23 Jun Tax Credits Supporting EB-5 Projects

In a previous blog post, we discussed the benefits of public-private partnerships between Regional Centers and municipal or state governments. Such partnerships—including governmental ownership of Regional Centers—help both developers and governments develop large-scale projects that serve the public good. On a smaller scale, governmental support of EB-5 projects can also come in the form of tax incentives and tax relief. Indeed, in today’s economic climate, it has become increasingly popular for developers to include federal and state tax credit programs as part of the capital stack for an EB-5 project.[1]

Some federal tax credit programs that have been used for EB-5 projects include the New Market Tax Credits,[2] which we will explore further below; the Low Income Housing Tax Credits for the renovation and creation of affordable rental homes;[3] and the Historic Tax Credits for the renovation of historic buildings.[4] A common thread linking these programs together is their stated goals of rejuvenating and revitalizing communities as well as stimulating job growth. In some cases, EB-5 developers have been able to utilize a combination of these and other tax relief programs for a single project.[5]

The combination of EB-5 financing with New Markets Tax Credits (NMTC) is gaining in popularity, particularly for real estate development. The NMTC program is run by the U.S. Department of the Treasury, which allocates a specific number of tax credits each year to be used for project development in urban and rural low-income census tracts. The program is intended to help finance community development projects, stimulate economic growth, and create jobs. While there are no specific job creation metrics for obtaining NMTC, providing evidence of job creation and other community benefits is crucial to receiving this competitive tax credit. Since both the EB-5 and NMTC programs are designed to facilitate development in economically distressed areas and support job creation, there is a natural synergy between them. In general, the NMTC benefit ranges from 15-25% of total project costs, provided the deal is structured efficiently and enough NMTC credit allocation can be identified.[6] For more information on using these programs simultaneously (or “twinning), we recommend this helpful IIUSA article.

The NMTC has been used to fund the development of City Point, an approximately 1.2 million square foot retail and residential complex in Downtown Brooklyn.[7] Another EB-5 project receiving this tax credit is the NYLO Hotel Dallas, which converted a 101-year-old 55,000 square foot building—which housed the Dallas Coffin Co. from 1911 to the 1950s—into a 76-room boutique hotel with a rooftop bar and pool. This project actually utilized both the NMTC and the Historic Tax Credit![8] The Marriot Hotel in downtown Milwaukee is yet another EB-5 project that received NMTC credit.[9]

There are also industry- and state-specific tax credits that can be effectively used by EB-5 developers. One example is the Renewable Energy Production Tax Credit (PTC), a federal program that has allowed power plants using renewable energy sources, such as biomass, to compete against traditional energy sources like natural gas and oil.  Since the PTC expired at the end of 2013, individual states have issued tax credits for the production, collection, and transportation of biomass that is used for energy production.[10] One biomass power plan developer, Georgia Renewable Energy, has used both the PTC and state tax credit programs, in combination with EB-5 capital, to construct and operate biomass power plants in Georgia and North Carolina. (We profiled Georgia Renewable Energy in a previous post.)

These examples illustrate how developers and business owners, alike, can close a funding gap or reduce the need for other capital by taking advantage of one or more tax credits.

To inquire about our turnkey customized EB-5 services, such as our best-in-class Matter of Ho-compliant business plans, project assessment and ancillary services, please contact us at info@ecouncilinc.com.

e-Council Inc.’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from an attorney r other professional legal services provider. For specific questions about any legal matter please consult with an attorney or other professional services provider.

[1] https://iiusa.org/blog/research-analysis/rcbj/rcbj-retrospective-twinning-eb5-markets-tax-credits-enhance-transaction-quality-returns/

[2] http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=5

[3] http://www.enterprisecommunity.com/financing-and-development/low-income-housing-tax-credits/about-lihtc

[4] http://www.preservationnation.org/take-action/advocacy-center/policy-resources/historic-tax-credits.html?referrer=https://www.google.com/#.VYg1oflViko

[5] http://www.bizjournals.com/dallas/print-edition/2013/04/26/nylo-south-side-wins-most-creative.html

[6] http://www.lexology.com/library/detail.aspx?g=1b50058a-86b8-47af-b8a9-bdded88e223e; https://iiusa.org/blog/research-analysis/rcbj/rcbj-retrospective-twinning-eb5-markets-tax-credits-enhance-transaction-quality-returns/; see also: http://www.americanbar.org/content/dam/aba/publications/journal_of_affordable_housing/volume_21_number_2/AH%2021-2_06Persaud.authcheckdam.pdf

[7] http://nycrc.com/project.html?id=7; http://www.novoco.com/events/conferences/nmtc/2013/san_diego/manual/presentations/novogradac_eb-5_and_nmtcs_san_diego_2013_01_25.pdf

[8] http://www.novoco.com/events/conferences/nmtc/2013/san_diego/manual/presentations/novogradac_eb-5_and_nmtcs_san_diego_2013_01_25.pdf; http://www.bizjournals.com/dallas/print-edition/2013/04/26/nylo-south-side-wins-most-creative.html

[9] http://services.housingonline.com/nhra_images/TCA%20Feb%202013%20-%20NMTC%20EB5%20projects.pdf

[10]Oregon Department of Energy. (n.d.).  Biomass producer or collector tax credit. Retrieved from http://www.oregon.gov/energy/renew/biomass/pages/taxcdt.aspx; Economic Development Partnership of North Carolina. (n.d.). Renewable energy tax credits. Retrieved from http://www.thrivenc.com/incentives/financial/tax-credits/renewable-energy-tax-credits