Banking on the Community
Alessia Pirolo Oct. 3, 2012, 8 a.m.
When the owners of 197 East Broadway, on the Lower East Side, came to terms with the fact that their building was in desperate need of a renovation after 124 years as their headquarters, they made a move that might look obvious for any holder of a valuable commercial real estate asset. They looked for a loan. On paper, though, the Educational Alliance—a non-profit serving about 50,000 New Yorkers with a range of services, from pre-school, health and wellness for seniors to addiction recovery programs—is not your average Goldman Sachs client.
Nonetheless, in August 2012, Goldman Sachs’ Urban Investment Group committed $44.1 million of capital to finance the redevelopment of the Educational Alliance’s building. The financing comes in part as a New Markets Tax Credit transaction, and in part as a senior loan directly to the nonprofit.
“Goldman Sachs, their Urban Investment Group, adopted us,” Robin Bernstein, president and CEO of the Educational Alliance, told The Mortgage Observer. “They said they wanted to help us to make it happen, and they did.”
Since its launch in 2001, Goldman Sachs’ Urban Investment Group has provided more than $2.4 billion in lending and tax credit equity investments that benefit urban communities. “Every deal is different, every deal is crazy,” said Alicia Glen, managing director of the group. “There are a lot of different parts of the puzzle.”
The New Market Tax Credit program is one piece of the complicated puzzle assembled to help the Educational Alliance. Established in 2000 by Congress to attract investments to low-income communities, the program provides federal income tax credit to taxpayers making equity investments in specialized financial institutions called Community Development Entities. The credit totals 39 percent of the original investment amount and is claimed over a period of seven years.
So far 664 awards have been allocated, for a total of $33 billion in tax credits, according to the U.S. Department of the Treasury. The New Market Tax Credit program expired in December 2011, though Congress is expected to reauthorize it after the presidential election.
For 2012 the Treasury’s Community Development Financial Institutions Fund received 282 applications for $21.9 billion of tax credits, the agency announced on September 25th. Once reauthorized, though, the project is expected to allocate tax credits for $3.5 billion, in line with the previous years.
In 2011, the Community Development Entities of JP Morgan Chase and U.S. Bank received the largest amounts of allocated tax credits—$100 million each. Many banks have created Community Development Entities, which outline the projects they intend to support each year in their applications to the Community Development Financial Institutions Fund.
“One of the projects we referred to in our application is for a federal qualified health center in the Bronx,” said Leigh Ann Smith, historic and new market tax credit equity originations manager for Bank of America. Bank of America has provided New Market Tax Credit allocations for projects such as the new building of the Lower East Side Girls Club and the expansion of the Greek yogurt manufacturer Chobani in upstate New York, which at full capacity is expected to create 450 new jobs.
Recently, Goldman Sachs’ Urban Investment Group made a $7.3 million New Market Tax Credit equity investment to finance the renovation of a 215,000-square-foot building in the historic Brooklyn Navy Yard. There, the Brooklyn Navy Yard Development Corporation aims to further its mission and grow industrial jobs for the local community.
In the case of the Educational Alliance, the Goldman Sachs team determined that, in fact, the nonprofit owned a very good piece of real estate and had a proven track record raising money through its philanthropic efforts.
At the end of the 19th century, a group of wealthy Jewish business people, including Isidor Straus, the owner of Macy’s, the banker Jacob H. Schiff and Judge Samuel Greenbaum, founded the organization on the impoverished Lower East Side to help Jewish immigrants to settle in the United States.
After more than a century, the Educational Alliance has enlarged its focus to serve a wider range of groups. “The neighborhood has become one of the most economically diverse communities in New York,” Ms. Bernstein said. “There is the greatest disparity between great wealth and great poverty.”
Six years ago, the organization initiated fundraising efforts in order to renovate its headquarters. “Then, 2008 hit the project,” Ms. Bernstein said.
Rumor is that back in 1889 it took just one night for the Educational Alliance’s founders to raise $125,000—about $7.5 million in today’s currency. Over a century later, it was a much different story. The nonprofit, in the midst of the economic crisis, saw funding slow to a trickle. It had to look for a new way to move forward with its plans.
“We kind of tripped over the idea of the New Market Tax Credit,” said Ms. Bernstein. According to Ms. Glen, from the Goldman Sachs’ Urban Investment Group, the word of mouth among non-profit organizations helped the Educational Alliance to realize that Goldman Sachs could offer “the most creative” way of financing the project.
In August, the Urban Investment Group committed $13.7 million as New Markets Tax Credit Equity and $13.3 million as a subordinate loan. It also provided a $17.1 million senior loan directly to the Educational Alliance to bridge grants from New York City and philanthropic pledges that the organization expects to collect in the coming years. This helped to provide immediate cash for the project. The non-profit capacity building group Low Income Investment Fund provided another $2.6 million subordinate loan.
“Because of the structure of the New Market Transaction, these loans will be completely paid off by 2017, without creating an unsupportable burden for the Educational Alliance into the future,” said Ms. Bernstein.
The renovated building is named for Manny Cantor, a Polish immigrant who started his own dry goods business after immigrating to the United States in 1921. It is scheduled to open in the fall of 2013. The center’s square footage will increase by roughly 15 percent—to more than 106,000 square feet, from the current 92,000 square feet.
A new 10,000-square-foot health and wellness center will serve the needs of the growing senior population of the Lower East Side.
At least 80 employees will be added to the current 650. At full capacity, the group anticipates that the building will serve twice as many people.
Meanwhile, like the organization as a whole has done, the building is adapting to the needs of a changing community. In the last few years, the Educational Alliance has increased its programs focused on seniors and launched programs to help kids in their choices of school and colleges.
Diocelyn Batista was one of those kids. Born in the Dominican Republic, the 21-year-old moved with his family to the U.S. when he was 12 and didn’t speak much English. At 16 he started to study for the SAT at the Educational Alliance. His scores jumped 400 points.
Last June, Mr. Batista became the first member of his family to earn a college degree in the U.S. when he graduated from Vanderbilt University. He had been admitted with a four-year, all-expenses-paid scholarship that the Educational Alliance helped him apply and interview for. Mr. Batista currently works for City Year, a non-profit focusing on keeping students in school. He plans to apply to a Ph.D. program in sociocultural anthropology and to study rituals of religions. “I’m working my way up to be a dean, but I like research too,” he said.
He keeps visiting the Educational Alliance, where his 17-year-old sister is a senior in the College Prep program. Following her brother’s example was a no-brainer for the girl. “As a family we realized how much I got out of it,” Mr. Batista said.
On a wall in the temporary offices of the Educational Alliance, there is a plaque that someone found in a closet at 197 East Broadway. “Come to the Educational Alliance,” it reads. “We will help you to: Speak better English. Become a citizen. Find a job.”
In a century, the meaning of that sentence has not changed much, said Ms. Bernstein. “We don’t help anymore to pass the citizenship test,” she said. “But we help people to become good citizens. Stressing how to be a part of a community and live as good citizens is a big part of what we do.”
- 197 East Broadway
- Alicia Glen
- Bank of America
- Brooklyn Navy Yard Development Corporation
- Diocelyn Batista
- Educational Alliance
- Goldman Sachs
- Goldman Sachs’ Urban Investment Group
- Isidor Straus
- J.P. Morgan Chase
- Jacob H. Schiff
- Leigh Ann Smith
- Lower East Side Girls Club
- Manny Cantor
- New Markets Tax Credit
- Robin Bernstein
- Samuel Greenbaum
- U.S. Bank