Advantage Capital Looks To Get Ahead

With a little help from the Federal New Markets Tax Credit (NMTC) program – administered by the U.S. Department of Treasury – Advantage Capital is readying to raise a $110 million fund to be named Advantage Capital Community Development Fund.

The premise: Every $100 an LP puts into the fund will result in a $5 or $6 tax credit, assuming Advantage Capital meets all the U.S. Department of Treasury’s investment criteria. The program was developed to stimulate growth and job creation in low-income communities. The NMTC provides tax credits for up to $15 billion for new private sector investment in economically distressed communities.

“We have to invest businesses in low income communities, which have to then stay where they are. There are a lot of rules, but if we follow them, which we will, our investors will receive tax benefits over the next seven years,” says Scott Murphy, senior vice president and manager of Manhattan-based Advantage Capital. “We could raise more than $110 million, but that is the allotted amount for our investors to get the tax incentive. This will be a multi-year incentive, so if we do a good job investing this and everyone is happy, we’ll try to raise another fund like this next year.”

The firm’s LP list includes banks and insurance companies. Founded about a decade ago, Advantage Capital has raised 25 funds. Each has been raised and invested in the Southeast, Midwest or New York. The firm has 20 investment professionals spread among offices in New York, St. Louis, New Orleans and Tampa, Fla.

The tax credit money was allocated to Advantage Capital’s New York office, therefore the fund will focus more on the metro New York area. This fund will invest about 50% in metro New York and the remainder will be split evenly between the Southeast and Midwest.

While it would seem that even low income communities of New York are far better off than most depressed rural areas in the Southeast and Midwest, the NMTC defines low income areas as any area that has a median income of 80% less than the whole area and any area where poverty is greater than 20%. “Fifty percent of communities in the United States qualify. The office will give us a map of the areas we can invest in and set us free. We are looking at a lot of communities in and around New York City,” says Murphy.

The fund is expected to make investments from $500,000 to $1 million into mostly expansion-stage deals. After the fund is fully committed it will have invested in 150 deals, over three years. Additionally, the fund will have a general focus. “We will look at lots of different kinds of businesses. Some of our investments will go in to brick and mortar projects and some into high-tech. We will also do deals in all different stages, but the bulk will expansion,” he says.

Advantage Capital just started to raise the fund and is not sure when it will be closed, although Murphy thinks it could close in July.

Email Danielle Fugazy