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A bank or corporation buys the tax credits.

The favorable financing from NMR is possible because a bank or corporation will pay to purchase federal tax credits (New Markets Tax Credits, or NMTCs) from NMR. The credits are equal to 39% of the equity investment made in NMR. They offset federal income tax for the bank or coporation at a rate of 5% per year for years 1-3 and 6% per year for years 4-7 (in total, 39% over seven years). The equity investment in NMR supplies the cash for NMR's investment in the real estate project. The price that the bank or corporation is willing to pay for these tax credits becomes economic benefit to the project owner, by virtue of the favorable terms of the NMR financing.

A bank makes a seven year loan.

In addition, a bank must be willing to make a seven-year interest-only loan for the real estate project. Instead of making the loan directly to the project owner, the bank makes the loan to an investment partnership, owned by the buyer of the tax credits. The investment partnership makes an equity investment in a subsidiary CDE formed by NMR. This equity investment gives rise to the tax credits, which flow through to the bank or corporation which owns the investment partnership. In most cases, the bank making the seven year loan is the same bank that buys the tax credits (and owns the investment partnership).

NMR makes the real estate investment.

NMR makes a low interest rate loan or loans to the project owner, and possibly an equity investment as well. The debt service on the loans is calculated at a level which allows NMR to distribute cash to the investment partnership sufficient to pay interest on the seven year bank loan. Because there are no principal payments for seven years, and because there are no distributions required for the tax credit investor, the interest rate on the NMR loans will be significantly below market.

After seven years, the project refinances.

NMR's loans mature in seven years. At that time the project owner must refinance. However, the NMR financing includes an agreement giving the project owner the ability either to extend the financing on a very low cost basis, or to purchase the tax credit investor's equity in the investment partnership. The effect of this agreement is to give the project owner the opportunity, under specified circumstances, to effectively buy down the debt and acquire the equity at a significant discount.

The structure of a sample transaction is shown in the following diagram.



			HOW AN INVESTMENT WORKS A bank or corporation buys the tax credits. The favorable financing from NMR is possible because a bank or corporation will pay to purchase federal tax credits (New Markets Tax Credits, or NMTCs) from NMR. The credits are equal to 39% of the equity investment made in NMR. They offset federal income tax for the bank or coporation at a rate of 5% per year for years 1-3 and 6% per year for years 4-7 (in total, 39% over seven years). The equity investment in NMR supplies the cash for NMR's investment in the real estate project. The price that the bank or corporation is willing to pay for these tax credits becomes economic benefit to the project owner, by virtue of the favorable terms of the NMR financing. A bank makes a seven year loan. In addition, a bank must be willing to make a seven-year interest-only loan for the real estate project. Instead of making the loan directly to the project owner, the bank makes the loan to an investment partnership, owned by the buyer of the tax credits. The investment partnership makes an equity investment in a subsidiary CDE formed by NMR. This equity investment gives rise to the tax credits, which flow through to the bank or corporation which owns the investment partnership. In most cases, the bank making the seven year loan is the same bank that buys the tax credits (and owns the investment partnership). NMR makes the real estate investment. NMR makes a low interest rate loan or loans to the project owner, and possibly an equity investment as well. The debt service on the loans is calculated at a level which allows NMR to distribute cash to the investment partnership sufficient to pay interest on the seven year bank loan. Because there are no principal payments for seven years, and because there are no distributions required for the tax credit investor, the interest rate on the NMR loans will be significantly below market. After seven years, the project refinances. NMR's loans mature in seven years. At that time the project owner must refinance. However, the NMR financing includes an agreement giving the project owner the ability either to extend the financing on a very low cost basis, or to purchase the tax credit investor's equity in the investment partnership. The effect of this agreement is to give the project owner the opportunity, under specified circumstances, to effectively buy down the debt and acquire the equity at a significant discount. The structure of a sample transaction is shown in the following diagram.