What does a $30 million New Markets Tax Credit project actually cost?

The numbers below are rounded from the actual sources-and-uses and NMTC calculator on a live transaction nSCALE is managing. The project isn't named and the figures are rounded, but the structure is real — not an illustration, not a model, not a national average.

Key takeaways

• Construction and FF&E are 61% of total development cost. The other 39% is everything else, and the "everything else" is what sinks unprepared sponsors.
• The tax credit generates $11.7 million of credit, which sells for about $9.1 million of gross equity. Fees and reserves consume $3.54 million of that, leaving a net benefit of $5.59 million — 18.6% of the allocation.
• Above 15% is considered a good outcome. The gap between the 39% headline and the 18.6% reality is the part sponsors never see coming.
• This deal needs three CDEs. That single fact drives most of the fee load, because legal, audit, and asset management are all billed per CDE.
• In exchange, the blended interest rate across the whole $29.4 million investment is 0.57%. That is what the fees buy.

Where does the money actually go?

Most sponsors arrive with a construction number in their head. They have talked to a contractor, or they have a cost-per-square-foot figure from a peer project. They then assume the rest is a rounding error. On this project, the rest is $11.4 million.

How does the credit convert to cash?

Before the line items, the mechanics — because the fees only make sense once you see what they are deducted from.

Two things worth noticing. The credit is 39% of the investment, but the investor pays 78 cents on the dollar for it, so the project sees $9.1 million rather than $11.7 million. And the allocation slightly exceeds total project cost, which is normal — the QEI is sized to the structure, not to the construction budget.

What are the ten line items that aren't construction?

1. Asset management fees — $1,050,000

Charged at 0.5% of the QEI per year for seven years, paid to the CDEs across the compliance period. It is the single largest fee in the deal, and it is almost always the one missing from a sponsor's first budget, because it accrues after the ribbon-cutting. It has to be reserved at closing anyway.

2. Working capital for tenants — $1,000,000

Several of the building's tenants are programs the sponsor itself will operate. New programs lose money before they stabilize. Funding that operating shortfall out of the construction budget is not a contingency — it is a deliberate decision, and a project that skips it opens a building it cannot afford to run.

3. Interest reserves — ~$1,528,000

Four separate reserves: the NMTC A Note, the NMTC B Note, the capital campaign bridge loan, and the permanent loan. Interest accrues during construction, when the building generates no revenue, so it has to be borrowed up front and held.

The bridge reserve is the largest single piece at $684,000, and it exists for a reason worth naming: the sponsor is running a $6.1 million capital campaign, and pledges arrive over years while construction bills arrive monthly. Bridging that timing gap at 7% over a 24-month term costs real money. A faster campaign is worth more than it looks.

4. CDE upfront fees and investment fund fees — $1,200,000

Two fees, $600,000 each, and both are 2.0% of the QEI. One is paid to the CDEs for placing the allocation, the other flows from the investor to the allocatee. Neither buys design, construction, or a single hour of project management. They buy access to the credit.

5. Legal — $555,000 across six engagements

Here is where the three-CDE structure shows up. CDE counsel is priced per CDE: $25,000 each in predevelopment and $60,000 each at construction closing. Three CDEs turn that into $75,000 and $180,000.

Add sponsor counsel at predevelopment ($25,000) and construction ($125,000), NMTC investor counsel ($100,000), and bank debt counsel ($50,000), and a single building costs $555,000 in legal fees.

The GAO has noted that these third-party legal and accounting costs are not required to be reported to the CDFI Fund, which is part of why published NMTC fee averages understate the real number (GAO-14-500, p. 16). Ours does not understate it.

6. NMTC consultant — $450,000

A $35,000 retainer plus a success fee of 1.5% of the QEI less the retainer, which works out to $415,000. Worth every dollar — a sponsor negotiating its first allocation against CDEs that close twenty a year is outmatched — but it is $450,000 that does not appear in any construction estimate.

7. Title and recording fees — ~$441,000

On a project with one building and one parcel. Leveraged NMTC structures require multiple entities, multiple notes, and multiple recorded instruments, and the recording costs scale with the complexity of the structure rather than the size of the real estate.

8. Environmental assessment — ~$152,000

A Phase I costs $5,000. The Phase II on this site cost $147,000. Anyone budgeting environmental due diligence off the Phase I number is off by a factor of thirty. On this project the assessments were funded in kind by a state agency, which is the only reason the line didn't consume predevelopment cash the sponsor didn't have.

9. CDE audit and tax over eight years — $240,000

$10,000 per CDE per year for eight years. Three CDEs, eight years, and the compliance accounting alone is a quarter of a million dollars. Reserved at closing for the full tail.

10. Specialty consultants — ~$160,000

Lighting design, kitchen consulting, energy systems, wayfinding and signage. Four consultants nobody thinks of as part of "architecture," each necessary, none included in an architect's basic services.

What is the tax credit actually worth?

This is the number sponsors most often get wrong, and it is worth doing in public.

Our own underwriting treats anything above 15% as a good outcome, so 18.6% is a healthy deal. But look at the distance travelled: a headline credit of 39%, gross equity of 30%, and a net benefit of 18.6%. More than a third of the gross equity is consumed getting to closing.

That 18.6% is roughly consistent with what practitioners report. Published guidance puts the net benefit in the 20–25% range (Area Development, May 2025), and documented deals land at 22.5% and 23.1% (S.B. Friedman Development Advisors, NMTC 101). Ours sits below that band, and the reason is the three-CDE structure: a deal that needs three allocations to get funded pays three sets of legal, audit, and asset management fees against one building.

Our total fee load — $3.54 million against a $30 million QEI — is 11.8%. The GAO found that CDE fees and retentions consumed 7.1% of NMTC investment in 2011–2012 (GAO-14-500, Table 2, p. 17). Part of the difference is fourteen years of cost escalation. Most of it is the category the GAO said was missing from its own number, and the number of CDEs at the table.

What do the fees actually buy?

It would be easy to read the above as an argument against NMTC. It isn't, and the reason sits in one number.

Across the full $29.4 million QLICI, the blended interest rate is 0.57%. The B Note carries a nominal 0.01%, and only $3.575 million of the structure is real amortizing debt at a blended 4.7%. Total annual interest on a $29.4 million investment is about $169,000.

Debt service coverage runs 2.44x during the seven-year compliance period and 1.26x afterward. For a community facility with a clinic, a daycare, and an event hall — none of which will ever produce market returns — that is the difference between a building that operates and a building that defaults.

You are not buying $5.59 million. You are buying $5.59 million and a 0.57% cost of capital on the rest.

Why does this structure cost so much?

Because an NMTC transaction is not a loan. It is a seven-year partnership among a sponsor, multiple CDEs, an investor, a leverage lender, and usually a permanent lender, governed by a compliance regime with real recapture risk. The credit equals 39% of the investment, claimed over seven years — 5% in each of the first three years and 6% in each of the last four (CDFI Fund; Tax Policy Center). Every one of those seven years requires somebody to be paid to make sure nothing breaks.

The CDFI Fund's own training materials put allocation and sponsor fees at 0.5%–5.0% of the deal at closing and asset management at 0.5%–1.0% of QEI annually (CDFI Fund, Managing a CDE, Module 8). Our deal sits inside those ranges. It is not being priced unfairly. It is being priced three times.

This is also why NMTC has an effective floor. Practitioners generally say a deal under $5 million struggles to close and the workable range starts near $8 million, because the fixed transaction costs don't shrink with the deal (Area Development, May 2025).

What should a sponsor do with this?

Four things.

Budget the 39%. If you have a construction estimate and nothing else, you have roughly 61% of a budget.

Ask how many CDEs your deal needs — first. It is the question with the largest single effect on your fee load, and almost no sponsor asks it. One CDE at $30 million is a materially cheaper deal than three CDEs at $10 million each.

Reserve the seven-year tail at closing. Asset management and CDE audit and tax total $1.29 million on this project, all of it spent after the building opens and all of it funded before it does.

Judge the deal on net benefit, not the headline. Run your own version of the table above. If the net benefit is above 15% of allocation, the structure is probably worth its complexity. If it is well below, ask what is different about your deal — it is usually the number of CDEs, the credit price, or a deal size too small to carry the fixed costs.

FAQ

Why would a project need three CDEs? Because allocation is awarded competitively and most allocatees have less to deploy than a project needs. A $30 million QEI assembled from three $10 million commitments is common. The cost is that legal, audit, and asset management fees are all charged per CDE.

What does the credit price mean? The investor buys the credit at a discount — here $0.78 per dollar of credit, within the typical 0.70–0.85 range. The price moves with tax appetite, deal risk, and market conditions, and a two-cent swing on this deal is worth about $234,000.

What is the difference between the A Note and the B Note? The A Note is the leverage loan — real money from grantors and lenders that has to be repaid or forgiven. The B Note represents the tax credit equity, carries a nominal interest rate, and in most structures is effectively unwound at the end of the seven-year compliance period for a small fee. The B Note is where the subsidy lives.

Is an 18.6% net benefit good? By our underwriting standard, anything above 15% is. Published practitioner ranges run a few points higher, and the gap here is explained by the number of CDEs rather than by anything unusual in the pricing.

Sources

• CDFI Fund — New Markets Tax Credit Program — the 39% credit claimed over seven years.
• Tax Policy Center — What is the New Markets Tax Credit and how does it work? — the claiming schedule.
• CDFI Fund, Managing a CDE, Module 8: Financial Performance — allocation and sponsor fees 0.5%–5.0%; asset management 0.5%–1.0% of QEI annually.
• GAO-14-500, New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness (July 2014) — CDE fees and retentions at 7.1% of investment; third-party legal and accounting costs not reported to the CDFI Fund.
• Thane Hutcheson, "What You Need to Know About NMTCs," Area Development (May 2025) — net benefit range; deal-size floor.
• S.B. Friedman Development Advisors, New Markets Tax Credits 101 — documented net subsidies of 22.5% and 23.1%.

Project figures are drawn from nSCALE's own NMTC calculator and development sources-and-uses schedules, dated September 2026.