Demystifying New Markets Tax Credits (NMTC) for NJ Developers

While LIHTC funds housing, the New Markets Tax Credit (NMTC) is the engine for commercial and mixed-use revitalization. For projects in New Jersey's distressed census tracts—from community centers to manufacturing hubs—NMTCs can provide 20-25% of the capital stack as forgivable equity.

How NMTC Works

Unlike other credits that go directly to the developer, NMTCs are allocated to intermediaries called Community Development Entities (CDEs). The process works like this:

1. Allocation: The CDFI Fund awards tax credit authority to CDEs (like New Jersey Community Capital).
2. Investment: An investor (e.g., a bank) provides equity to the CDE in exchange for a 39% federal tax credit claimed over 7 years.
3. Loan: The CDE uses this equity to make a low-interest, interest-only loan to your project (the QALICB).
4. Forgiveness: At the end of the 7-year compliance period, the loan is typically forgiven, converting the debt into permanent equity.

Eligibility: Is Your Site "Distressed"?

To qualify, your project must be located in a Low-Income Community (LIC) census tract. The basic criteria are:

• Poverty Rate: > 20%
• Median Family Income: < 80% of the area median.

"Severe Distress": Projects in tracts with >30% poverty or <60% AMI are highly prioritized by CDEs.

Ideal Project Types

NMTCs are flexible but competitive. CDEs look for projects with high community impact:

The "But-For" Test

Like Emerge and ASPIRE, you must demonstrate that the project would not be financially feasible "but for" the NMTC financing. This is the "gap" that the credit fills.

Strategic Considerations

1. Transaction Costs

NMTC closings are legally complex and expensive. Legal and consulting fees can run $200k-$400k. Therefore, the program generally only makes sense for projects with total costs above $5 million (and ideally $10M+).

2. Finding a CDE

You don't apply to the government; you apply to a CDE. Building relationships with CDEs like NJCC, Cinnaire, or national entities is critical. You need to pitch your project's "community impact" story.