This from their website . Development fees account for 34% of their revenues. There is a vested interest to continue these projects, whether they are good or not for the community, since the underlying organization relies in 34% of their revenue from these projects.
Also 16% of revenues from the City of Worcester CDBG funds, which stands for Community Development Block Grant.
11 comments:
They make 20% on all deals right?
Signman,
99% of US developers using low income and/or historic tax credits in their financing charge a developer fee equal to 15 to 20% of the total costs. They do this because the higher the developer fee they charge to the project, the more free tax credits they get (credits are calculated on cost and developer fee is a "good" cost in the sense that it generates tax credits).
Now this sounds too good to be true and, alas, in most cases, it is. What ends up happening more often then not is the developer ends up loaning a good portion of this fee back to the deal to make the numbers work - so while on paper they may charge and earn a $2MM fee on a $10MM deal, they may in fact only receive payment for $500,000.
So, in trying to truly understand how much developer fee a tax credit developer actually receives in cold hard cash, its key to look at the total developer fee charged and then subtract from this number the amount of developer fee deferred....
Eric K.
Worc., MA
"Developer fee deferred" or developer fee loaned to the development "to make the numbers work".
How does the dev'er "loan" this money to make the numbers work if the dev'er never receives it in "cold hard cash" In fact they do really receive it(?) , but opt to use if for financing instead.
What does WCG do with their tax credits. Sell them i assume and if they do sell them , frankly I cannot see them getting 100 cents on the dollar for them? I do not think any taxpayer in their right mind would pay $1.00 for $1.00 worth of tax credits which is buying a $1.00 tax break for $1.00. Now buying $1.00 tax break for $.40...now that makes cents for me, depending on circumstances
You guys gotta see what i saw this weekend. I wish I had a high tech cell phone to take some Kodaks. Stand alone, detached, single family, NOLO housing..."suburban style". OMG what nice looking places...!!!. Def. small single family capes(1200 sq ft?), but still single, detached none the less.
Absolutely exqusite. All wood siding, attached single caaaaaah garage........all underground utilities (mandated now?) Makes the 2 1/2 bath Lincoln Village NOLO's look like slums
Is 37(?) or was is 42(?) Herman St. a certified historic structure?
The developer does not receive the portion of the developer fee that is deferred, instead they receive a promissory note from the owner of the project promising to pay the balance of the fee (typically) out of the available cash flow from the deal in the years ahead.
$1MM in credits does not mean $1MM in cash to spend on the project, it's probably more like $700k or so in cash available! I'm sure WCG sells their credits as they have absolutely no value to an entity that does not pay taxes in the first place. So they "sell" their credits to companies such as UNUM and Hanover (and banks too prior to their recent troubles), who buy the credits at a discount (currently somewhere around $0.75 for federal creedits and $0.60 for state credits) - the developer gets the cash and the investor turns a tax liability into an investment that enhances its bottom line.
47 Hermon is a contributing building in the Beacon & Hermon St Manufacturing District (National Register, 3/5/80).
Eric K.
Worc., MA
What if the dev'er is the also the owner? Doesnt the left hand up loaning the right hand? Maybe I am getting confused here. Dittos if the dev'er and owner are in fact diff. entities both of which are 100% owned the same principal(s)?
The tax liabilty doesnt get turned into an investemnt, it merely gets reduced via the "investment" in the tax credits. Doesnt the investor basically get their tax liabilty paid for $.70 on the dollar (in your example)?
It kinda like I buy a $1.00 bag of M&M's and I incur a $1.00 liabilty to Wally World. Then I whip out my $1.00 off coupon which I bot from you for $.70. Viola...
Is a "contributing building" a certified Historic structure? Is 47 Hermon a certified structure? Because if not certified than no tax credits....right? Wheres the darn Hysterical Commision when you need them? Playing tennis over on Montvale Avenue?
BTW, on the pie chart from WCG's website......where are the sale of tax credits?
Maybe none of their projects generate tax credits......kinda hard to fathom given all their dev'ment is low income housing. Afterall this chart is supposed to be showing sources of money??
It is indeed a left hand loaning the right hand scenario, and this is why it works so well! The Owner has to use cash flow from operations it would otherwise pocket and payback the loan to the Developer which he can then pocket - if they are one in the same, who cares how the $ get there, as long as they get there!
It's an investment in my book and so is your example. You took $0.70 and invested it in a coupon that eventually allowed you to get something valued at $1. You earned a 43% return on your investment (($1 - $0.70)/$0.70), way to go!
The tax credit buyers do the same thing - they give a developer $7MM in cash and the developer eventually gives them a tax credit worth $10MM - they now pay $10MM less to gov'mt, repay the $7MM they advanced to the developer and add $3MM to their bottom line.
47 Hermon - Lots of different classifications, maybe best way to put it is contributing status means historic tax credits likely available for this building if desired.
Tax credits as income source for WCG - Chart shows income source for WCG, not an individual project - I'm sure if they showed a chart for a typical deal you would see the tax credit equity as a source. Since its sources for WCG you only see developer fee for development deals because this is the only source of revenue that WCG gets from an individual deal.
Eric K.
Worc., MA
OK, please excuse my confusion. I went to Gates Lane.
I, Jahn Dough (JD) buy #74 German St an old factory building.
I, JD contract with Worcester Contractors (WC) to do my design build work.
Am I, JD the dev'er or the owner or both?
47 Herman St is a certified historic structure. T or F? If False then.....
If certified historic status is not granted then tax credits are off the table. T or F?
The pie chart for Worc Common ground shows sources of revenue which revenue should include Historic tax credits, if indeed they ever sold any. The sale of tax credits would be revenue. If a typical deal (project) involved tax credits then they should show them as revenue w/o re: to if the revenue chart is project based or overall revenue based.
In your example you are the owner and the owner hired a builder to do design/build. You don't mention the developer role - ie, the entity that gets the financing, negotiates the leases, secures the permits, deals with historic commission, etc. Now JD could do this work, filling the role as owner and developer or JD could hire a third party to do the development work on JD's behalf. In tax credit deals the owner typically hires a developer, both entities of which are, more often than not, controlled ultimately by the same individual. A good example is Citysquare II - a Hanover entity is the owner but they have hired Legett McCall to be the developer for them, and they will hire someone else to build it, etc.....
False, True
I see your point and when we all talk about WCG its one in the same, regardless of the various entities; but financial data is put together by accountants who care about splitting hairs - if you ask them for a pie chart of revenues for WCG, that's what they will give you, not revenue data for an entity controlled by, but financially independent of, WCG.
Eric K.
Worc., MA
Sorry, I guess I dont see the reasoning behind the owner & the dev'er being diff entities controlled by the same person(s). Just seems to make the hair splitting accountants & $300 per hour lawyers more money.
If the owner isnt comfortable or not knowledgable enough in certain areas like zoning, tax credits, etc then i can see bring- ing in 3rd part hired guns, but IMO they are more in the natures of consultant(s) vs. dev'ers. I always kinda thought the dev'er is the owner and the risk taker. Maybe I am just caught up on terminolgy?
Do you really think WGC's tax credit monies are "housed" in another entity? It is also possibly that pie chart was only for a single year during which they didnt not sell any TC's???
I Also think 30% tax credits are a bit on the high side.
If 47 Herman cannot make the grade for historic credits, would it be fair to say Low Income Housing Credits would be sought?
I would rather see artists studios there than low income housing, but making that area into a so called Arts District (not that you're nec. advocating an arts district) was floated back in 2005-2006 and then it ended up low income and allegedly middle income units. Burwick & Caravan.
Is Hanover or a subsidiary the owner or is Hanover merely the banker?
In tax credit deals the tax credit investor actually owns 99.99% of the ownership entity - so one big reason to create a seperate development entity is so the owner/developer controls an entity 100%. No doubt this business keeps a good number of accountants and lawyers well fed!
In my book the owner ultimately takes the risk - developers provide a service, the owner keeping the risk by hiring a traditional hourly consultant or the owner sharing the risk by hiring an at risk developer.
I'm 99.99% sure.
?????
Not on my watch! I'm applying the KISS theory to this project. Using tax credits, historic or low income, come no where close to clearing the KISS hurdle.
I've read the reports, etc. Plans are useful as far as they go, and noone likes a better plan than me, but talk (and plans) are cheap -sometimes you just got to go out there and make it happen, one building at a time!
Hanover entities are owner and investor in City Square from what I understand.
Eric K.
Worc., MA
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