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Community Developments Investments (August 2012)

New Markets Tax Credit Transaction Brings Food Jobs to Newark

Phyllis Reich, Tax Credit Investment Officer, Community Capital Group, TD Bank

Forklift driver is one of 250 jobs that are expected to be available at a new cold-storage facility owned by the Newark Farmers Market and the Wakefern Food Corporation in Newark, N.J.
TD Bank
Forklift driver is one of 250 jobs that are expected to be available at a new cold-storage facility owned by the Newark Farmers Market and the Wakefern Food Corporation in Newark, N.J.

The Healthy Food Financing Initiative (HFFI) is most recognized for bringing fresh food to underserved neighborhoods, commonly known as “food deserts.” (For more about food deserts, see “A Look Inside.”) The HFFI is praised for the expansion and support of new grocery stores, improved corner stores, and the establishment of farmers markets. Retail suppliers, however, are only part of the story of bringing better food to the table. The packaging, warehousing, and distribution of produce and fresh meats and fish to the retailers also play roles.

The city of Newark, N.J., is supporting the HFFI and creating local jobs by participating in a partnership financing arrangement that will store and distribute food, including fresh produce.

The Project

In 2010, TD Bank was approached by the owners of Newark Farmers Market and the Wakefern Food Corporation to finance and build a new refrigerated warehouse and food distribution facility in Newark. This 180,000-square-foot, temperature-controlled facility will have the capacity to accept 40 million packages of fresh produce annually for distribution to ShopRite supermarkets throughout the Northeast. Wakefern, the largest retailer-owned cooperative in the United States, will use the new facility to support the development of 27 to 30 new grocery stores in the Northeast corridor of the United States and create 250 permanent jobs in the Newark area alone.

This transaction involved collaboration among five entities:

  • TD Bank: the leveraged lender and investor in the new markets tax credit (NMTC) financing.
  • Newark Farmers Market LLC: part of an established wholesale fruit distribution business owned by the same company since 1980.
  • Wakefern Food Corporation: the largest supermarket cooperative in the United States, providing food to 217 ShopRite stores (28 corporately owned by Wakefern) and 50 PriceRite stores (a wholly owned subsidiary of Wakefern). Wakefern has been in business for 64 years.
  • The Reinvestment Fund (TRF) and Consortium America: the NMTC allocatees that provided more than $34.3 million in NMTC funds to finance the construction of the facility.

The Background

The warehouse is located at 2-44 Cornelia Street on a site owned by the Newark Farmers Market, in the eastern part of Newark’s Ironbound neighborhood, which got its name because of the many forges, foundries, and railroads surrounding it in the nineteenth century. It has historically been one of the most stable and viable neighborhoods in the city. Today, local factories, warehouses, and industrial lots continue to operate in the Ironbound section alongside a vibrant and lively residential neighborhood known for its fine Portuguese cuisine.

The area, however, is also in an economically distressed census tract with a median income of $35,507, which is approximately 50 percent of the statewide median income, according to the U.S. Census Bureau. The proportion of Newark residents living below the poverty line between 2005 and 2009 was 24.3 percent, or almost three times the poverty rate for the state of New Jersey, according to Census.

Newark, New Jersey’s largest city by population and one of the most densely populated cities in the nation, is located in an old, established industrial and commercial region. Its proximity to the waterfront and to booming East Coast cities such as New York and Boston influenced its development into a significant industrial center during the late nineteenth and early twentieth centuries. This changed in the 1950s as Americans moved from the cities to the suburbs. The flight of wealth and residents was followed by businesses that thrived on meeting the needs of those transplanted consumers and workers. As businesses left the center-city neighborhoods, they took the jobs and left behind empty facilities.

In 2005, a forward-looking master plan established several new objectives for future development in Newark. The plan identified a strategy to increase the percentage of port and port-related jobs for Newark residents. The strategy specifically encouraged the application of new business models for the industrial business district, including modern production, warehouse, and distribution centers.

Importance of Healthy-Food Financial Development

Recent studies indicate that many low-income city neighborhoods lack access to outlets that carry fresh, affordable food. To improve fresh-food access, the U.S. Department of the Treasury, the U.S. Department of Agriculture (USDA), and the U.S. Department of Health and Human Services (HHS), along with many private foundations, have united to provide capital to bring supermarkets and other fresh-food venues, such as farmers markets, green carts, and small supermarkets, back to the nation’s cities. The Newark Farmers Market project demonstrates that a large distribution center located in an urban port area can provide economic benefits and help support the expansion of new healthy-food outlets by taking advantage of economies of scale in procurement and packaging, and using state-of-the-art information technologies to deliver affordable fresh food to urban communities.

This project also reflects the strategy outlined in the Newark master plan. Because of its natural proximity to the Port of Newark, interstate highways, and rail lines, the Newark Farmers Market is ideally situated to provide cold-storage facilities. The new warehouse and distribution center can handle the large volumes of perishable goods that arrive through the seaport and can be shipped up and down the Northeast corridor.

The warehouse and cold-storage facility is leased entirely to Wakefern, which owns one of the Northeast’s largest trucking fleets. The facility will be used primarily for the receipt, storage, packaging, and distribution of various fruits, and it includes specially constructed banana ripening rooms. The 30 planned banana rooms are expected to store, ripen, and ship approximately 3.5 million cases of bananas annually for supermarkets throughout the Northeast.

Packaged and precut vegetables and fruits are occupying more shelf space in the produce department of supermarkets. More produce is being shipped directly from growers and shippers to large retailers who operate their own distribution centers, resulting in greater variety and favorable pricing for the end consumer. By locating this facility in Newark, Wakefern is bringing healthy, more affordable produce closer to urban neighborhoods.

Tax Credit Financing Structure

The financing was structured as a “leveraged model” NMTC transaction. The NMTC allocation was provided by TRF and Consortium America. A total of $35.7 million, comprising $9.4 million in equity and a $26.3 million leveraged loan from TD Bank, was capitalized in an investment fund created for this transaction. After an initial payment of $1.4 million in transaction fees, these combined funds were used to make Qualified Equity Investments (QEI) into two separate subsidiary Community Development Entities (sub-CDE) formed by TRF and Consortium.

After the payment of additional transaction fees and expenses, TRF and Consortium each made two Qualified Low Income Community Investment Loans (QLICI) totaling $33.4 million to the Newark Farmers Market (a Qualified Active Low Income Business or QALIB) for construction of the refrigerated warehouse. The following table illustrates the project costs.

Sources and Uses Table

TRF and Consortium America are both certified Community Development Entities (CDE), and together they provided the NMTC allocation for this project. TRF is a community development financial institution (CDFI) that finances housing, community facilities, and commercial projects. It receives its capital from a diverse group of investors that includes individuals, banks, foundations, corporations, civic organizations, and government. TRF also provides financing for community development initiatives through dedicated loan funds such as the Pennsylvania Fresh Food Financing Initiative and the TRF Growth Fund. (See “The Reinvestment Fund: A Healthy-Food Financing Leader.”)

Consortium America is a subsidiary of the Trammell Crow Company. It received a total of $80 million in NMTC allocation authority in 2009. Consortium America makes debt and equity investments in large-scale new construction and redevelopment projects that have the potential to serve as “anchors” or transformational projects in low-income communities. It focuses its resources on the most distressed NMTC-eligible census tracts.

Flow Chart

The flow chart illustrates the structure of the transaction. The loans and equity from TD Bank flowed into the investment fund. The investment fund paid fees to the CDEs (TRF and Consortium America) and made two QEIs into two sub-CDEs established for the purpose of this transaction. These sub-CDEs made QLICI Loans to the borrower.

The borrower repays the loans to the sub-CDEs with income from its business operations. The sub-CDEs make distributions to the investment fund, which in turn repays the TD Bank loans. The equity investor (TD Bank) also receives NMTC tax credits generated by the QEIs for the seven-year term of the investment.

Next Steps

The Newark Farmers Market is expected to hire new workers whom Wakefern will train. Employees will be members of the Teamsters Union Local 863, which presently represents workers at the Wakefern supermarkets. In addition, Wakefern will be able to significantly increase the production and distribution of fresh fruit throughout its network of supermarkets because of the increased storage capacity and value-added packaging.

For further information, contact Phyllis Reich at phyllis.reich@td.com or call (201) 574-4859.