By Robert M. Steeg

Some developers are taking advantage of a unique opportunity in New Orleans to develop fresh-food retailers in “food deserts,” areas that have little or no options for fresh and healthy foods. Steeg Law has worked with the developers of two such projects in New Orleans: the Myrtle Banks Redevelopment on Oretha Castle Haley Blvd., anchored by a 23,000 square foot food market, which is still in the construction phase; and the ReFresh Project on Broad Street, anchored by a 25,000 square foot Whole Foods store, which opened on February 4.

So what makes a “food desert” a ripe opportunity for developers in New Orleans? Financing options that include federal tax credit programs and city and state loan/grant programs combined with an abundant source of developable building stock in neighborhoods that qualify for these various governmental benefits. Hurricane Katrina caused a number of buildings within “food desert” areas to become available for development, whether they are former church sites of the Archdiocese, former New Orleans public schools, or other similar buildings. Developers are looking at these sites for projects that may, in different configurations, have components of grocery store, community center, retail, and even office space.

“Food Deserts” Financing Programs – Local and Federal

In New Orleans, there is a financing program called the Fresh Food Retailer Initiative (FFRI) designed to increase the number of supermarkets, groceries, and fresh food markets in low-income areas of Orleans Parish. Hope Enterprise Corporation and The Food Trust jointly administer the program. The City of New Orleans has provided $7 million in Disaster Community Development Block Grants toward the program, which funds are matched 1:1 by Hope Enterprise Corporation. The FFRI provides a combination of forgivable and low-interest loans, up to a maximum of $1,000,000 per store, of which no more than $500,000 may be forgivable loans.

Federally, the USDA has a program called the Healthy Food Financing Initiative, which provides loans to entrepreneurs seeking to start healthy food-related businesses located in “food deserts” across the country. Some loan funds from that program are available in the New Orleans area. A “food desert” is generally described by the USDA as a census tract that is low income and without a supermarket or other large food retailer within 1 mile (urban areas) or 10 miles (rural areas).

New Markets Tax Credit and Historic Rehabilitation Tax Credit

However, the most powerful tools in the developer’s arsenal for these sites are the New Markets Tax Credit and Historic Rehabilitation Tax Credit.

The New Markets Tax Credit provides a tax credit, spread over 7 years, equal to 39% of invested funds in projects in low-income areas or specifically benefitting low-income persons, all as specifically defined in federal regulations. Community Development Entities (CDEs) receive allocations of tax credits from the Community Development Financial Institutions Fund of the U. S. Treasury, which they deploy to qualifying projects.

If a building qualifies for a Historical Rehabilitation Tax Credit, whether federal and/or state, that gets added to the economic benefits that can help a fresh-food development survive economically. The Historic Rehabilitation Tax Credit can bring into a commercial project funds from an outside corporate investor who will later receive a tax credit equal to 20% of a project’s qualifying expenses (federal) and 25% of a project’s qualifying expenses (state).

“Food Deserts” – Challenges for the Developer

While all of these government-sponsored economic benefits have helped spur fresh-food developments throughout the country, including Louisiana and the greater New Orleans area, projects like these are not for the faint of heart. The developments face a number of difficulties, among which are affordability of the food, barriers to transportation access to the sites, and developing ways to increase and maintain demand for the fresh food merchandise that is offered.

So, the loans, grants and tax credits are all really helpful, even necessary, for the survival of these projects.

Good News: “Food Deserts” are Part of the New Orleans Citywide Master Plan

The good news for developers interested in these kinds of projects is that New Orleans’ citywide Master Plan, the Plan for the 21st Century: New Orleans 2030, is an overt proponent of “access to fresh, healthy food choices for all residents,” and proposes to accomplish this lofty goal through the establishment and support of healthy food retailers in locations which serve areas presently lacking those retailers. The mechanisms to be utilized include flexible zoning, reduction of policy barriers to temporary or mobile food vendors, providing incentives to small stores to increase their fresh food inventory, and the accessibility of the funding source of incentive programs to improve food access like the Fresh Food Retailer Initiative.

To learn more about these government loan/grant programs and Historic and New Markets Tax Credit programs and how they might be a source of financing for your “food desert” project, please contact Robert M. Steeg.

Filed under: Commercial Real Estate, Development, Zoning and Land Use, Industry News, Real Estate Financing
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