New Market Tax Credits Presentation Tax Exempt Sponsors

1. New Market Tax Credits PresentationTax Exempt Sponsors Seminar – September 14, 2010 Panelists: Steven Paul, Partner, Tax Nicholas Romanos, Partner Tax Moderator: Andrew Grumet – Tax-Exempt Organizations

2. New Market Tax Credits Summary of Benefits • NMTC’s can account for more than 20% of project costs. • This presentation will focus on a project with a cost of $9.5m of which $2.2m is derived from the sale of NMTC. • NMTC investors typically derive their return solely from the NMTC effectively making their investments like grants which the sponsor need not repay. Principal Constraints • Project must be in a qualified census tract • The Non-Profit Sponsor of the Project must raise the balance of the funds, $7.3m in our example, and if it does so by borrowing, the Project generally cannot be mortgaged to secure such borrowing.

3. What are New Market Tax Credits (NMTCs)? - Introduction • Historical • Community Renewal Tax Relief Act of 2000 • Are they still available? • What is the forecast for 2010/2011? • NMTC provides investors (individuals, financial institutions, other corporations, etc.) with a tax credit for investing in communities that are economically distressed or consist of low-income populations.

4. Boston, MA NTMC QualifyingCensus Tracts

5. New York City, NY NTMC Qualifying Census Tracts

6. How do they work? • Terminology – • Community Development Financial Institutions Fund (CDFI Fund) Part of U.S. Treasury • Community Development Entities (CDEs) • Qualified Equity Investments (QEIs) • Qualified Active Low Income Community Business (QALICBs) • Qualified Low Income Community Investments (QLICIs) • NMTC Investor/Leverage Fund • Leverage Lender (can be project sponsor but not QALICB) • CDFI Fund Application/Approval Process

7. NMTC Financing Structure: Overview Lender (Sponsor)

8. NMTC Financing Structure:Community Development Entities (CDEs) • NMTC Allocatees, typically banks and other for-profit entities, nonprofits and state agencies, create these vehicles through which NMTCs investments are made. • Must apply for certification by the CDFI Fund in order to receive tax credit allocations. • Must show that their primary mission is to serve the needs of, or provide investment capital via equity or loans to, low-income communities or individuals. • Must be either partnerships or corporations for tax purposes.

9. NMTC Financing Structure: Qualified Equity Investments (QEIs) • Investors’ equity investment in the CDE • CDE sells NMTCs for cash to investors in exchange for investors’ equity investment in the CDE • Includes proceeds from the Leverage Loan • New Markets Tax Credit amount equals 39% of the QEI and is claimed over 7 years, beginning in the year the QEI is made: 5% of the QEI in each of the first three years and 6% of the QEI in each of the next four years • Current pricing of the NMTC is in the range of $.65-$.70 for each $1 of credit • In our example, $10m of QEI generates $3.9m of NMTC which, in turn, generates $2.7m of NMTC investment.

10. NMTC Financing Structure:Qualified Active Low Income Community Business (QALICBs) • Real Estate Owner. May be either a for-profit or nonprofit entity. Nonprofits often create 501(c)(3) supporting organizations to hold real estate for lease to sponsor. • QALICB must: • generate at least 50% of its annual gross income by conducting business in a low-income community • use at least 40% of its tangible property within a low-income community and perform at least 40% of their services in a low-income community (if no employees, 85% of its assets are located in such a community.) • not more than 5% of the assets of a Qualified Business can consist of “collectibles” or “nonqualified financial property” • be either a partnership or corporation for tax purposes.

11. NMTC Financing Structure: Qualified Low Income Community Investments (QLICIs) • Capital or equity investment in, or loan to, a QALICB from CDE • Includes proceeds from the NMTC Equity • Includes proceeds from the Leverage Loan • Must be either partnerships or corporations for tax purposes.

12. NMTC Financing Structure: NMTC Investor/Leverage Fund • Purchaser of New Market Tax Credit • Typically banks, insurance companies or other financial/investment institutions • Invests equity and proceeds of Leverage Loan into CDE through an entity created by NMTC Investor as funding vehicle for QEIs (“Leverage Fund”). • Leverage Fund is Borrower of Leverage Loan • Equity investment of NMTC Investor in exchange for Leverage Fund interest • Combines both NMTC equity investment and Leverage Loan into one or more QEIs, which is the equity investment in the CDE.

13. NMTC Financing Structure: Leverage Lender • Sponsor makes one or more Leverage Loans to Leverage Fund. • Increases amount of QEI, which increases the amount of NMTC available to be sold.

14. NMTC Financing Structure: Lease to Sponsor • Nonprofits often create 501(c)(3) supporting organizations to hold real estate for lease to sponsor. • Leasehold Mortgage may be available because leasehold is not a QALICB asset.

15. 3rd Party Lenders 3P Lender Secured by Sponsor’s assets but not QALICB’s assets Project Sponsor / 501(c)(3) QALICB New 501(c)(3) (Property Owner) Project Sponsor / 501(c)(3) • Alternative structure may have 3rd party lender lending directly to the leverage fund with Sponsor as guarantor of loans. • Step 2 – Structure collapsed through the cancellation of QLICI and QEI financing.

16. NMTC Financing Structure: Exit • Step 1 – Investor Exits through an exercise of a Put/Call – Sponsor acquires ownership of the Leverage Fund or its interest in the CDE. • Step 2 – Structure collapsed through the cancellation of QLICI and QEI financing – Sponsor dissolves CDE and acquires QLICI loan in satisfaction of Leverage Loan.

17. EAPD Contacts Steven L. Paul, PartnerBoston617 239 0442spaul@eapdlaw.com Nicholas V. Romanos, PartnerBoston617 239 0379nromanos@eapdlaw.com Andrew M. Grumet, PartnerNew York212.912.2753agrumet@eapdlaw.com