While most commercial development projects have complex financing, grocery store development in underserved areas can be particularly difficult. Developers and grocery operators cite higher development and operating costs in these areas as compared to green field development in more suburban locations.
Each project combines a unique mix of private and public funds from a number of different sources. While some types of financing might be available to any grocery store development, a number of potential sources will only be available for projects with specific characteristics. It may be helpful for advocates of new grocery store development to build relationships with individuals who manage these funding programs to help them understand the importance of attracting a new grocery store to the community. Barbara Abell’s report Supermarket Development: CDCs and Inner City Economic Development includes 16 detailed profiles of new grocery store developments including information on each project’s financing sources.
What follows is a very general overview of some of the most common types of funding sources. Other than the handful of federal sources listed specifically, most sources come from state or local governments or financial institutions with a local or regional service area.
Obtaining financing. Grocery store developments are multimillion dollar real estate deals that require high levels of start-up and operating capital. Financing these costs means combining grants and loans from multiple public and private sources, including commercial banks, community development intermediaries, state and local economic development programs, and federal agencies such as HUD, the Department of Human Services, and the Department of Commerce. Harlem’s Abyssinian Development Corporation assembled loans from four private banks, a community development intermediary, and a state economic development agency, federal and state grants, and an equity investment from a private equity fund to finance the $15 million development of the first Pathmark supermarket in Harlem.
Private financing sources. In many cases a significant portion of development financing for a grocery store project will be in the form of a loan or an equity investment from a private institution. While all of these institutions will want to see evidence that the project will be able to cover annual debt payments, some financial institutions might be able to provide favorable terms in order to help a project which is important to the community move forward. Sources of private financing include:
Public Financing Sources. There are also several sources of public funds which may be available to support grocery store development in underserved areas. Most local governments administer programs to support community and economic development. Some of these programs are funded with local resources while others rely on federal grant money which is then allocated to individual projects by the local government.
Tax credits. Tax credits can also be used to provide equity investment or low-interest loans for grocery store development projects. New Markets Tax Credits are the most likely to be useful for new store development but Historic Tax Credits have also been used to help finance projects which include a supermarket. Shaker Square in the City of Cleveland used both NMTC and Historic Tax Credit equity to finance a mixed–use development which includes a 26,000-square-foot Dave’s Supermarket.