High transaction costs can make QLICIs under $5M unworkable. By the time the deal has closed, and the fees have been paid, very little is left for the QALICB. For that reason, many CDEs require a minimum project cost of $5M or more when choosing a potential QALICB.
Smith NMTC Associates, in partnership with US Bank CDC, Novogradac, Polsinelli Shughart, Husch Blackwell and Elkins, P.C. developed a structure to deliver smaller sized QLICIs quickly and efficiently by combining multiple QALICBs in one transaction. This model allows the QALICBs to share the closing costs and other fees, and requires only one Investment Fund.
Smith guarantees the recapture risk on behalf of some small nonprofit QALICBs and provides financial counseling and other services to the QALICBs, resulting in continuing comfort to the tax credit investor, and reporting assistance for other CDEs involved in these transactions. The level of comfort this model provides has allowed US Bancorp CDC to invest in over $275 million of these transactions with SmithNMTC, funding 3,049 homes for over 9,000 low income parents and children in distress communities throughout the country.
Building on this model with its partners US Bancorp CDC, Novogradac, Husch Blackwell, Polsinelli Shugart and Elkins, PC, Smith NMTC developed a unique approach to combine 12 Habitat QALICBs and their QLICIs, allowing them to save costs by using one Leverage Lender, one Investment Fund, and one sub-CDE, while closing the QLICIs in 3 manageable separate tranches of Habitat affiliates on a successive basis throughout a 6 month period. Transaction costs were cut by a third over what they would have been had 3 separate transactions occurred, rather than 3 tranches of one transaction. The investor thus helped create an enormous social benefit through its investments, while having the assurance that the QALICBs’ recapture risk was being effectively monitored and managed by Smith NMTC.
Smith recently used this same approach to combine 21 Habitat QALICBs and their individual QLICIs, each under $2 million, to deploy a $42 million allocation by closing in 4 separate transactions over a 5 month period.