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:

  • Private banks are generally interested in lending capital for development projects which can demonstrate the ability to earn enough revenue to comfortably make monthly loan payments. Additionally, all private banks are required by a federal law, the Community Reinvestment Act (CRA), to invest in the communities they serve including moderate- and low-income neighborhoods within their service areas. The government evaluates each institution’s performance in this effort periodically and rewards them for increasing their activities in economically distressed communities. Every major bank has a CRA officer to whom inquiries about the availability of CRA funds can be directed. In addition, community development banks are private, for-profit banks chartered specifically for the purpose of financing the revitalization of distressed or underserved communities.

    More information on community development banks which might serve your community can be found at:
  • Community development financial institutions(CDFIs) are socially motivated lenders that exist to provide financing for projects with clear social benefits which would find it difficult to access traditional financing. Most CDFIs offer lower interest rates and more flexible loan terms than traditional banks. CDFIs are frequently willing to provide loans that are “junior” to a traditional bank loan, meaning that they are repaid only after the bank is paid off in full. There are a number of national nonprofit intermediaries that provide financing and technical assistance to organizations working to improve their communities. The Local Initiatives Support Corporation is the nation’s largest nonprofit CDFI. Other national CDFIs include The Reinvestment Fund, the Enterprise Foundation, The Low Income Investment Fund, and the Nonprofit Finance Fund. In addition, Community Loan Funds are generally local nonprofits that seek funds from socially motivated investors and lend the money to nonprofit sponsored projects in their local community.

    Information on local loan funds that serve your area can be found at:
  • Private equity fundspurchase an ownership stake in the project, as opposed to providing a loan. LISC’s The Retail Initiative was an example of a private equity fund which specifically targeted food retail development projects. While that fund is no longer investing in new projects, other funds, such as those associated with the California Public Employees' Retirement System (CalPERS) or California State Teachers' Retirement System (CalSTRS), may be willing to help finance a new store development or support an independent grocery business expansion.
  • Charitable foundations may also be willing to provide some financing in the form of a grant or a loan for a smaller portion of the project. For the most part, foundations do not typically solicit funding proposals for commercial real estate projects. Instead a foundation may choose to provide funding for a project because of a long-standing relationship with the project sponsor (or sometimes a nonprofit tenant) and recognition of the impact that the project is likely to have on an issue that is important to the foundation. Foundations can provide outright capital grants to help pay development costs, grants for predevelopment expenses, or help pay for staffing or consultants to coordinate project development. Some foundations offer Program Related Investments (PRIs), which are generally very low interest loans for projects that further the foundation’s program mission.

For a database of grants see the Grantsmanship Center,, or The Foundation Center,

The New Horizons Center in the Bronx, New York is a 131,000- square-foot shopping center which was developed by the MBD Housing Corporation, a local CDC, in partnership with The Retail Initiative, an equity fund which LISC operated from 1992 – 2000. The New Horizons Center opened in 2004 and includes a 48,500- square-foot Pathmark supermarket which is open 24 hours a day.
Total Development Cost: $9,200,000
Sources of Funds:
Bank loan $18,600,000
Grants/MBD equity $4,140,000
LISC Loan $3,470,000
The Retail Initiative Equity $3,067,700

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.

  • Community Development Block Grants (CDBG) is a federal program administered by the U.S. Department of Housing and Urban Development (HUD) which provides funds to state and local agencies. These agencies then identify local priorities and invest the funds accordingly. CDBG funds can be invested in a project as an outright grant or in the form of a loan. Some CDBG money may be available to support grocery store development, but allocations from this source are very competitive in most communities.
  • Section 108 Loan Programis a HUD program that helps local governments to finance community development projects. A government can make a very low-interest loan to a project developer which the federal government will guarantee. In the event that the loan is not repaid, HUD will recapture any losses from the local government’s annual allocation of CDBG funds.
  • Tax Increment Financing (TIF) is money that is generated in redevelopment areas. This money is often used to finance community improvement projects and may be available to support the development of a new grocery store. Contact your local redevelopment agency to find out if there might be funding available to support grocery store development.
  • Empowerment Zone/Renewal Communities Incentives is a federal program that provides substantial tax incentives to businesses which are located in designated areas.
  • Some states provide funding to assist borrowers with the reuse and redevelopment of underutilized properties with real or perceived contamination issues (brownfields). Examples of these types of programs include: Cal Recycle Underutilized Sites (CALREUSE) Loans, The Brownfields Recycling Program in Oregon, and Pennsylvania’s Lehigh Valley Land Recycling Initiative (LVLRI).
  • Office of Community Services, a program of the U.S. Department of Health and Human Services, operates several grant and technical assistance programs that support community economic development projects. Their Urban and Rural Community Economic Development Program offers grants of up to $700,000 for business development or commercial real estate projects that are likely to result in the creation of new jobs for low-income people.

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.

  • New Markets Tax Credits (NMTC) provide a federal tax benefit to private investors who invest in commercial ventures in qualified low-income areas. Eligible projects include commercial, industrial, or mixed-use real estate developments as well as manufacturing and service businesses. The Department of the Treasury allocates the tax credits to Community Development Entities (CDEs) through a competitive process. CDEs then raise money for a fund from private investors and use the money to finance qualifying projects. Investors claim tax credits, equal to 39 percent of the total equity investment, over a seven-year period. The value of the tax benefit makes up for a lower rate of return from the project relative to the level of risk, effectively generating an overall return that is comparable to alternative investments. The complex structure and costs of putting together a NMTC favor very large projects. The tax credits can be invested directly in a project or using a leveraged structure to provide more capital to the project and more benefit to private investors.
  • Historic Tax Credits allow developers to claim a federal tax credit worth either 10 percent of the cost of rehabilitation of buildings built before 1936 or 20 percent of the cost of buildings on the federal register of historic places. Credits are awarded through state historic preservation agencies. Intermediaries such as the National Equity Fund and the National Trust for Historic Preservation match developers with investment partners who can benefit from the credits.

    Tangerine Plaza, a retail center in St. Petersburg, Florida, was developed by a local nonprofit development company, Urban Development Solutions in partnership with the municipality. The development entity leveraged New Markets Tax Credits to finance the $9.2 million project which includes a 38,000-square-foot Sweetbay full-service grocery store as well as additional small retail spaces for local businesses. The City of St. Petersburg invested their grant into the NMTC fund to maximize its impact and also assembled the land and leased it to the developer at a deep discount.
    Total Development Cost: $9,200,000
    Sources of Funds:
    Private bank loan via FHLB of Atlanta $3,200,000
    Loans including funds from:
    City of St. Petersburg
    U.S. Office of Community Services
    Cimmunity Loan Fund
    Private Foundation
    Subtotal: $6,376,000
    This $6,376,000 was invested in the project through the New Markets Support Company, an affiliate of LISC which used $9.2 million of its NMTC allocation to attract $2.8 million in equity capital from two private banks. A total of $8.6 million in low-interest loans was provided to the development project. The additional capital that LISC was able to help leverage from the public investment allowed the developer to offer tenant improvements to attract local businesses.