Cherrytree Group LLC Blog

Previous posts have discussed the differences between a tax deduction and a tax credit.  Transferability is the key distinction between the two.  While we all have deductions that we can take against our gross income, these deductions are personal to each individual.  

A tax credit is a direct credit against bottom line taxable income, and may be transferable to other taxpayers. There are restrictions to transferability based upon the type of tax credit, but in general, the portability of a tax credit has created a marketplace for the sale and transfer of many different types of tax credits. This is a very useful source of finance, equity, or reimbursement, especially in this economy.  

At The Cherrytree Group, we advise many clients on the use, transfer, and sale of their tax credits, but in developing a market for tax credits, it is important that clients consult with us prior to conducting a project, rather than in the latter stages of a transaction.  We can assist with developing the potential tax credit equity into a proposed budget or development pro-forma, which can lead to more control over financing costs.

Cherrytree has grown into a financial services company that has its own capital, credit lines and equity facilities, as well as a warehouse of tax credit buyers that include banks, insurance companies, Fortune 500 companies, multinational corporations, and high net-worth individuals.  We have the capacity and capability to purchase your tax credits for our own account, or broker a sale of the tax credit to one of our buyers.  For more information on this process, contact The Cherrytree Group.

Rob Bennett for The Wall Street Journal

... By Warren Kirshenbaum

Construction is nearly complete on a $37 million classical music center for Orchestra of St. Luke's slated to open in Hell's Kitchen in March.

Complete with rehearsal and recording space to accommodate a full symphony orchestra and chorus, a music library café and even showers for musicians, the 20,000-square-foot building will be the orchestra's first permanent home since its debut in 1974.

The center will also serve dozens of arts groups that rent space in the city's increasingly crowded rehearsal and performance spaces, including the New York Pops and the American Symphony Orchestra.

Raising money for building projects in the past few years hasn't been easy for the city's nonprofits. Decreases in donations and a tightening grip on public dollars have hurt funding for capital projects by charities in particular. Many donors also have focused their attention on emergency programs for the hungry and homeless.

With traditional funding harder to obtain, the Orchestra of St. Luke's became one of a growing number of nonprofits turning to a federal tax program for capital financing. This week, it will announce it has received a $4.6 million equity infusion from financial institutions including Goldman Sachs Group Inc.'s Urban Investment Group, Solomon Hess and United Fund Advisors through a federal program that provides tax credits to investors putting money into community development projects.
[ORCHEST2] Rob Bennett for The Wall Street Journal

Street view of the center at 450 W. 37th St., which is also home to the Baryshnikov Arts Center.

"We needed these tax credits to ensure the project would happen on time and as planned," says Zev Greenfield, the orchestra's vice president of finance and Operations. "While we received $4.6 million directly, we saved millions more on financing and fund-raising costs."

In 2008, the orchestra and the Baryshnikov Dance Foundation closed on a three-party deal for 450 W. 37th St., which formerly housed a consortium of theaters. The orchestra paid $16.6 million for 20,000 square feet, taking on a $7 million mortgage and a $5 million line of credit from M&T Bank.

To fund the deal, the orchestra had received multimillion-dollar pledges from donors including financiers Joe DiMenna and Victor Elmaleh, and an $8.5 million pledge from the city's Department of Cultural Affairs. However, when the financial crisis deepened, additional fund-raising slowed and donations were delayed.

"Donors were supporting the project but needed to do it over a longer period of time, and that's why the credits became such an essential piece of the puzzle," says Katy Clark, the orchestra's president and executive director.

To fill the funding gaps, the orchestra hired a consultant and applied for the federal New Markets Tax Credit Program, rushing to close on financing before the end of 2010. Created in 2000 to spur economic revitalization through private sector investment, the program allows financial institutions to provide equity to projects in depressed neighborhoods and receive federal tax deductions in return.

The interest in tax credits heightened after the financial crisis hit, leaving cities eager for ways to tap the federal funding faucet to spur economic growth.

The New York City Economic Development Corp. partnered with financial-services company United Fund Advisors in 2008 to stimulate more projects using tax credits in the city.

Since then, they have financed more than $500 million of development costs, utilizing $89 million in New Markets tax credits.

The credits have allowed the city's nonprofits to raise financing for other large capital projects such as a new 75,000 square-foot museum and condo for the Museum for African Art on Fifth Avenue.

Slated to open this year, the museum received $18.8 million in New Markets tax credits. Other projects include a $13 million conversion of warehouse space in Lower Manhattan into a recreational sport facility called Basketball City USA, to be completed this summer.

The city and United Fund Advisors hope to obtain an additional $135 million allocation in tax credits later this year.

Still, nonprofits say qualifying for the tax credits generally requires the use of paid consultants, months of paperwork and complicated financing structures.

"It's an incredibly complex set of processes," Mr. Greenfield says. "You have to really spend the time to delve into the details."