Located in Boston’s Dudley Square, a former Irish dance facility known as Hibernian Hall is being redeveloped into a performance center and offices with the help of the federal New Markets Tax Credit program.

Five historic buildings in New Bedford that the city was once considering demolishing because they were so dilapidated are poised to be transformed into rental units and retail space. The addition of new apartments and shops is expected to breathe life into a previously underutilized section of the city’s downtown.

The New Bedford project is one of the first redevelopment projects in Massachusetts that are benefiting from the New Markets Tax Credit program, a federal initiative designed to funnel private-sector capital into poor urban areas for business and commercial development. The tax credits are available to individuals, banks, corporations, partnerships and funds that invest in low-income businesses through a community development entity.

Just last Thursday it was announced that five entities in the Bay State were awarded $272 million in New Markets financing. The Massachusetts Housing Investment Corp. was the biggest beneficiary with a $90 million award, followed by MassDevelopment and Boston Community Capital, which each received $70 million.

They were among 62 organizations nationwide that were awarded $3.5 billion in tax credit allocations. During the first round of tax credit awards last year, only two entities in Massachusetts – the MHIC and Nuestra Development Fund – were chosen, receiving $25 million and $1 million respectively.

Supporters say that the New Markets Tax Credit is a critical financing tool that helps fill funding gaps that arise, particularly for nonprofit groups and community development corporations that are trying to get challenging projects off the ground in struggling urban communities.

“The program is significant because there really isn’t a gap-filling resource for commercial projects in older urban neighborhood commercial centers,” said Joseph L. Flatley, president of the Massachusetts Housing Investment Corp.

In New Bedford, the nonprofit preservation group Waterfront Historic Area League, or WHALE, and HallKeen, a private for-profit property management and real estate investment company based in Norwood, are combining the New Markets credits available through MHIC with an assortment of other loans and grants to complete an $11 million redevelopment project. MHIC is investing over $3.75 million in the project.

Once finished, the project – which is actually two developments known as Lawton’s Corner and the Coffin Lofts – will provide 36 rental apartments, half of which will be affordable, and about 11,600 square feet of ground-floor retail or commercial space.

“This is one of the biggest projects downtown,” said Tony Souza, executive director of WHALE. “It’s taking two blocks facing each other and bringing them back to life.”

Souza anticipates that the addition of new apartments in downtown New Bedford – which could attract professors and students from the nearby University of Massachusetts College of Visual and Performing Arts, as well as local artists and other workers – will encourage new businesses to move into the area.

“The New Markets Tax Credit program is meant to stimulate economic development, and that’s exactly what it’s doing here,” said Souza.

Complex Dance Steps

The benefits of New Markets funding are also being felt in Boston’s Roxbury neighborhood. The Madison Park Development Corp., a community development group that serves the neighborhood, is using New Markets credits provided through MHIC to rehabilitate a vacant building in Roxbury’s Dudley Square.

The building, which was once home to an old Irish dance facility called Hibernian Hall and was also used for occupational training from the 1960s through the 1980s, is currently being developed into office and retail space, as well as a two-floor ballroom and performance center. The new space can be used for performances, film screenings and cultural events, and will also be available for rent for weddings, parties and other social functions.

Jeanne Pinado, executive director of Madison Park, said the community development group purchased the 35,000-square-foot building in 2000 but had trouble getting the $6.7 million project going. “We knew we had this big funding gap between what we could borrow and what the cost of the project would actually be,” she said.

Madison Park, which has poured millions of dollars into the renovation and construction of the Madison Park Village and Orchard Gardens housing complexes that straddle the Dudley Square business district, decided to initiate a campaign to raise $3 million to restore the building. However, a consultant recommended that Madison Park strive for a more realistic goal, like $1 million, because the group had never done such a big fund-raising campaign before. That left Madison Park with a funding gap of about $2 million.

While there are plenty of subsidies for affordable housing development available, “there really aren’t subsidy sources for commercial real estate in targeted urban business districts,” said Pinado.

That’s why the New Markets funding became a critical component for the Dudley Square project. In total, MHIC is providing more than $6.2 million to Madison Park for the redevelopment of the old structure.

The redevelopment of Hibernian Hall will provide a significant boost to Dudley Square, which was once considered the second–largest shopping district region behind Boston’s Downtown Crossing, explained Pinado. Today, Dudley Square features an African art gallery, an upholstery shop and a gift shop.

“We recognized that Dudley Square has tremendous potential,” said Pinado. “Bringing this kind of building online is going to have huge economic development impact on the area.”

In addition to the New Bedford and Dudley Square projects, MHIC is using New Markets tax credits to invest more than $1.6 million in an East Boston office project. The project involved the demolition of an old warehouse on Border Street by the Neighborhood of Affordable Housing Inc. and the construction of a 20,000-square-foot, 4-story office building. Part of the new building will house NOAH’s offices and another portion will be available for sale to Project Bread, which organizes the annual Walk for Hunger in Boston.

MHIC will have no problem deciding what to do with its recent award of $90 million. The lender says it has already identified another $150 worth of projects in Massachusetts that qualify for tax credits financing.

While the New Markets tax credits can be used to develop retail and office space, theaters and performing art centers, small business centers, artist studios and galleries, and community centers, the financing for low-income rental housing is generally not eligible. In addition, New Markets tax credits can’t be combined with other federal tax subsidies, including the Low Income Housing Tax Credit or tax-exempt bonds. The credits can be applied, however, to mixed-use projects where 79 percent or less of the gross income is derived from rental income.

When asked about the challenges of the program, Flatley said, “It’s a new program and it’s complicated to take advantage of.”

“By its very nature, it’s a shallow subsidy, not a deep subsidy,” said Flatley, adding that the tax credits must be combined with other financing flowing into a project in order to work.

Taking advantage of the tax credits also involves significant legal and financial structuring, which can be quite complicated, he said. But Flatley pointed out that just as it took a few years to learn the ins and outs of the Low Income Housing Tax Credit program after it was introduced in the 1980s, the New Markets program will also take some time getting used to.

For groups like Madison Park Development Corp., MHIC has already done a good job of navigating the complexities of the program.

“MHIC is good at working with public financing sources,” said Pinado. “They’re the ideal entity to be combining tax credits from a new federal program Â… with all the multiple layers of financing” that are needed.