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Entrepreneurs leverage development boom with tax credit auctions

http://www.gsabusiness.com/news/52332-entrepreneurs-leverage-development-boom-with-tax-credit-auctions

 

By Ashley Boncimino
ashleyb@scbiznews.com
Published Sept. 2, 2014

Walk down the street and John Boyd says he can point out free money.

“I can take you around here within three blocks and walk you into a project that’s got tax credits,” the 20-year Greenville entrepreneur said from one of the Bank of America building’s top floors.

He quickly names off Greenville developments: Magnolia Park, Project One, the Bank of America building, the Steel Heddle building, Mills Mill, Brandon Mill.

“You’d be surprised if you just drive down the road, looking and seeing tax credits, tax credits, tax credits,” he said.

But many of these available tax credits have gone unclaimed, unused or underutilized, according to Boyd. What’s missing, he said, is a place where people who have tax credits and people who want tax credits can connect in order to find the best deal for both parties. Boyd and business partner Michael Wolf aim to create that space. Their company, Tax Credit Marketplace is set to launch in October and will list tax credits up for auction to be bid on by registered accredited investors.

The marketplace is aimed at credits generated through one of the state’s three revitalization acts, which award tax credits for development projects on long-vacant buildings, abandoned retail space and unused mills. The acts include the 2006 Abandoned Buildings Revitalization Act, the 2008 Textiles Communities Revitalization Act and 2013 Abandoned Buildings Revitalization Act. Tax credits vary in length, and they can generate credits worth up to 25% of rehabilitation expenses.

“We want the investor to get the best deal that they want to get. We want the developer to get the best deal that they want to get and so the developer can, in confidence, know that he’s got a market price,” said Boyd. “There’s no more efficient marketplace than an auction to establish a value on any given day.”

Despite the state’s plethora of qualified projects, the tax credits, which are transferrable, have largely gone unused or underused, said Boyd. Developers may not know credits are available, may not use them or may not be getting the best price for them.

“Institutional buyers have been the primary buyers, and the individual high net worth investor has been overlooked and neglected,” said Boyd, who realized this niche after helping Clemson developer Tom Winkopp monetize unused credits.

“After going through the process with him, we basically found buyers in about three days for $8.5 million worth of credits,” he said. “I realized there was an appetite for the individual investor. He just needs to have a way to locate and source credits.”

Sellers and buyers would both pay a percentage of each transaction to use the site. Buyers will have to go through an accreditation process in order to be able to bid on credits.

Tax Credit Marketplace will further be divided into two markets. The strip market will allow members to buy a credit for the entire lifetime of the credit, while the spot market will allow members to buy credit for a single income tax year.

“Everybody’s S.C. tax obligation is different,” said Boyd.

While some might have multiyear needs — for example, someone with a stable income — others may need the credit for a single year, such as someone who just sold their business and has an elevated reported income for one tax year.

“There’s an explosion of development now,” said Wolf. “We’re going to see a lot of projects coming up, and hopefully the developers are going to need our help sourcing their credits.”