Congress established the New Markets Tax Credit Program in 2000 to spur economic growth in low-income communities. The program is overseen by the U.S. Department of the Treasury and the credits are administered by the Community Development Financial Institutions (CDFI) Fund to community development entities (CDEs). The CDEs then offer the credits to investors in exchange for qualified equity investments that set out to improve low-income communities. Developers get a tax break for investing in certain areas.
Peter Berk, founder of PMZ Realty Capital, warns that hoteliers interested in seeking out New Market Tax Credits should be prepared for a lengthy process—including a nearly 80-page application—and a competitive environment. Berk says they are hard to get mainly because from the government’s perspective, there has to be a good reason for awarding them. “When they give a tax credit, they aren’t getting revenue for something so it has to be an area where a city wants growth or an emerging area where they want developers to develop,” adds Berk. “But, assuming a developer can get a hold of tax credits, they could pay very little out of pocket for the project.
