Next month, the Community Development Financial Institutions Fund (“CDFI Fund”), a division of the Treasury Department, will award $5 billion of new markets tax credits (“NMTC Allocations”) to community development entities (“CDEs”), the vast majority of which are financial institutions, non-profits and governmentally-related entities.


Investors and lenders provide private sources of capital to the CDEs which in turn use those proceeds to provide 7-year term, below-market unconventional financing to qualifying borrowers in the form of equity, equity-equivalent financing, below-market interest rate loans, debt with equity features (i.e., debt with royalties, debt with warrants or convertible debt), subordinated debt, lower than standard origination fees, longer than standard period of interest-only loan payments, higher than standard loan to value ratio, longer than standard amortization period, more flexible borrower credit standards, nontraditional forms of collateral, lower than standard debt service coverage ratio, and loan loss reserve requirements that are less than standard. At the end of 7 years, a large portion of the financing is forgiven in a nontaxable transaction.


At a minimum, the project—which must be located in a “low-income community”—cannot otherwise be constructed, rehabilitated, or would otherwise be substantially delayed or financially unfeasible. As a practical matter, the project has to be able to obtain approximately 70% of its requested NMTC financing in the form of a loan from a local, regional or state bank (many of which now require personal guarantees) as well as have some cash in the deal (approximately 3% to 5% of total funds), a strong community impact and a developer with significant experience (especially in the type of project being financed).

Low-Income Community

A “low-income community” is defined as any population census tract if the poverty rate for such tract is at least 20%. In the case that a tract is not located within a metropolitan area, the median family income for such tract should not exceed 80% of statewide median family income. If a tract is located within a metropolitan area, the median family income for such tract should not exceed 80% of the greater of statewide median family income or the metropolitan area median family income.

Particularly Distressed Criteria

However, due to the competitive nature of the NMTC Program, the majority of CDEs, investors and lenders require that the project be located in a particularly distressed community characterized by as many of the following as possible:

  • With poverty rates greater than 30%;
  • With unemployment rates at least 1.5 times the national average;
  • Designated as Federally designated Empowerment Zones, Enterprise Communities or Renewal Communities; SBA designated HUB Zones to the extent Enterprise CDE’s loans to, or invests in, businesses that obtain HUBZone certification by SBA;
  • Federally designated Brownfields redevelopment areas;
  • Encompassed by HOPE VI redevelopment plan;
  • Designated as distressed by the Appalachian Regional Commission or Delta Regional Authority;
  • Federally designated Native American or Alaskan Native areas, or redevelopment areas by the appropriate Tribal or other authority;
  • Colonias areas as designated by HUD;
  • Federally designated medically underserved areas, to the extent QLICI activities will result in the support of health related services;
  • Affecting “targeted populations”;
  • Designated a “high migration rural county”;
  • Enterprise zone programs or other similar state/local programs targeted towards particularly economically distressed communities;
  • Designated as non-metropolitan;
  • Counties for which FEMA has issued a “major disaster declaration,” and made a determination that such county is eligible for both “individual and public assistance,” provided that, with the exception of the GO Zone, the initial investment will be made within 24 months of the disaster declaration; and
  • Certain other “distressing” characteristics.

The more characteristics a project meets, the better its chances of receiving NMTC funding.

Other Requirements

In addition to the characteristics above, the following qualities also increase a real estate project’s chances of receiving NMTC financing.

  • Shovel-ready with no outstanding approvals or permits that are needed, and any land already purchased or under contract for purchase.
  • Strong management team.
  • Ability to provide a guaranty of any debt.
  • A unique and compelling story.
  • Strong local support as well as other subsidies, such as historic tax credits, grants, TIF financing, taxable or tax-exempt debt, FHA 108, SBA 504 loans, HUD 232 financing, or funds of the developer than can be used to provide the leverage loan, etc.

NMTC Projects

Nonexclusive examples of projects that have been financed with NMTC proceeds include revitalization of downtown areas with renovations or construction of office buildings, commercial and retail buildings, shopping centers, mixed-use projects, for-sale housing, hotels, medical facilities, arts centers, theaters, charter schools, hospitals, college campuses, high-tech and biotech facilities, homeless shelters, transitional housing, facilities to assist educating the homeless, and assistance with home ownership, etc. Additionally, NMTC financing is available to business and nonprofit operations.

Basic NMTC Financing Structure

NMTC financing provides an opportunity to create innovative, although complex, financing to achieve ultimate feasibility to get projects completed. To view a flow chart representing an example of the basic, fundamental roles of NMTC transaction participants, click here