New York City Recipients of New Markets Tax Credits
Last May, the Community Development Financial Institut-ions Fund (www.cdfifund.gov) announced awards of $3.5 billion in New Markets Tax Credit allocations to 63 organizations around the country. Five of these are located in New York City. The five received a total of $498 million in allocation authority. In other words, New York-based businesses now have access to new capital targeted specifically at low-income communities, a.k.a. “new markets.”
“You can make deals in New York that are in low-income communities. The question is whether the deal benefits the members of the community,” says Bill Grinker, president and CEO of Seedco, the parent company of the Empower-ment Reinvestment Fund LLC, one of the five recipients of the credits.
Organizations using new markets tax credits are required by law to use all of their funds to make loans to and investments in businesses that are based in or that serve low-income communities. If they do not comply, their allocations could be “recaptured” by the federal government. “The basic thing we’re looking for are opportunities that enhance the ability of low-income communities to create assets, and we do think it is important that minority business owners benefit from these opportunities. Projects like small-business incubators, where minority business owners can get a foothold, anchor developments where minorities can have a presence, and, of course, we want these projects to create jobs,” says Grinker.
The ideal project size is between $3 million and $10 million, Grinker says. Grady Hedgespeth, president of the Empowerment Reinvestment Fund, says the agency is looking to do between eight and 15 projects over the next three years. One project under consideration is a retail and entertainment development that would recognize Harlem as the birthplace of jazz.
Many of the new markets funds are targeting real estate-backed loans and investments. Some are aimed at larger commercial developments while others focus on giving entrepreneurs a greater chance to own the property from which they run their businesses. “GreenPoint New Markets is geared toward smaller projects, not the Pathmark project on 125th Street,” says Carol Corden, who serves on the advisory board of GreenPoint New Markets LP. “GreenPoint is really looking for small, mixed-used properties with an average value of $300,000 to a maximum of $1.5 million. This would probably fit best for a three- to four-story building with commercial space on the first floor and residences above.”
Access to capital challenges many small business owners, especially those operating in low-income communities. Brooklyn-based Independence Com-munity Commercial Reinvestment Corp. will use its new markets tax credits to offer commercial loans with more attractive terms than currently offered by its parent banking company, Independence Community Bank. According to company statements, the more favorable terms will include lower rates, reduced origination fees, lower debt service coverage ratio, longer interest-only periods and nontraditional forms of collateral.
As awareness spreads about the various new markets programs, what remains to be seen is how quickly entrepreneurs in New York’s low-income communities will take advantage of the new opportunities.