A Pearl in Boston: New Markets Tax Credits Finance Incubator for Small Food Businesses

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It isn’t hard to imagine the next Mrs. Fields ramping up her new start-up cookie business in a low-rise industrial building being redeveloped in Boston’s Dorchester neighborhood.

Called the Bornstein & Pearl Food Production Small Business Center, this facility at 196 Quincy Street, once completed, will provide space for start-up and young, small-scale food production businesses on both hourly rental terms and medium-term leases.

Two local nonprofits, Dorchester Bay Economic Development Corporation (DBEDC) and CropCircle Kitchen, Inc., are creating the new facility through the redevelopment of the two-acre former Pearl Meat Factory, a 36,000-square-foot vacant building. The project closed last August, began construction in July, and is slated for completion in 2014. Among the funding sources are federal new markets tax credits and a federal Choice Neighborhoods grant.

Two Types of Users

The Pearl facility is expected to support more than 50 businesses and create more than 100 new jobs within the first three years of operation.

Andy Waxman, Director of Real Estate at DBEDC, says the Pearl facility will address a strong local need as well as generate jobs. The Pearl facility will enable start-up businesses to rent a fully-equipped, shared-use commercial kitchen – complete with ovens, refrigerators, food preparation areas, etc. – on an hourly basis. This will occupy 43% of the building and be leased to CropCircle. The remainder of the building will primarily be multiple “third-party” spaces rented by DBEDC under 3- to 10-year leases to more mature but still early-stage food production businesses. CropCircle will manage the entire facility.

Pearl will be the second location for CropCircle, which has operated a similar but smaller shared-use commercial kitchen facility in the nearby Jamaica Plain neighborhood for about four years. “They’ve turned it into a great success,” says Waxman. “But they need more space so they’re coming to expand at the Pearl site.”

“It’s a great partnership,” says Waxman, “because we bring different skills to the table. We had the [Pearl] property and we bring real estate development skill to the table. CropCircle brings the operating of food real estate spaces to the table. So we couldn’t do it without them and they couldn’t do it without us.”

Filling a Market Need

There is significant need in Boston by entrepreneurial small food businesses for the type of shared-use commercial kitchens and small leased spaces that the Pearl facility will offer.          “If you’re a food start-up business,” says Waxman, “it’s really expensive to spend hundreds of thousands of dollars to build out a commercial kitchen when you don’t have any customers yet and you just need to test out your recipe and build up your marketplace. That’s how [CorpCircle Kitchen is] a great incubator, allowing a lot of food businesses to get started up and grow. They can rent the space out by the hour, get their recipe, get their product refined, and then get customers – all while just paying the hourly rate.”

Similarly, young small-scale food production businesses may not need and/or cannot afford the larger commercial leased spaces typical in the Boston real estate market. “There’s not a lot of space out there if you’re a food business looking for 1,000 square feet or 3,000 square feet,” says Waxman.

The aim is to nourish small start-ups in the shared-use commercial kitchen until they get to the point where they can graduate to the third-party spaces at the Pearl facility, and to support the third-party space tenants until they get successful and big enough to move out to larger leased quarters in conventional commercial buildings.

Strong Expressions of Interest

CropCircle is already lining up users for its new commercial kitchen at Pearl, which will allow bigger production runs than at its present facility. “They’re going to move some folks over here,” says Waxman. “They have a waitlist already.”

Similarly, DBEDC is already talking to and negotiating with prospective tenants for the “white box” spaces – individual areas that have installed utilities but aren’t laid out or outfitted until the business signs a lease. Many different food businesses have expressed interest in being tenants. “We have one guy who makes hot sauce, and another who makes sushi,” says Waxman. “We had somebody approach us who makes chickpea snacks. We’ve talked to folks who make pickles, somebody who makes ice cream, and bakers. It’s really a wide variety.”           To qualify to lease the third-party spaces, which will have market rents, businesses must prove they have a business plan and be strong financially. In addition, says Waxman, “We have requirements in the lease around making efforts to hire locally. We’ve created partnerships with some local job training providers who are training folks for food production jobs.”

Waxman said the Pearl site is in a “distressed” neighborhood. “The poverty rate in the two census tracts there is 36%, and from 2006 to 2010 the unemployment rate was 22%.”

Use of New Markets Tax Credits

The Local Initiatives Support Corporation (LISC) provided a $10 million new markets tax credit (NMTC) allocation for the $14.5 million project along with pre-development support.           The project has 12 permanent funding sources, including eight grants, NMTC equity, developer equity, and loans from Boston Community Capital, the city, and Coastal Enterprises, Inc./Wholesome Wave.

According to Bob Van Meter, executive director of LISC’s Boston program, LISC was attracted to the Pearl food facility project because of a long and close previous working relationship with DBEDC on other successful projects; CropCircle Kitchen’s successful operation of its existing facility, which LISC invested in; the Pearl project’s tie-in with other investments in the Fairmount Corridor; and the community benefits that the project will provide. “It’s going to generate jobs, and that’s important,” says Van Meter. “The unemployment rate in the immediate area is higher than the citywide average, and the possibility that there will be job opportunities and entrepreneurship opportunities for community residents is important to us.”

LISC Boston is helping CropCircle Kitchen identify potential new entrepreneurs who might use the Pearl shared-use commercial kitchen, and is sponsoring an entrepreneur training program run by the Center for Women & Enterprise. The program’s first cycle had 25 graduates and another two cycles are planned in the next six months.

Choice Neighborhood Dollars

One funding source for the Pearl project is a $500,000 grant carved out from a $20.5 million Choice Neighborhoods implementation grant received by the City of Boston from HUD.

The overall grant is being used to fund multiple projects – some but not all identified yet – to revitalize and transform the Quincy Street Corridor. Many organizations and agencies are involved in the effort, including DBEDC, other nonprofits, LISC, the city, and state agencies. Projects identified so far are:

  • Quincy Heights. Using low-income housing tax credits, $12 million in Choice Neighborhood dollars, and other sources, DBEDC is teaming with Quincy-Geneva Community Development Corporation and United Housing Management to create 129 affordable apartments by redeveloping a distressed existing, 11-building, project-based Section 8 property and building 49 new units. Work on the two-phase $56 million project began in July. The first units are expected to come on line in early 2014. Enterprise Community Investment, Inc. syndicated the housing credits;
  • Quincy Commons. Nuestra Comunidad, a local nonprofit, is developing this $20 million mixed-use project that will contain 44 affordable apartments for seniors and ground floor commercial space;
  • Critical community improvements. Besides the Pearl project, these include upgrades to playgrounds at two schools plus the expansion of a local Wi-Fi network.