New Markets Tax Credit in Michigan: Accessing 39% Credits for Real Estate Projects

The New Markets Tax Credit (NMTC) is a federal program that generates 39% tax credits for investments in low-income communities across the United States — and Michigan has some of the largest concentrations of NMTC-eligible census tracts in the Midwest. Detroit, Flint, Saginaw, Pontiac, Benton Harbor, Muskegon, and dozens of smaller Michigan communities qualify, meaning developers working in these markets have access to one of the most powerful real estate financing tools available.

NMTC works differently from historic tax credits or brownfield TIF. Rather than a direct credit against construction costs, NMTC generates tax credits for investors who contribute equity to a Community Development Entity (CDE), which then deploys that capital as below-market-rate loans to qualifying projects. The result: a developer receives a loan at significantly below-market interest rates — often 1–3% — with flexible terms, effectively providing $20–25 of financing per $100 of project costs that would otherwise require much higher-cost capital.

This guide explains how the NMTC deal structure works, which Michigan census tracts qualify, which CDEs have established Michigan track records, the minimum project size for NMTC to be viable, and how to stack NMTC with Michigan historic credits, Brownfield TIF, and MEDC CRP grants.

How NMTC Works: The Deal Structure Explained

The NMTC transaction is more complex than a tax credit certificate. Here is how capital flows. Step 1: A CDE receives an NMTC allocation from the CDFI Fund (the federal agency that administers NMTC). Step 2: A tax credit investor (typically a bank or insurance company) contributes equity to the CDE equal to roughly $0.72–0.78 per dollar of NMTC allocation. The investor receives 39 cents of federal tax credits (taken over 7 years: 5% per year for years 1–3, 6% per year for years 4–7) in exchange for this equity. Step 3: The CDE uses the investor equity plus a leveraged loan (from the developer or a lender) to make a Qualified Low Income Community Investment (QLICI) — a below-market loan — to a Qualified Active Low Income Community Business (QALICB) that owns or operates the real estate. Step 4: The QALICB receives below-market financing from the NMTC proceeds — typically at 1–3% interest-only during the 7-year compliance period. Step 5: After 7 years, the compliance period ends, the investor exits (often for a nominal amount), and the below-market debt is either refinanced, forgiven, or assumed by the developer. The net effect: the developer received ~$0.20 of effectively free financing per dollar of NMTC allocation during the 7-year period, dramatically improving project returns.

Michigan NMTC-Eligible Census Tracts: Where the Program Applies

NMTC applies in Low Income Community census tracts — defined as census tracts with poverty rates above 20% or median family incomes at or below 80% of the area median income. In Michigan, NMTC-eligible tracts are concentrated in: Detroit (most of the urban core, with some areas qualifying as Severely Distressed tracts receiving scoring preferences), Flint (near-citywide NMTC eligibility), Saginaw (near-citywide), Pontiac (most census tracts), Benton Harbor (citywide), Muskegon and Muskegon Heights, Grand Rapids (selected urban core tracts), Lansing (east side and south side tracts), Kalamazoo (urban core), and numerous rural Michigan counties with persistent poverty. The highest-scoring Michigan projects for NMTC allocations are in Severely Distressed tracts — areas with poverty rates above 30% or unemployment significantly above national average — because CDEs prioritize these areas in their allocation applications. Detroit, Flint, Saginaw, and Pontiac contain extensive Severely Distressed tract coverage.

Minimum Project Size and CDE Access in Michigan

NMTC transactions have high transaction costs — legal structuring, accounting, and compliance documentation — that make them viable only above a minimum project size. The general minimum for a standalone NMTC transaction is $2–3 million in NMTC allocation, which supports approximately $3–4 million in total project costs. Most CDEs prefer transactions of $5 million or above. For smaller Michigan projects below $2–3 million in NMTC need, pooled NMTC facilities (where a CDE aggregates multiple small projects under a single allocation) are sometimes available. CDEs with demonstrated Michigan track records include: Invest Detroit (focused on Detroit and southeast Michigan), Capital Impact Partners (active in Michigan and Ohio), Great Lakes Capital (Michigan-based), Michigan Community Capital, and several national CDEs including JPMorgan Chase Community Development, US Bancorp Community Development Corporation, and Reinvestment Fund. Connecting to a CDE early — 12–18 months before needed — is essential. CDEs are selective about which projects they support, and strong projects in well-scored geographies are more likely to receive allocation.

Stacking NMTC with Michigan Historic Credits, Brownfield TIF, and CRP

NMTC is explicitly designed to combine with other incentive programs. The most powerful Michigan stacks: NMTC + Federal HTC + Michigan HTC: Historic rehabilitation in a NMTC-eligible census tract. The historic credits address the historic rehabilitation premium (45% of QREs); NMTC provides structured below-market financing on the project's debt layer. This combination has funded major projects in Detroit's Midtown and Corktown, Grand Rapids' Heritage Hill, and Saginaw's downtown. NMTC + Michigan Brownfield TIF: Brownfield TIF reimburses site costs; NMTC provides below-market financing for construction. The two programs operate in different layers of the capital stack without conflict. NMTC + MEDC CRP: For projects with a residual financing gap after NMTC, MEDC's CRP grant fills the last dollar of gap. NMTC + Detroit Strategic Neighborhood Fund: In Detroit's targeted neighborhoods, the Strategic Neighborhood Fund provides direct grant support that layers on top of NMTC and historic credits. The key structuring point: NMTC requires a holding company structure (QALICB) that may affect how other incentives are structured in the ownership entity. Engage a transactional attorney with NMTC experience early in deal structuring.

The NMTC Application Process: How Developers Engage CDEs

Developers do not apply to the CDFI Fund for NMTC allocations — CDEs do. The developer's job is to find a CDE with existing allocation that is willing to deploy it into their project. The process: Step 1 — Identify CDEs with Michigan allocation. Not all CDEs are active in Michigan. Research which CDEs have deployed NMTC in Michigan projects in recent years and approach those first. CDFI Fund's NMTC Award database is public and searchable. Step 2 — Submit a project inquiry. CDEs have their own underwriting criteria. Submit a project summary including location, use, development costs, project team, community impact metrics, and financing sources. Step 3 — CDE underwriting. If the CDE is interested, they conduct full underwriting of the project, financing sources, and compliance structure. Step 4 — NMTC closing. NMTC transactions typically take 4–6 months to close from initial CDE engagement. Transaction costs are significant — budget $150,000–$300,000 for legal and accounting. Step 5 — 7-year compliance period. The QALICB must meet NMTC compliance requirements for 7 years. Annual reporting is required. After year 7, the investor exits and the developer achieves full ownership.