New Jersey Banks Find Community Development Is ‘Good Business’
Second of two parts
By Jennifer Jope
Banks frequently work on community development projects in partnership with a variety of organizations and agencies around the state.
The Housing & Community Development Network of New Jersey is a state association that supports what community development corporations are doing at a local level, according to Director Diane Sterner. The network works closely with banks on financial products to help the institutions better understand what is needed at the community level.
“We try to work with a lot of banks at the same time,” Sterner said.
Standard community development loan projects are popular among banks, but Sterner said pre-development loan pools have also been of interest to banks. Because CDCs compete with private developers for property, available space can be scarce.
Larger lenders, like East Brunswick-based PNC Bank and Bank of America, have shown interest in raising $10 million for the network’s Predevelopment Planning and Acquisition Fund. This fund would allow CDCs to acquire sites or a series of sites for affordable housing purposes.
“What we try to do is match resources with a compelling need,” said William Best, senior vice president and Northeast territory manager for PNC’s community development banking.
For an association like Sterner’s, it becomes very important for banks to stay involved.
“Because the banking sector is really one of the critical parts of the affordable housing industry … the success of what we do with members is very dependent on banks’ participation,” she said.
ABOVE AND BEYOND CRA COMPLIANCE
Sterner said she believes many banks would want to be involved in the community whether CRA existed or not.
“A lot of what people do is based on personal relationships,” Sterner said. “A lot of [the banks] get excited with the results they see.”
Employees at Yardville National Bank couldn’t agree more. As a mid-sized bank surrounded by bigger players such as Commerce and Wachovia, the bank does community development loans but also contributes to a wide variety of local organizations in which its employees are personally involved. For example, employees take turns volunteering and serving meals at the Trenton Area Soup Kitchen, an organization with which Yardville is deeply involved.
“The soup kitchen serves 3,000 lunches a week. YNB recognizes the increasing number of the working poor and homeless right here in our community and wants to make a difference,” said Yardville Compliance Officer Anne Paglia.
Many at the soup kitchen actually have jobs but just can’t afford to buy food or support themselves, Paglia said, so YNB has supported the Adult Education Program at TASK to teach financial literacy.
“We are trying to do financial literacy programs with the organizations we support,” Paglia said.
Kenneth Greco, president of Amboy National Bank, agrees that seeing results is a rewarding experience. Amboy is providing construction financing for an affordable housing project in Long Branch which consists of two 10-unit condo buildings and 14 duplexes. Expected to be completed in a few months, all of the units have been sold. Both Amboy and the New Jersey Housing and Mortgage Finance Agency are equal participants in the loan.
“Dealing with developers who provide this type of housing to people is rewarding,” Greco said. “You can see the amount of work they put into it. [Seeing] people moving into a house is gratifying.”
Choosing to be involved in the communities they serve is what makes a bank a strong community development supporter. Caren Franzini, CEO of the New Jersey Economic Development Authority, said she has seen steady involvement from banks, many of which show strong interest in projects in urban areas and use creative methods to be involved.
“To do a project just for the sake of CRA doesn’t work,” Franzini said. “The project also has to make financial sense.”
Franzini notes that banks that have the sensitivity and patience to deal with atypical projects is also key. A recent project in Trenton has proven to have tenancy problems, but Franzini said Bank of America, which is involved in financing the project, is handling the issue with patience and understanding.
TICIC EXTENDS A BANK’S REACH
Another agency in the state has allowed one particular bank to go beyond its normal service area. The Thrift Institutions Community Investment Corp. of New Jersey, or TICIC, a subsidiary of the New Jersey League of Community Bankers, helped Oak Ridge-based Lakeland Bancorp become involved in a number of projects outside the bank’s assessment area, according to Rasiel Kleiner, vice president and compliance officer at Lakeland.
“It is a challenge for us because of where we are geographically located,” Kleiner said.
Despite those challenges, Lakeland scored an “outstanding” rating on its last CRA exam. Some of their other outreach has involved providing education to first-time homebuyers. The bank also provided investments which funded a senior housing crime-stopper program.
TICIC President Gordon Ur said the agency works with various-sized banks to provide them with the expertise of available programs.
“We work with a lot of programs; we understand the intricacies of programs,” he said.
Giving community banks an opportunity to participate in larger projects is also part of TICIC’s mission. Ur said by creating a consortium of 30 to 35 banks, a $50 million, 249-unit affordable housing project was made possible in Perth Amboy.
REDEVELOPING NEIGHBORHOOD PRIDE
Bank involvement is also helping create neighborhood pride. Annemarie Uebbing, regional director of the Community Preservation Corp., said redevelopment projects in Camden are improving the area.
“People are taking pride in the neighborhood again,” Uebbing said.
Twenty-one New Jersey banks invest in CPC and the agency acts as a lender of small loans. A recent project in Camden involved a factory surrounded by many vacant two-bedroom row-houses. The factory owner decided to renovate and rent out the homes, ultimately purchasing 13 properties on the block.
“Between his property and the church, he filled the units up,” Uebbing said. “He was just in the community and realized what he could do.”
PROGRAMS AND CONTRIBUTIONS
Projects are not the only way banks give back to the community. PNC has several initiatives to help its service area. PNC Grow Up Great is a 10-year, $100 million investment in a school-readiness program for children from birth to age 5.
In addition to community development lending, Lakeland Bancorp also provides grants to various kinds of entities, said Kleiner.
“They make a huge impact,” Kleiner said. “It could be wonderful when you partner with the right entities.”
Yardville has partnered with several youth programs; with its participation in the American Bankers Association National Teach Children to Save program, bank employees visit schools to teach budgeting and financial literacy skills for an entire day.
Even with CRA requirements, most banks say they would be involved in the community regardless, and many of the state and community agencies agree.
“It’s harder for me to find projects than, at the end of the day, to find banks willing to finance the projects,” Ur said.
Tax Credits Spur Bank Community Development Efforts
Tax credits have long been an important incentive for banks taking part in community development projects, and there are a variety from which to choose.
Merrill Lynch Community Development Co. has made a $2.5 million investment in the Community Reinvestment Fund’s National New Markets Tax Credit Fund I.
According to MLCDC, the fund is a $25.5 million investment fund formed to make investments that will qualify for the New Markets tax credit. The NNMTC program was designed in 2000 to stimulate $15 billion of private investments in a “range of investment vehicles that will make loans and equity investments, purchase loans or provide financial counseling in order to stimulate economic opportunity and job creation” in low-income communities where capital is either not available or available at a high cost.
NNMTC purchased a $1.4 million loan made by New Jersey Community Capital, one of MLCDC’s clients, to the Greater Brunswick Charter School. The school was founded in 1997 and is part of a statewide educational reform movement in New Brunswick.
MLCDC also invested $5 million in the New Jersey Housing Opportunity Fund III, a $20 million tax credit equity fund. It is managed by an affiliate of New Community Corp., Garden State Affordable Housing, which was formed to finance the development of affordable multifamily rental housing throughout the state. Urban projects or projects with a significant social impact tend to receive more emphasis.
According to MLCDC Vice President Jill Edwards, tax credits are a good incentive for banks to get involved in community development.
“It provides us with a decent return,” Edwards said. “We can use the tax credit to offset our tax liability.”
Independence Community Bank in Newark has taken advantage of the federal New Markets Tax Credit Program, according to Michael Armstrong, vice president and director of public relations. J C Daycare, doing business as The Little Ones, is a daycare service for families in East Orange which had to move from its leased location.
Independence is providing a bridge loan for almost $1.2 million for new building construction that will fund into a New Markets Tax Credit loan of $1.75 million. The daycare will be able to expand from 135 students to 150. Armstrong said the U.S. Treasury Department allocated $113 million to Independence to fund community-based projects in the metropolitan area during 2004 and 2005.
Another tax credit is available through the Low-Income Housing Tax Credit Program. According to the New Jersey Housing and Mortgage Finance Agency, the federal low-income housing tax credit is the “most successful federal housing program in history.” The credit is a method of attracting private investment into an underserved affordable housing market.
“Each state is currently vested with $1.85 worth of credits per capita, giving New Jersey approximately 16 million credits to allocate annually,” the agency’s Web site said.
The Neighborhood Revitalization Tax Credit Program is another opportunity for banks to invest and receive a benefit. It provides a 50 percent state tax credit to businesses against business-related income. According to the state Web site, businesses must contribute to a participating nonprofit organization with registered neighborhood plans in order to receive the credit.
PNC Bank is participating in this tax credit, according to Diane Sterner, executive director of the Housing and Community Development Network of New Jersey. The bank is the first corporate investor providing $1.5 million over a three-year period, said William Best, PNC senior vice president and Northeast territory manager for community development banking.
Under the NRTC, the Housing and Neighborhood Development Services, or HANDS, was the first organization with a plan approved by the state Department of Community Affairs. Best said PNC Bank sent money to the tax credit fund so the state could use it to advance the HANDS neighborhood plan to build the $7.5 million Hat Factory project – 44 housing units in Orange. Best said being involved now offers an opportunity to work with the project developers at a later date.
“It gives us the opportunity to step in to provide financing,” Best said.
Jennifer Jope is a writer for Banker & Tradesman. She can be reached via e-mail at firstname.lastname@example.org.