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Twin to Win Part II – Project Example

In Part I, we gave you a high-level overview of how New Markets Tax Credits (“NMTC”) and Historic Rehabilitation Tax Credits (“HTC”) can be combined to generate significant private capital for qualified historic projects located within low-income communities. Now, let’s take a look at a real-life success story of a project that utilized both NMTCs and HTCs, along with a few other state and federal grants, to complete its project.

Base Camp Coding Academy (“Base Camp”), located in the quaint, northern Mississippi town of Water Valley, is a non-profit vocational education program for under-advantaged youth that trains students to become software developers in 12 months.  The year-long program is free to students and aims to help address the private sector’s shortage of high-tech skilled labor by training local youth to fill the positions.  Founded in 2015, Base Camp has graduated five classes of software developers with a 95% graduation employment rate.  Prior to 2020, Base Camp operated above a retail business owned by the organization’s co-founder, which limited Base Camp’s ability to scale the program.

With the goal of adding significant square footage to expand Base Camp’s program, the Base Camp team identified a dilapidated garment factory located within a NMTC qualified low-income census tract to be redeveloped.  The building, once a thriving factory and one of the largest employers in the community, was in disrepair, had been vacant for 30 years and is located within a registered historic district and determined to contribute to the historic significance of the district.  The project consisted of the development, construction, rehabilitation, and renovation of the factory into a state-of-the-art 64,000 square foot education and technology innovation hub.  Butler Snow represented Base Camp in connection with the transaction utilizing federal and state NMTCs and HTCs and certain other grants to finance the $7.3 million project.  The project received $6.5 million in federal and state NMTC allocation, and an additional state NMTC allocation of approximately $600,000, all of which was allocated to the project by Raza Development Fund, Inc.  U.S. Bancorp Community Development Corporation monetized the federal NMTCs while the state NMTCs were monetized by various high net worth individuals.  The federal and state HTCs for qualifying rehabilitation costs were monetized by Enhanced Capital.

The completed project provides Base Camp with much needed expansion space, allowing it to serve students from within a 50-mile radius and graduate 25 software developers annually.  The project also includes office space, business incubator/startup space and a satellite campus for Northwest Mississippi Community College, who now offers a wide range of job-training and continuing education opportunities that have been unavailable in the region.  In addition to Base Camp’s tech training, Northwest Mississippi Community College will offer various training programs, including welding, electrical, nursing, manufacturing (production and leadership) and customized workforce training designed by local businesses.  An impact analysis provided by Northwest Mississippi Community College estimates that the project will create/train 877 full-time employees within the first three years of operation.  The census tract where Base Camp is located has a poverty rate of 26.4% and is considered severely distressed and non-metropolitan, factors which generally increase a project’s chances for obtaining NMTC allocation.

In addition to federal and state NMTCs and HTCs, the project was also funded with a combination of public grants and corporate donations, including grants from Delta Regional Authority, Appalachian Regional Commission, U.S. Department of Agriculture, Tennessee Valley Authority and the U.S. Department of Labor, with private sponsorships from Morgan White Group, Core Logic, and Renasant Bank.

Given the various subsidies generated by the layering of structured finance, a variety of special purpose entities were needed to comply with the various program requirements.  Further, to successfully structure this transaction, many structural and collateral considerations were necessary to support various tax opinions, and an experienced team of accountants, attorneys and consultants was critical to the process.

So there you have it – a real world example of “twinning and winning.”  At the end of the day, the financing created a net subsidy of over $3 million (or 45% of the overall project costs) to the project’s bottom line.