1. YOU CAN DO THIS! FINANCE PROJECTS WITH NEW MARKETS TAX CREDITS APRIL 21, 2015 CALED ANNUAL CONFERENCE LUIS A. RODRIGUEZ, GOLDFARB & LIPMAN LLP DAVID WILKINSON, NORTHERN CALIFORNIA COMMUNITY LOAN FUND CHARLES CHING, CITY OF SAN PABLO 1692993.1 1 goldfarb lipman attorneys

2. WHAT ARE NEW MARKETS TAX CREDITS?  A federal tax credit program designed to stimulate investment in low income communities or to assist low income “targeted populations”.  Developed after the success of the Low Income Housing Tax Credit – though completely different!  A 39% tax credit for every Qualified Equity Investment (QEI) to a Community Development Entities (CDEs).  Part of the Community Renewal Tax Relief Act of 2000.  Over $40 Billion of New Markets Tax Credits awarded since the program began.  Administered by the CDFI Fund, which is a division of the US Treasury Department. 2

3. “TYPICAL” STRUCTURE OF A NMTC DEAL QEI NMTC QLICI QALICB CDE Investment Fund CDFI Fund New Markets Tax Credit Allocation Leverage Loan Lender Leverage Loan 3 Investor Equity

4. HOW DOES THE PROGRAM WORK?  CDEs annually apply for an allocation of NMTCs.  If awarded an allocation, CDEs facilitate investments (typically structured as low interest and forgivable loans) to qualifying projects with proceeds from investors that purchase the NMTCs from the CDEs.  CDEs generally select projects which are real estate projects or operating businesses located in highly distressed low income areas, which result in high community impacts. 4

5. NMTC FINANCING  The NMTC financing facilitated by the CDE is generally a low interest loan, which is forgiven after 7 years.  The loan typically is approximately 20% of the total financing necessary for a real estate project or operating business.  The NMTC borrower is either a for-profit or nonprofit entity that is located in a “low-income census tract” as determined by the US Census or serves low income Targeted Populations. 5

6. NMTC BENEFITS  Benefit to Borrower/Project  Low interest (approx. 1%) and interest only 7-year loan to help fund a project.  The NMTC financing provides a net benefit of approximately 20% of the funds necessary to finance the project.  Ability to leverage existing project funds, prior incurred expenses and land value with NMTC financing through the “Leverage Structure”.  Forgiveness of B Note (NMTC Equity).  Community Benefit  Develop a community facility or commercial project which will provide services to low income areas.  Retain and increase employment in low income areas.  Spur economic development and act as a catalyst for more development in economically challenged communities. 6

7. NET BENEFIT TO PROJECT* Sources & Uses CDE Level Project Level at closing Interest over 7 years used to pay CDE Expenses NMTC Equity from Investor Bank$3,300,000$3,000,000$2,700,000 - CDE Fee (3% of QEI)($300,000) - Legal, Accounting, Consulting Fees ($370,000) - Annual Asset Mgmt. & Monitoring Fees (Spread over 7 years- 3.5% of QEI3 ($350,000) Net Project Benefit (22% of $10m Budget) $3,000,000$2,630,000$2,280,000 *For illustration only: Actual fees will vary! 7 7

8. WHAT TYPES OF Projects Funded with NMTC Financing  Examples of NMTC funded projects include:  Community Centers  Recreational Facilities  Infrastructure Projects  Child Care Facilities  Grocery Stores  Commercial Buildings  Mixed Use Developments  NMTC financing cannot be used for:  Golf Courses  Race Tracks  Gambling Facilities  Liquor Stores  Certain Farming Businesses  Residential Rental Property 8

9. 2013 NMTC ALLOCATION ROUND  Announcement for 2013 NMTC Allocation Round made on June 5, 2014  87 CDEs Awarded NMTC Allocation (310 CDEs applied)  All 87 CDEs agreed to fund 75% of their allocation in Highly Distressed Areas  Highly Distressed = 30% or higher Poverty Rate, below 60% AMI or more than 1.5 times the national unemployment rate 9

10. THE IDEAL TRANSACTION  Project Readiness  Site control agreement  Architectural construction documents in progress  All regulatory approvals defined and scheduled  Contractor is selected and has draft contract  Obtaining building permits in a timely manner  Other financing tied down (sources of leverage)  High Community Impact  Jobs  Services  Assist Severely Distressed Areas 10

11. Equity = $2.5 MM $5.0 MM Investment Fund $7.5 MM Upper Tier Fees: Legal, Annual Audit, Taxes CDE Transaction Fees: Audit, taxes, CDFI reporting & Investment Fund admin. Project Legal, CPA & Consulting Fees Loan Interest QALICB Payments= Loan Interest + CDE Fees Grants & Land CASE STUDY RUMRILL PARK SOCCER FACILITY 11

12. LEVERAGED SOURCES  Leverage Public Funds:  California Parks and Recreation Prop 84 Funds  County Measure WW Funds  EPA Brownfield Grant Funds  City Funds  Leveraged Land and Prior Incurred 12

13. Total QEI (Tax Credit Allocation by NCCLF) $ 7,500,000 Tax Credit over 7 yrs.39% Total Credits to Investor: Bank of America$ 2,925,000 Price per credit$ 0.86 NMTC Gross Equity for Project$ 2,515,500 CASE STUDY RUMRILL SOCCER PARK, SAN PABLO Tax Credit Breakdown 13

14. NMTC Equity $2,500,000 - CDE Fee (3% of QEI)$225,000 - Legal, Accounting, Consulting Fees (2.9% of QEI)$390,000 - Annual Asset Mgmt. & Tax/Audit Fees (Spread over 7 years)$372,500 Net Project Benefit (17% of Project Cost)-varies with size of project $1,512,500 CASE STUDY RUMRILL SOCCER PARK Leveraged NMTC transaction fees: 14

15. RUMRILL SOCCER PARK BEFORE 15

16. RUMRILL SOCCER PARK DURING REMEDIATION OF BROWNFIELD 16

17. DURING THE CONSTRUCTION OF PROJECT 17

18. DURING CONSTRUCTION OF THE PROJECT 18

19. ISSUES TO CONSIDER  NMTCs add complexity to a transaction  Leverage Lenders need to be educated regarding debt security issues and remedies  Guaranties and Indemnities  End of compliance period arrangements  What is the NET benefit for your project? 19

20. THE FUTURE OF THE NMTC PROGRAM  The 2013-14 NMTC authorization has expired; bipartisan bills introduced in Congress to extend the program  President Obama has requested an increase from $3.5 to $5 billion and to make the NMTC program permanent  AB185 introduced in State Legislature to create a California NMTC; AB771 also introduced to create a State Historic Preservation Tax Credit 20

21. NMTC TERMINOLOGY  QEI = Qualified Equity Investment  CDE = Community Development Entity  QLICI = Qualified Low-Income Community Investment  QALICB = Qualified Active Low-Income Community Business  QCT = Qualified Census Tract (Low Income Community) The Investor’s QEI to a CDE is used to make a QLICI to a QALICB in a QCT. 21

22. GOLDFARB & LIPMAN LLP  Goldfarb & Lipman is a law firm with special strengths in community economic development, affordable housing, real estate development and municipal law. Since the founding of Goldfarb & Lipman in 1971, we have developed an extensive practice focused on providing superior legal representation to both public entities and private developers in real estate developments and financing transactions. We have successful closed transactions involving the Low Income Housing Tax Credits, New Markets Tax Credits, Renewable Energy Credits, and Historic Rehabilitation Tax Credit.  Goldfarb & Lipman has been involved in every stage of the New Markets Tax Credit Program. Since the beginning of the NMTC program, we have represented: (i) public agencies lending into a NMTC transaction, (ii) QALICBs utilizing NMTC financing and CDEs closing NMTC transactions. Some examples of projects we helped close utilizing NMTC financing include community facilities, historic live theater venues, child care centers, office buildings serving nonprofit organizations, and commercial mixed use buildings. 22

23. NCCLF’S MISSION  We promote economic justice and alleviate poverty by increasing the financial resilience and sustainability of community-based nonprofits and enterprises. 23

24. PROGRAMS Financial Solutions. Stronger Communities. Lending Real Estate Consulting & Financial Consulting Investment Opportunities 24

25. AREAS SERVED Alameda Alpine Amador Butte Calaveras Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Kern Kings Lake Lassen Madera Marin Mariposa Mendocino Merced Modoc Monterey Napa Nevada Placer Plumas Sacramento San Benito San Francisco San Joaquin San Mateo Santa Clara Santa Cruz Shasta Sierra Siskiyou 47 Counties in Northern California Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Tuolumne Yolo Yuba 25

26. MORE QUESTIONS? CALL US! David Wilkinson Charles Ching NCCLF City Manager’s Office Real Estate Consultant City of San Pablo 415-392-8215 ext 309 510-215-3004 dwilkinson@ncclf.org charlesc@sanpabloca.org Luis A. Rodriguez Goldfarb & Lipman LLP 510-836-6336 lrodriguez@goldfarblipman.com 26