Detroit may be the Motor City, but one of its latest projects to get the green light is a new $140 million streetcar line that project partners say is on track to be a major job creator and economic booster for the region.

The project is spearheaded by M-1 RAIL, a nonprofit organization formed in 2008 to lead the design, construction and operation of a streetcar that will connect Detroit’s downtown, midtown, North End and New Center districts. M-1 RAIL was organized after Detroit hosted Super Bowl XL in 2006 and local private sector and philanthropic leaders saw the need for a more reliable public transit system along Woodward Avenue, one of Detroit’s main arteries.

“We see this as the catalytic driver, the economic engine, the future tax base and revenue driver of the city of Detroit,” said Jeni Norman, M-1 RAIL’s chief financial officer. “When you look at streetcars and what this type of system has done in other cities, there’s a multiplier effect that happens to surrounding neighborhoods.”

Scheduled to begin operation in 2016, the 3.3-mile M-1 RAIL project will have 20 stations at 12 locations. It will serve Detroit’s central business district, Wayne State University, two major hospitals, museums, performing arts venues and three professional sports stadiums.

Supporters expect the project will stimulate a half-billion dollars in economic development along the Woodward corridor and will be a game-changer for improving job access in the region. Norman said that only 39 percent of Detroiters work within the city limits and that many jobs are located beyond the reach of low-income residents who lack transportation options. In addition to bringing area residents closer to work, M-1 RAIL partners expect the streetcar project itself will create between 700 and 750 jobs. Nearly 30 percent of construction and concurrent road work, amounting to nearly $40 million in contracts, has been awarded to businesses certified as Detroit-based, minority or women-owned or disadvantaged business enterprises, according to M-1 RAIL.

The streetcar route is designed to connect with existing public transit lines, including Detroit Department of Transportation (DDOT) buses, Suburban Mobility Authority for Regional Transportation (SMART) buses, the Detroit Amtrak station and The People Mover, an elevated single-track loop that circulates through downtown. M-1 RAIL will also connect with Transit Windsor, which is a daily bus line that travels between Detroit and Windsor, Ontario. M-1 RAIL plans to operate the streetcar for 10 years, after which a newly established regional transit authority will likely take over, said Norman.

Financing

Project partners said that because the streetcar is a public infrastructure project in an economically underserved community, the project couldn’t support traditional debt. As such, they said new markets tax credit (NMTC) financing was essential to move the project forward. “This clearly demonstrates to the transit world that there are creative ways to bring financing to the table,” said Paul Childs, M-1 RAIL’s chief operating officer. “As far as we know, it’s the first streetcar project leveraging new markets [tax credits] for design and construction activities.”

Five community development entities (CDEs) contributed a combined $42.4 million of NMTC allocations. “It’s such a large private project that [M-1 RAIL] had to do a lot fundraising, but there was still a significant gap in the budget to move the project forward,” said Kelsey Hamory, an underwriter at New Markets Support Company, the NMTC affiliate of the Local Initiatives Support Corporation (LISC), one of the project’s CDEs.

Invest Detroit committed to providing $18.4 million in NMTC allocation in two tranches. “M-1 RAIL is at the core of Invest Detroit’s targeted areas of redevelopment and will serve to accelerate job creation, and retail and population density,” said Mary Seaberg King, senior vice president of Invest Detroit. “These activities promote vibrant and sustainable neighborhoods which strongly support Invest Detroit’s mission and collaborative initiatives for Detroit’s renewal.”

National Community Fund, an affiliate of United Fund Advisors, provided a $9 million NMTC allocation. “We see this project as having a far-reaching, dynamic impact on Detroit’s economic vitality and revitalization that could be a model for other cities,” said Colin Rowan, principal at United Fund Advisors.

Many of the CDEs were interested in M-1 RAIL as a way to continue supporting some of their previous investments in Detroit. Great Lakes Capital Fund (GLCF) provided an $8 million NMTC allocation to M-1 RAIL through its subsidiary, Cap Fund New Markets LLC. Peter Giles, GLCF’s community development finance analyst, said this contribution to M-1 RAIL is meant to enhance GLCF’s existing $500 million in investments around the city, which includes numerous low-income housing tax credit (LIHTC) developments.

“Part of our initiative is to fortify current investments and provide transportation to residents of [those developments],” said Giles. “We looked at our existing portfolio and found that within a mile or less of the M-1 route, GLCF had 16 [LIHTC] developments, totaling 1,400 units—all in highly distressed census tracts.”

For similar reasons, LISC contributed a $5 million NMTC allocation to M-1 RAIL, said Victor Abla, Detroit LISC’s director of lending and portfolio management. Abla said that the streetcar project aligns with LISC’s Building Sustainable Communities initiative to revitalize blighted neighborhoods with strategic investments. “We’re trying to link our neighborhoods with jobs and entertainment, everything from midtown to downtown,” he said.

Tahirih Ziegler, executive director of Detroit LISC, added that M-1 RAIL would encourage others to bring capital to the neighborhood. “We don’t usually invest in public transportation in this way, but all of the catalytic development that will result as part of the project is really important to our work,” said Ziegler. “We think this project ties into other opportunities for small businesses to come into the neighborhood and other jobs will be available to local residents.”

Others agreed. “We see it as a down payment on a larger regional system, connecting low-income folks to where they want to live and work,” said Aaron Seybert, vice president of Chase Community Development Banking’s NMTC group. “It makes for a more connected city and provides for a better economy.” Chase is providing approximately $13.5 million in tax credit equity and $2 million of its own NMTC allocation through Chase New Markets Corporation.

Other federal support came in the form of a $25 million Transportation Investment Generating Economic Recovery (TIGER) grant awarded in 2013 and a second $12.2 million TIGER grant in 2014, administered by the U.S. Department of Transportation. M-1 RAIL received dozens of donations, including $49.6 million from the Kresge Foundation, $10 million from Quicken Loans, $9 million in aid from the Detroit Downtown Development Authority and $7 million from the Penske Corporation.

Widespread support for the project at the federal, state and local levels highlights the importance of M-1 RAIL to Detroit’s revitalization, said Jared Fleisher a senior consultant on the project and an honorary member of the M-1 RAIL board.

“What it reflects is the depth and breadth of commitment in Detroit and Michigan by the philanthropic and corporate community,” said Fleisher. “It shows how they all came together on something that’s going to be transformative, catalytic and a long-overdue investment.”

Written By: Teresa Garcia, Staff Writer – Novogradac & Company LLP

 This article first appeared in the December 2014 issue of the Novogradac Journal of Tax Credits.