In 2004, the staff of 3CDC accepted the daily operating responsibilities for the Cincinnati New Markets Fund (CNMF) and The Cincinnati Equity Fund (CEF). The separate governing Board of these two private equity funds consolidated financing programs geared toward downtown redevelopment in order to accomplish the common goal shared by all three organizations. CEF and CNMF loans spur economic development in distressed and struggling neighborhoods by providing:
- A key source of capital as lending institutions abandon the market
- Capital for land banking
- Funding for pre-development activities (design, environmental review, etc.)
- 2-4% interest rates
- Interest-only payments (NMTC loans)
- No pre-sale requirements
- Loans made on non-recourse basis to developers
- Loan proceeds revolve and are reinvested in additional projects
The success achieved to date is due to the dedication and endurance of the CEF and CNMF Board of Directors, City officials and staff, community organizations and residents.
Cincinnati New Markets Fund, LLC
The Cincinnati New Markets Fund is a private organization comprised of 13 leading Cincinnati corporations. CNMF focuses on making loans and equity investments that help to revitalize and strengthen the center city of Cincinnati, including both the central business district (CBD) and the adjacent Over-the-Rhine (OTR) neighborhood.
NMTC Program Basics:
The New Markets Tax Credit Program (NMTC) was established by Congress in December of 2000 as part of the Community Renewal Tax Relief Act. It provides a credit against federal income taxes to privately managed investment institutions. In turn, these investment institutions, or community development entities (CDE), make loans and capital investments to drive economic and community development in distressed communities. Each CDE defines its unique “service area” where it will invest the resources it obtains through CDE certification.
Consistent with its comprehensive business strategy, CNMF’s main focus is on the three census tracts comprised of Downtown and OTR bounded by Fifth Street to the south, Central Parkway to the west, Liberty Street to the North and Broadway Street to the East. These census tracts are severely distressed neighborhoods and qualified investment communities for NMTC investments.
By making an investment in a CDE, an individual or corporate investor can receive a tax credit worth 39% of the initial investment, distributed over seven years, along with any anticipated return on their investment in the CDE. The program is administered by the CDFI Fund, an arm of the U.S. Treasury.
Formation of CNMF:
The Cincinnati New Markets Fund (CNMF) is a private organization comprised of 13 leading Cincinnati corporations. CNMF focuses on making loans and equity investments that help to revitalize and strengthen the center city of Cincinnati, including both the central business district (CBD) and the adjacent Over-the-Rhine (OTR) neighborhood. These areas are considered distressed neighborhoods and therefore qualify for NMTC investments.
CNMF is the result of the federal New Markets Tax Credit Program (NMTC), which was established by Congress in 2000 as part of the Community Renewal Tax Relief Act. It provides a credit against federal income taxes to privately managed investment funds such as CNMF. In turn, these investment funds, or community development entities (CDE), make loans and capital investments to stimulate development in distressed communities.
The managing members of 3CDC committed over $90 million to compete for an NMTC allocation award in 2003-2004. During that round of funding, the Federal government received applications from 271 entities requesting a total allocation of $30.4 billion. CNMF’s $50 million award was one of only 62 applications accepted nationally in a process that awarded a total of $3.5 billion. Investment of this allocation included the revitalization of Fountain Square and approximately 250 residential units and 91,000 SF of commercial space in Over-the-Rhine.
In October 2008, another application from 3CDC on behalf of CNMF was accepted and awarded $35 million in New Markets Tax Credits from the CDFI. This was the sixth round for the NMTC program. In all, 239 organizations nationwide requested funding totaling over $21 billion. CNMF received one of only 70 awards granted this round by CDFI. The award has allowed CNMF and its strategic partners to continue redevelopment downtown north of Fifth Street as well as its revitalization efforts in OTR, specifically moving north on Vine Street and the renovation of Washington Park.
3CDC has been awarded 2 more NMTC allocations since then for a total of $153 million. Total development directly spurred by CNMF investment equals $831 million.
As the manager of CNMF, 3CDC makes loans to developers for redevelopment projects in the target areas. Most developers will not or cannot borrow money from a conventional lender to undertake risky development opportunities. Once a development is completed, the developer begins to pay back the loan and the repayment goes back into CNMF allowing even more loans to be made.
The overall goal of CNMF is to support 3CDC’s efforts to revitalize the CBD and OTR by making below market-rate loans to commercial, residential and community real estate projects. Currently, there are two main offerings: a mezzanine loan product and mixed-use construction loan product. Revitalization is resulting in the creation of new home ownership opportunities and jobs, repopulation of the neighborhoods and reduction in crime. Without CNMF’s low-cost capital, such efforts would not be financially feasible.
By making an investment in a CDE, an individual or corporate investor can receive a tax credit worth 39% of the initial investment, distributed over seven years, along with any anticipated return on their investment in the CDE. The program is administered by the CDFI Fund; an arm of the U.S. Treasury.
The Cincinnati Equity Fund, Ltd.
The Cincinnati Equity Fund (CEF) was created in 1995 to support real estate development and compliment the low-income housing market by providing market-rate housing units to create mixed-income neighborhoods. To date, CEF and CEF II have made over $132 million in loans resulting in $831 million in total development directly spurred by the fund’s investments. Projects include Fountain Square, Washington Park, Nicholson’s, Palomino, Boca/Sotto, Igby’s, The Banks, and Over-the-Rhine condo developments.
CEF provides gap financing for downtown real estate development projects that would not otherwise happen but for the debt facility provided by CEF. Currently, there are two main offerings: a mezzanine loan product and mixed-use construction loan product. Both products offer components such as 2-4% interest rates, funding for pre-development and no pre-sale requirements.