Tax-Exempt Bond Financing - Commercial Real Estate Development Projects & Programs

One of the key funding programs supported by the federal government is in the form of tax-exempt bond financings based upon a change in the IRS Code to allow states to issue a defined amount of tax-exempt bond financing to real estate development projects and programs.  These allocations are usually based on a per-capita formula that says each state gets "X dollars of tax-exempt bond financing" each fiscal year per resident in the state.  

Most of this funding is utilized for financing the development of low-income housing (Section 42 of the IRS Code) for public housing, senior housing and/or tract housing for low-income/median-income households.  This program has taken a lot of criticism from policy-makers as it seems to result in an alarming number of slums and/or "blighted communities" being created.  On the other hand, did you know that tax-exempt bond fundings can be used for certain private enterprise activities?  You didn't?  Well consider the following and see if something could be a fit for your transaction:

• Transportation Development Projects.  Yep, the federal government acts as a big-time market maker for transportation projects that connect a community or major city into the national transportation net.  The focus is on rail projects and intermodal facility hub projects.  The federal government has over $35 billion available for this sector.  If you didn't get your share, then you should be talking to RMC about it.

• Retail Projects.  It's almost too good to be true, but in many states (especially states with "GO Zones") you can access those cheap bond rates for your project as part of a Private Activity Bond (or "PAB").

• Manufacturing/Distribution Projects.  The venerable Industrial Revenue Bond ("IRB") is the ticket for providing cost-effective development financing for manufacturing sector and distribution project development.

• Healthcare Projects.  If you are seeking to develop a healthcare facility, the project may in fact qualify for financing pursuant to a host of PAB titles.  Hospitals and MOBs may qualify in certain circumstances.

• Hospitality Projects.  If you are seeking to develop a hotel or motel, there may be an allocation of PAB financing available to provide you with the construction financing you need to make the project a long-term success.

So, what should be in your plan? Get some answers that will work for your transaction.