How it Works: Process
CDF developed a formal project intake application in 2007, and follows the sequence described below to identify, structure, and close transactions:
CDF typically follows the sequence described below to identify, structure, and close transactions. The time frame from initial intake to final closing can vary significantly based on the complexity of the project, availability of the non-NMTC financing sources, and other factors impacting project readiness.
1. Pre-Application Discussions with Project Sponsors. While CDF receives some applications for NMTC assistance without having previously heard from the applicant, it is common for project sponsors to call with questions about the NMTC program. Because the NMTC program is complex and not right for every project, CDF frequently meets with prospective applicants to discuss such issues as potential deal structure, availability of tax credits, eligibility, timing, and approval process.
2. Intake Application. All potential users of the program must complete CDF’s intake application. This application gathers key details on the proposed project such as:
- Eligibility to participate in NMTC program
- Project location and evidence of site control
- Anticipated community benefits (jobs creation/retention, services, etc)
- Available financing sources
- Need for NMTC assistance
- Project timing
3. Application Review/Screening. The intake applications are then reviewed to determine whether the proposed project appears to be a feasible NMTC transaction that fits with CDF’s mission. This process is coordinated with other applications for City of Chicago assistance the project sponsors may have submitted, such as land sales, TIF, Class 6b, etc.
4. Underwriting/Structuring. CDF then works with the applicant to determine in detail how the project financing will be structured. While NMTCs can be a powerful financing tool, they require careful structuring to be feasibly deployed. CDF reviews these issues, and works with the project sponsor as needed to refine the deal structure and identify appropriate lenders and NMTC investors.
5. Term Sheet. CDF issues term sheet-level commitments to project sponsors that are subject to final approval by CDF’s Advisory and Governing Boards. These term sheets reserve a specified amount of NMTC allocation for the proposed project for a specific period of time. Because of the federal credit rate for NMTCs and prevailing NMTC investor pricing, the net NMTC capital can only represent at a maximum about 20% of the total funding for a project (see “Typical Transaction Structure” page above. Therefore, it is critical to identify and secure the balance of the financing sources for the project. CDF can only issue these term sheets when the project has secured detailed term sheet-level commitments for all sources of financing needed to fund the entire project, with each source appropriately structured to fit with the NMTC transaction. CDF also obtains a deposit at the time of term sheet execution.
6. Advisory Board Review. CDF’s Advisory Board meets at least quarterly to review proposed transactions and other CDF business activity. Proposed transactions are presented to the Advisory Board in detail for review and comment. In particular, the Advisory Board focuses on the community benefits that will arise from proposed projects, as well as evidence of broad-based community support.
7. Governing Board Review. CDF’s Governing Board generally meets after the Advisory Board to consider proposed transactions and other business activity. The Governing Board reviews the Advisory Board’s recommendations regarding proposed transactions, and formally votes on whether to approve CDF’s participation in a project.
8. Closing Process. CDF then works with the project lender(s), NMTC investor, and borrower to draft and execute all the necessary documentation for financial closing.