New Orleans School Rebuilds with Help of New Markets Tax Credits, Five CDEs
By Caitlin Jones & A. J. Johnson
6 min read
For Holy Cross School, the federal new markets tax credit truly has provided shelter from the storm. Hurricane Katrina, that is.
When the hurricane slammed New Orleans in August 2005, the 125-year-old Catholic school – run by the same order than operates the University of Notre Dame – was one of its victims. The school campus and its buildings, located in the city’s Lower Ninth Ward, were flooded and heavily damaged, forcing the school to relocate to temporary quarters, initially in Baton Rouge, to continue operations.
Yet the school, its board, and staff pressed on, determined to rebuild. Now, three years later, a new school campus is under construction on a different site, in the Gentilly neighborhood of New Orleans. The approximately $80 million reconstruction project is the result of widespread local support and a complex financial transaction that utilized the federal and Louisiana state new markets tax credits, five separate community development entities (CDEs), reimbursement funds from the Federal Emergency Management Agency (FEMA), and other resources.
Critical Element
“But for the new markets [credit], you really were not going to be able to successfully rebuild this project,” said James D. Howard, Jr., Phoenix, AZ-based principal of TransCapital. In recent interviews with the Tax Credit Advisor, Howard and TransCapital managing director Vincent Ravaschiere provided details about the transaction and school, as did William Chauvin, who was chairman of the school’s board of directors until recently.
TransCapital served as financial advisor to the school for the rebuilding project, lined up the CDEs providing new markets credit allocations, and structured and implemented the financing package. The transaction closed in June 2008.
Combined, the federal and state new markets tax credit allocations received for the project totaled $61,721,000 – 77% of the roughly $80 million total development cost. The five participating CDEs, and the size of their federal NMTC allocations, were: Capital One Community Renewal Fund, LLC, $14 million; Greystone CDE LLC, $13,110,500; Liberty Bank and Trust Company, $10 million; Whitney New Markets Fund, LLC, $6.5 million; and American Community Renewable Energy Fund, LLC (AMCREF), $5 million.
Howard said the new markets tax credit investors were Capital One Bank and New Orleans-based Whitney Bank. Capital One acquired the previous Hibernia Bank, a well-known New Orleans-based financial institution. Liberty Bank and Trust is another New Orleans financial institution; AMCREF is based in New Orleans; and Greystone is based in New York.
Need to Relocate
A well-known local institution, Holy Cross School is a college preparatory school for boys in grades 5 through 12 that has operated in New Orleans for 125 years, and is the order’s second oldest school in the U.S. Ravaschiere said about 25% of the school’s current students are low-income.
Chauvin said Hurricane Katrina devastated the school. “We had eight feet of water across the entire campus,” he noted, reporting that FEMA classified all of the buildings as more than 50% damaged.
Chauvin said the school decided to rebuild on a different site in New Orleans because of uncertainty about when recovery was going to occur in the Lower Ninth Ward, and because it was going to be “next to impossible to recruit kids” to come to the stricken neighborhood. Additionally, the school had been heavily recruiting students from two areas that suffered significant population losses after Katrina.
Chauvin said the school faced a considerable challenge in trying to find a new site in New Orleans that contained at least 15 contiguous acres and that the school could afford. Ultimately it acquired a 15-acre site from the Archdiocese of New Orleans – the property of a Catholic parish about to be closed containing a church and school.
The new school campus, located on an 18.86-acre site along Paris Avenue, was designed by Broadmoor Design Group/Blitch Knevel Architects, Inc. The new campus will contain five buildings with roughly 252,000 square feet of space: two classroom buildings; an administration building; an expanded athletic complex; and a central services plant.
Chauvin said all the new buildings will open in August 2009. He noted the new campus will have a capacity of 1,000 students, which he explained the school hopes to reach in four to five years. He said current year school enrollment – the school is operating in modular units in New Orleans – is 625, the maximum possible. Chauvin noted enrollment after Katrina dipped at one point to as low as 300.
New Markets Credit
Ravaschiere reported that the project qualified for federal new markets tax credits by meeting the special targeted population requirements, specifically satisfying the employee “test.” He noted that 80% of the school’s employees were displaced from their homes or jobs by Hurricane Katrina. (For details on targeted population requirements, see Tax Credit Advisor, August 2008, p. 17.)
Howard indicated that the project has utilized new market allocations from multiple CDEs – five in fact – due to the size of the project and because of a strong desire by a number of New Orleans area CDEs to be part of a key rebuilding project expected to have significant positive community impact. Local CDEs, while they had other NMTC projects in their pipeline, “wanted to drive some amount of [new markets] credits to [the Holy Cross School project] and participate,” said Howard.
Ravaschiere said the original announcement by Holy Cross that it would stay in the city and rebuild was the first significant announcement of a substantial rebuilding project after Katrina. “It was a real shot in the arm for the city,” he noted.
Howard and Ravaschiere said the funds generated by the federal and state new markets tax credits – $48,610,500 from the former and $13,110,500 from the latter – have been provided to the project in the form of two mortgage loans, one of which is a second. The remaining funds for the project are from fundraising dollars – a campaign is still in operation – and reimbursement dollars received from FEMA. Chauvin noted that the school is being reimbursed by FEMA on an ongoing basis for certain project construction expenditures.
Howard said it was complex and difficult to structure the transaction because of having five CDEs and multiple deal issues to work through, such as the timing of when capital came in. But he indicated that a collaborative process involving all the CDEs, TransCapital, and other parties made it happen.
Chauvin said the NMTC was essential to the school reconstruction project. He said without it, the school would have had to incur substantial debt for a long period of time, or significantly scale back the rebuilding project.
Chauvin said all but one of the buildings on the school’s old campus – still owned by the school – will be demolished. He said the school plans to preserve the original 150-year-old historic building, and is trying to figure out an alternative use for it. (More information: http:///www.holycrosstigers.com)
