Richard Buss of National City Bank said of the credits "This was the first New Markets tax credit transaction to close in Michigan, an important first both for the program and National City. As a new organization and a non-profit developer, TechTown was an ideal candidate for the additional benefits provided through the federal initiatives. These [benefits] permitted National City to enhance a construction loan that now provides more flexible and easier repayment terms. The subsequent equity investments by the National City Bank of the Midwest and the National City CDC, based on federal and state historic tax credits and state Brownfield tax credits, provided what amounted to grants for the project." Grady Hedgespeth, New York based Seedco CFO said, "Seedco is the Ginger Rogers of community economic development funding – not only does this deal do everything that the legislation demands, but it does it 'backwards and in high heels' by making sure that investors get a reasonable return while providing most of the benefit of the credit to the low-income communities."
The tax credit transaction created a phased funding source that provided an immediate $3.5 million infusion with up to $2.7 million in additional funds as the renovation continues. Combining New Markets, Historic, and Brownfield tax credits programs to fund this project also created a uniquely challenging experience for TechTown and its partners as they blazed this new trail of financing in Michigan, if not the country. "The creativity and tenacity displayed by all parties in tackling financial, corporate governance, and legal issues to close this transaction were amazing," said Howard Bell. Denise Lewis, Partner at Honigman Miller added, "our law firm is pleased to have been part of the team in closing this first New Markets credits transaction in our State. The legal structuring was complex and challenging, but the structuring produced the desired results. This financing represents an investment by a partnership of the public and private sectors which funds the revitalization of a critical community of Detroit. TechTown uniquely qualifies under the regulations for these four tax credit programs, given TechTown's mission in building high tech companies in an economically distressed section of Detroit."
As the new financing scheme moved from theory to closure, it was evident that TechTown had found a niche for urban development. David Schon, Partner at Washington, D.C. based Nixon Peabody added, "Historic and New Markets tax credits work very well together to bring needed equity investment to worthy projects like Tech Town. Detroit is full of historic buildings that are prime candidates for economic development incentives like these. As a native Detroiter, I'm proud to have been a part of bringing the newest financing tools to the Tech Town project and hope it will be one of many investments in old Detroit buildings that will house businesses bringing the new economy to the City." Gordon Goldie, the partner in charge of Plante & Moran's community development tax incentive practice, said "As a Wayne State University graduate, it feels great to play a role in revitalizing one of the historic buildings near the campus. The TechOne project would not have happened without New Markets, historic, and Brownfield tax credits. Howard Bell deserves a lot of credit for putting a great team together to take full advantage of these incentives and for making the technology park concept a reality at Wayne State. It seems fitting that a cutting edge organization such as TechTown would lead the way in utilizing a cutting edge financing technique such as New Markets tax credits."
Hard work and creativity can pay off. "At the end of the year, we could not have gotten a better gift for the holidays," said Howard Bell.
TAX CREDIT PRIMER
- Historic Tax Credits: The Federal Historic Preservation Tax Incentives program is one of the nation's most successful and cost-effective community revitalization programs. The program fosters private sector rehabilitation of historic buildings and promotes economic revitalization. It also provides a strong alternative to government ownership and management of such historic properties. The Federal Historic Preservation Tax Incentives are available for buildings that are National Historic Landmarks, that are listed in the National Register, and that contribute to National Register Historic Districts and certain local historic districts. Properties must be income-producing and must be rehabilitated according to standards set by the Secretary of the Interior. A 20% federal tax credit is available and an additional 5% state tax credit is available in Michigan.
Brownfield Tax Credits: Brownfields are real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. Cleaning up and reinvesting in these properties takes development pressures off of undeveloped, open land, and both improves and protects the environment. The Michigan Single Business Tax (SBT) statute provides a tax credit as an incentive for the redevelopment or improvement of a Brownfield. The SBT statute defines a Brownfield to include a facility (contaminated property), functionally obsolete or blighted property, provided that certain conditions are met. A qualified taxpayer may claim a credit against their SBT liability for 10% of the cost of the eligible investment., provided the taxpayer has a preapproval letter for the project issued after December 31, 1999 and before January 1, 2008 and the project is completed not more than five years after the preapproval letter is issued. For tax credits on projects of $10 million or less, the Michigan Economic Growth Authority (MEGA) is authorized to approve credits of $30 million per year. MEGA is also authorized to approve up to 15 projects per year where the SBT credit for the project is greater than $1 million.
ABOUT TECHTOWN TechTown's mission is to contribute to the economic renaissance of downtown Detroit by creating an internationally recognized entrepreneurial village that revitalizes an urban commercial and residential neighborhood. TechTown encompasses 12-city blocks located between the Wayne State University campus and New Center. TechTown is supported and governed by local industry, community, and government leaders, including General Motors, Henry Ford Health System, and Wayne State University. www.techtownwsu.org
About Seedco Seedco, a national community development intermediary, provides financial and technical assistance to nonprofit organizations and small businesses in disadvantaged communities. Seedco develops and supports initiatives that assist working families, promote community economic development, and strengthen community-based nonprofits. www.seedco.org
About Honigman Miller Honigman Miller is a major business law firm headquartered in Detroit. Honigman has among the largest real estate and tax practice groups in the Midwest and has extensive experience in handling historic credits, New Market credits and Brownfield credits transactions. Honigman has found ways to successfully utilize these development tools for financing client projects. This expertise has served area businesses, nonprofit organizations and real estate developers in helping them with development projects throughout the region. Honigman has taken innovative approaches to getting the most complicated deals completed.