Harnessing Many Financing Sources to Benefit a Community
After Hurricane Katrina disrupted a New Orleans health care center's services, the development team responded by integrating many community development financing tools to meet acute community needs. Post-Katrina, the team faced a community development challenge that required creativity: a low-income neighborhood within a rebuilding city was in desperate need of increased health care services, and an historic building stood abandoned nearby. The project concept started to take shape when Knox Clark of AMCREF Community Capital learned that his next-door neighbors, both health care professionals, were trying to increase access to primary care for New Orleans residents. They discussed various funding programs that could help jump-start the clinic's growth. The result is the expanded St. Thomas Community Health Center. (Before and after photos courtesy of AMCREF Community Capital LLC.)
The $8 million project uses many of the tools available in community development finance, including community development block grants, new markets and historic tax credits, philanthropic dollars, and a loan from a parent nonprofit. The renovation of the 19th-century building into a primary health care center recently was recognized by the Novogradac Journal of Tax Credits as a "Development of Distinction." Once completed, the facility will increase its square footage by 85 percent, serve an anticipated 45,000 people annually over the next seven years, and provide jobs for 60 new employees, mostly residents of the surrounding neighborhood.
Nancy Montoya, senior regional community development manager in the Atlanta Fed's New Orleans branch, spoke with two of the principals to learn more about the project. Brad Calloway is executive vice president for First NBC Bank, and Knox Clark is principal of AMCREF Community Capital.
Nancy Montoya: What aspects make this project unique, and why was it appealing to your company?
Knox Clark: All new markets tax credit (NMTC) projects strive to provide community benefits. This project yields community benefits on many levels—more job opportunities for the surrounding residents, greater health care access for the low income and uninsured, and an improvement to the neighborhood aesthetics by rebuilding an historic building and neighborhood eyesore.
Brad Calloway: St. Thomas Community Health Center provides very high-quality health care service through physicians who practice in major private and public hospitals in the
Montoya: This was a complicated deal: new markets and historic tax credits, state community development block grants, foundation funding, and a one-day bridge loan. What factors contributed to the successful completion of the financing?
Clark: A patient and very knowledgeable deal team was paramount to complete this complicated deal. The deal team included financial advisers, health care consultants, lawyers, the NMTC community development entity, tax credit investors, and the St. Thomas team. The transaction took more than one year from start to finish and it was a very fluid process—project specifics and costs were always changing, funding sources had to be worked and reworked in addition to finding new sources of funding, and construction deadlines always had to be considered every step of the way.
Calloway: Verification of the ultimate sources of repayment for the bridge financing (block grants, foundation funds, tax credit purchases, etc.) was necessary to find comfort in completing the financing.
Montoya: What were the main obstacles with this project as it progressed through the financing and construction phases?
Clark: Syncing all the funding sources to come together at closing and providing the needed capital to complete the project by the required deadlines was an enormous task. Many obstacles were encountered along the way, including the need for day loans and bridge loans to provide the required cash for the NMTC transaction, completing the different stages of historic tax credit approval, and keeping everyone in the loop as we moved down several financing paths all at once.
Calloway: Once the new markets and historic modeling was complete (in order to maximize the funds that could be generated to aid the project), the vast paperwork for deal closing presented some small challenges. Actual construction went very smoothly, as the contractor did a great job of managing the process from beginning to end. First NBC and Capital Link (our CDE partner) utilized a third-party inspector to verify all construction draws and work, and no problems were encountered throughout the construction period.
Montoya: What do you consider is the greatest successes of this project?
Clark: The greatest success of this project will be the community benefits provided now and well into the future. New Orleans is a better place thanks to St. Thomas.
Calloway: Being a part of a project that will likely double the availability of high-quality health care into the community is by far the greatest success of the project. Also, the fact that the nonprofit clinic has no long-term debt to repay is a major success. The various funding sources (foundations, grants, etc.) funneled through a new markets structure allowed the generation of the tax credits which, when coupled together, provided the funds necessary to complete the entire project with no long-term debt.
Montoya: What aspects of your model would be applicable to other project teams?
Clark: More and more community investments are utilizing multiple public and private funding sources, and it takes a patient and knowledgeable team with a desire to succeed in order to close the transaction.
Calloway: Project teams can explore what sources of funds are available within communities and neighborhoods. Many sites qualify for historic and new market credits financing, which can bring additional equity into financing various projects. Likewise, bridge financing with a complex structure is not difficult as long as the lender can verify and place reliance on the sources of repayment for the bridge funding necessary.