Ballard Spahr attorneys represented the East St. Louis Housing Authority (Illinois) in a multimillion-dollar New Markets Tax Credit deal that will result in an environmentally sustainable, mixed-use facility, including rental housing for low-income seniors, funded in a precedent-setting way.

The transaction, which closed on December 31, 2010, and was fully funded yesterday, is the first New Markets Tax Credit (NMTC) transaction to use public housing development funds in the NMTC leveraged financing structure. The NMTC program, which provides tax credit incentives to investors in low-income and impoverished communities, was set to expire in 2010 but was extended for two years by President Barack Obama on December 17, 2010, under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

This unique public-private partnership involved the active participation and support of the U.S. Department of Housing and Urban Development, City of East St. Louis, and State of Illinois, and the creation of not-for-profit affiliates of the Housing Authority, both for this project and future development. In addition to public housing funds, the project will be financed with City tax increment financing and State energy funds. Because such a deal had never been done, several rounds of approvals from various federal and state government agencies were required, and it took more than a year to close. However, it is expected to serve as a model for future public housing authority development.

The resulting Jazz @ Walter Circle project will break ground in spring 2012. It will bring 74 new units of public housing and housing choice voucher rental units for senior citizens to a city where 35 percent of the residents live below the poverty line. The development includes a community center, several offices, a health and wellness facility, retail space, and a grocery store. The development will be LEED Gold-certified, equipped with solar panels, and will feature community gardens and a rooftop terrace.

"This deal is one of the most exciting and challenging transactions I have had the privilege to work on, and also among the most personally rewarding," said Stephanie L. Franklin-Suber, contact partner for the firm's NMTC practice, who led the Ballard Spahr team on this deal.

"New Markets Tax Credit financings are inherently complex, but this deal had additional layers of complexity since it was the first of its kind," Ms. Franklin-Suber said. "It required educating the Housing Authority and different federal, state, and local agencies about the NMTC program and deal structures that were entirely new to them. It also involved the introduction of the world of HUD mixed-finance development to New Markets Tax Credits finance and vice versa. Most importantly, we helped the Housing Authority realize its vision for the community. This project will have a tremendous impact on the lives of low-income residents in East St. Louis."

"This breakthrough transaction is a great achievement for the East St. Louis Housing Authority and for HUD," said Lila Shapiro-Cyr, the Ballard Spahr partner who addressed HUD issues in the deal. "It serves as a model for housing authorities across the country to help them supplement limited public resources with private investment in a way that can facilitate development of much-needed affordable housing with community facilities."

The transaction integrates the HUD mixed-finance development regulatory requirements into the NMTC "80/20 rule" mixed-use leveraged financing structure. The tax credit investor was Valley National Bank, represented by Dudley Ventures, LLC. The leverage lender was River East Ventures, Inc., a not-for-profit affiliate of the Housing Authority. The ultimate borrower was Eco Jazz, Inc., another such affiliate and project developer and owner. Transaction accounting services were provided by The Reznick Group.
NMTC credits totaling $17 million were allocated to the project by community development entity Hampton Roads Ventures, LLC, through its subsidiary, People’s Ventures, LLC.

In addition to Ms. Franklin-Suber, the primary Ballard Spahr team consisted of Lila Shapiro-Cyr, Mark J. Maichel, Mary Croft, and Muhammad At-Tauhidi. Alan S. Ritterband, Mark S. DePillis, Linda B. Schakel, Mercedes K. Tunstall, and John S. Rollings also played important roles.