dia:beacon a case study of tax credits & the arts steven evans, dia art foundation al shehadi,...
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Dia:BeaconA Case Study of Tax Credits & the Arts
Steven Evans, Dia Art FoundationAl Shehadi, National Trust Community Investment Corp
June 24, 2009
Dia: Beacon - Before
Underwriting Issues
• Developer capacity
• Financing
• Coordination of multiple funding sources
• Construction oversight
• Property tax exemption
• Developer fees
Developer Capacity
Organizational CapacityStaffBoardFinancialConsultants
Functional CapacityLegal/Real EstateConstruction oversightInternal controls &
reporting
Developer Capacity: Dia
Organizational CapacityExperienced construction &
financial management staffHired outside construction
managerSophisticated fundraising boardLarge endowment/strong balance
sheet
Functional CapacityLegal/Real EstateConstruction management staff
on-site at all timesStrong internal controls &
experience with grants reporting
Funding Sources
Arts & cultural facilities are not “profitable”
Development costs funded largely with “free” moneyPrivate fundraising Public grantsTax credit equity
Funds should be available during constructionClosed or committed at start of
construction?Funds available up-front?Benchmark-based pay-ins?Fundraising “pledges” over time?Cash flow projections & need for
bridge financing
Funding Sources: Dia
$25.6 mm Fundraising $2,100,000 Empire State
Dev Corp$ 250,000 Dutchess
County IDA$ 250,000 City of Beacon$ 125,000 NYS OPR & HP$ 85,000 NYS Council on
the Arts
$5.96 mm HTC & NMTC Equity from BoA & NTCIC
Funding Sources: Dia
Historic Tax Credit Issues• Site remediation• Permanent art installation• Buyout reserve
NMTC Issues• 1st QEI recorded• Enhanced only HTC equity
(a “simple” structure)• NMTC equity funded a
generous operating reserve
Coordinating Funding Sources
“Free” money comes with strings Use restrictions Lien or deed to enforce Performance requirements Compliance & reporting
requirements?
Understand restrictions & requirements of each funding source
Requirements can conflict: be prepared to negotiate
Properly budget resources to be able to meet compliance and reporting requirements
Construction Oversight
Typical construction oversight functions
Pre-closing “constructability” reviewMonthly site visits & reportsReview and approve draw requestsCheck title/liensDisburse funds
Need 3rd party to perform oversight role
Public agencyBridge lender (equity; pledges)Consultant hired by investor
Dia construction oversightNTCIC hired a construction consultant
to perform construction oversight
Property Tax Exemption
Nonprofit organizations are typically exempt from local property taxes
Does property tax exemption extend to taxable entities controlled by nonprofits?
Beacon tax exemption did not extend to taxable entity created by Dia to syndicate tax credits
Solution: Complicated, long-term ground lease where Dia retained ownership of land for local property tax purposes but taxable entity owned the “improvements” for federal tax credit purposes
Development Fee
Development fee Increases HTC basis and
equityPays nonprofit for staff and
time invested to develop project
Deferred portion of fee ensures “excess” cash flow goes to nonprofit and not tax credit investor
Property needs to be owned by taxable entity
Nonprofits can earn a development fee for undertaking a tax credit transaction.
Development Fee: Dia
• Dia retained direct ownership of project until syndication (approximately 75% complete)
• Could only earn development fee on work done after property transferred to LLC
• Had to forego development fee on work completed prior to syndication
Al ShehadiAcquisitions ManagerNational Trust Community Investment Corp27 Byram Shore RoadGreenwich, CT 06830(203) [email protected]
Steven EvansAssistant Director for Beacon
Dia Art Foundation3 Beekman StreetBeacon, NY 12508
(845) [email protected]