC.com.