When the owners of 197 East Broadway, on the Lower East Side, came to terms with the fact that their building was in desperate need of a renovation after 124 years as their headquarters, they made a move that might look obvious for any holder of a valuable commercial real estate asset. They looked for a loan. On paper, though, the Educational Alliance—a non-profit serving about 50,000 New Yorkers with a range of services, from pre-school, health and wellness for seniors to addiction recovery programs—is not your average Goldman Sachs (GS) client.
Nonetheless, in August 2012, Goldman Sachs’ Urban Investment Group committed $44.1 million of capital to finance the redevelopment of the Educational Alliance’s building. The financing comes in part as a New Markets Tax Credit transaction, and in part as a senior loan directly to the nonprofit.
“Goldman Sachs, their Urban Investment Group, adopted us,” Robin Bernstein, president and CEO of the Educational Alliance, told The Mortgage Observer. “They said they wanted to help us to make it happen, and they did.”
Since its launch in 2001, Goldman Sachs’ Urban Investment Group has provided more than $2.4 billion in lending and tax credit equity investments that benefit urban communities. “Every deal is different, every deal is crazy,” said Alicia Glen, managing director of the group. “There are a lot of different parts of the puzzle.”
The New Market Tax Credit program is one piece of the complicated puzzle assembled to help the Educational Alliance. Established in 2000 by Congress to attract investments to low-income communities, the program provides federal income tax credit to taxpayers making equity investments in specialized financial institutions called Community Development Entities. The credit totals 39 percent of the original investment amount and is claimed over a period of seven years.
So far 664 awards have been allocated, for a total of $33 billion in tax credits, according to the U.S. Department of the Treasury. The New Market Tax Credit program expired in December 2011, though Congress is expected to reauthorize it after the presidential election.
For 2012 the Treasury’s Community Development Financial Institutions Fund received 282 applications for $21.9 billion of tax credits, the agency announced on September 25th. Once reauthorized, though, the project is expected to allocate tax credits for $3.5 billion, in line with the previous years.
In 2011, the Community Development Entities of JP Morgan Chase and U.S. Bank received the largest amounts of allocated tax credits—$100 million each. Many banks have created Community Development Entities, which outline the projects they intend to support each year in their applications to the Community Development Financial Institutions Fund.
“One of the projects we referred to in our application is for a federal qualified health center in the Bronx,” said Leigh Ann Smith, historic and new market tax credit equity originations manager for Bank of America (BAC). Bank of America has provided New Market Tax Credit allocations for projects such as the new building of the Lower East Side Girls Club and the expansion of the Greek yogurt manufacturer Chobani in upstate New York, which at full capacity is expected to create 450 new jobs.
