Project Category: Innovative Project Financing
Organization Name: Better City
Organization Website: http://bettercity.us
129 E 5th St
East Liverpool, Ohio 43920
Project Cost: $8,635,342
East Liverpool, Ohio (the “City”) is a highly distressed rural city near both the Pennsylvania and West Virginia borders, once known as the “Pottery Capital of the World”. At its apex in early 1900’s, the City’s pottery industry employed about 90% of the local workforce. The wealth generated by the pottery boom created a quaint and charming downtown with beautiful and iconic architecture that became the urban center of the region. Over time, however, the pottery industry was lost to off-shore labor, and the city experienced a significant decrease in jobs and population, leaving behind a mostly empty and deteriorated downtown.
New Castle School of Trades (“NCST”) in Pulaski, Pennsylvania, located an hour northwest of East Liverpool, was approached about locating a campus in the City. The company principals had personal connections to the area and student enrollments at their Pennsylvania campus indicated that many students were commuting from the Ohio area. Following a site visit and discussions with Better City and a few local activists, NCST agreed to participate in a catalytic downtown project: adaptively reusing two historic buildings that had fallen into disrepair. Their financial parameters included a medium-term lease arrangement with landlord incentives for tenant improvements, no personal guarantee requirements, a truck track, and sufficient parking to accommodate their student population. NCST would be responsible for financing over $1 million of equipment.
Due to market and rehabilitation risks, significant incentives were needed to make the project viable, including State and Federal historic preservation and new markets tax credits, tax increment financing, grants, and commercial debt. The uncertainty of securing the tax credits and creating a financing structure that could meet their occupancy parameters made NCST wary of making such a speculative investment in purchasing the buildings and the project also didn’t appeal to developers.
Current Status (10 words max)
Completed and operational.
Community Needs Addressed:
At the time the project was initiated in 2014, East Liverpool had a poverty rate of 37.4%, median family income that was 45.1% of the national average, and an unemployment rate of 14.4%. There was little confidence in the community that a project like this could be successfully developed given the conditions of the buildings, the downtown in general, and the social and economic challenges being faced by the community. Drug use had also become rampant with national publications having recently covered the unfortunate impact the heroin epidemic is having on the community.
The City’s economic decline and lack of investment was evident in the built environment. A survey conducted by Better City in 2014, categorized 80% of the downtown buildings as blighted. Included in the blighted properties were the two buildings NCST had identified as being ideal to accommodate their operations: the vacant Ogilvie Department Store and Exchange buildings. The Ogilvie building was in foreclosure with a failing roof and the roof of the Exchange building had collapsed and caused enough deterioration to the 1st floor, 2nd floor, and side walls that contractors could not walk through and inspect the building. The buildings were a health and public safety concern.
Due to a lack of employment opportunities and population decline over the last few decades within the City and the surrounding region, the worker base lacked the necessary skills to meet employer demand in the skilled trades.
The NCST project was intended to be an impetus for addressing the economic, workforce, and social challenges the community faced. These needs included initiating downtown revitalization, increasing patronage at struggling downtown businesses, retraining the existing worker base, attracting students from the surrounding region to catalyze worker base growth in the City, and provide employment opportunities for instructors and administration at the school.
Benefits and outcome:
The NCST project has provided an incredible benefit to a highly-distressed area of East Liverpool including economic, community, and workforce development. The project is expanding resources available to the regional workforce to obtain the skill, knowledge, motivation and opportunity to become self-sufficient and enjoy a better quality of life. In addition to the estimated 50 construction jobs created, at capacity the school will have 20 full-time and 12 part-time jobs with initial hiring already taking place to accommodate the first cohorts. Currently the location has enrolled two cohorts totaling 55 students and over the next few years the trade school is projected to have steady enrollment of 220 students. Programming includes welding, HVAC, and industrial maintenance and the school plans on adding an additional program within the next few years.
The project also saved, preserved, and adaptively reused two deteriorating historic buildings in the downtown core that otherwise would have become an even more serious health and public safety concern. The trade school offered its beautiful common room to host community meetings and the East Liverpool Community Partnership in Revitalization (ELCPR), a local non-profit, has already held meetings there. Better City encouraged local community activists to form the ELCPR organization so revitalization capacity and community engagement could be institutionalized.
The project was a much needed and long overdue vote of confidence in the community’s downtown and was the first phase in a multi-phase downtown revitalization effort. The project has proven to be catalytic as the second phase of downtown revitalization is currently under construction just one block away from the NCST project. This second phase is the construction of a 45-unit workforce housing development that is intended to attract and retain the skilled trades workforce within the community.
Project partners and collaborators:
After NCST provided a Letter of Interest, Better City worked with a local investor group, Lionmark, LLC to raise money for the property acquisition. The MegaFund, a local revolving loan fund created and overseen by influential community leaders, as well as other community-minded investors stepped up in partnership with Lionmark to provide the funding needed to acquire the Ogilvie building out of foreclosure.
On certain development projects, State of Ohio statutes require the city to be in the chain of title prior to providing property tax incentives. City-owned property must be disposed of through a public RFP process unless the City transfers the property to its Community Improvement Corporation, in which case the CIC can deal directly with a Buyer. As such, Better City coordinated a simultaneous close with the Sellers, the City of East Liverpool, the CIC, and Lionmark to insert the City and the CIC in the chain of title. Better City also appeared before City Council and the local School District to garner political support to approve the largest public participation available under State law. That combined with a term sheet from a local bank and letters of support were enough to be competitive for the historic tax credit application, which was submitted to the State of Ohio and approved.
In addition, now that Lionmark controlled the properties, a $28,500 pre-development grant from The Finance Fund was secured by the Community Action Agency of Columbiana County to fund pre-development work. These funds were used for the historic tax credit applications and to hire Novogradac to prepare a preliminary model so that the NMTC consultant, New Markets Capital Company (“NMCC”) could approach CDE’s for NMTC allocation. Federal historic tax credit, CDBG, and State NMTC applications were also being pursued.
What makes your project unique?:
Due to market and financing risks, financing commitments had to be secured before NCST was comfortable in ordering costly architectural drawings needed to bid the project. The original budget could accommodate $4 million of NMTC allocation, which was too small to absorb transaction costs and CDE’s were not interested in funding the project. A spark of ingenuity by the project team incorporated the equipment and property acquisition into the tax credit model and rather than using the HTC equity to pay for the building improvements it was allocated to fund the equipment purchase thereby increasing the Federal NMTC allocation the project could accommodate to just under $6 million. The NMTC model was adjusted and this combined with CDE lobbying efforts from various parties resulted in the project securing term sheets from PNC for the NMTC allocation and tax credit investments with Development Fund of the Western Reserve providing the State NMTC’s. Now that the tax credits were committed, architectural drawings were initiated and the project was bid.
During the bid process, asbestos and structural concerns resulted in a much higher construction cost and financing gap. $450k of CDBG funds from the State, City, and County, a $250k bridge loan from the Columbiana County Port Authority, and a $150k Economic Development Grant from The Finance Fund were secured to fill the gap. In addition, the financing was structured to reimburse NCST for pre-development costs as well as waiving personal guarantee requirements, which met their investment parameters. Because the City did not have bonding capacity, PNC was approached to provide a TIF-backed note. That combined with a PNC commercial note to NCST were contributed as the leverage loan. In addition, there were multiple project funding milestones: funding the QALICB prior to 9/30, a property closing, a final closing, and HTC equity tranches.
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