New Jersey Community Capital (NJCC), a statewide CDFI based in Trenton, has emerged as a significant lender for the construction of child care facilities and charter schools in New Jersey.
Jennifer M. Bredehoft, vice president and manager for communications and investor relations at NJCC, said that in all of its lending, NJCC reviews each potential borrower and transaction on an individual basis and provides predevelopment, acquisition, construction, and permanent financing with flexible rates and terms. A half-dozen NJCC funds and bank lines of credit provide longterm and short-term funds that the CDFI blends to structure transactions that best benefit NJCC clients, she explained.
NJCC has closed more than 75 loans totaling approximately $30 million to 35 child care borrowers since 1994 and has closed 17 loans for more than $15 million to seven different charter schools since 2003, she said. (Child care encompasses infants, toddlers, and children who attend pre-school or after-school programs.)
The obstacles to charter school lending are well documented in an NJCC technical assistance brief. For example, charter schools are bound by strict state financial regulations affecting facility development and cannot use state funds to construct or renovate facilities, the brief explains.
David Scheck, president of NJCC, observed that when NJCC began making loans for child care and charter school facilities these were new lending markets and NJCC had to rely substantially on qualitative benchmarks such as community support, leadership in management and governing board, program goals, and staff commitment. In addition, NJCC has always used quantitative indicators when they’re available, for example, on teacher certifications, student-to-teacher ratios, and student performance.
Since NJCC started lending to charter schools, a market for these loans has been established and demand is increasing, Scheck noted. “Much of the risk on loans to charter schools,” he added, “is perceived risk, and today more and more banks are financing charter schools.”
New markets tax credits (NMTCs) have been a useful tool in financing the packages NJCC has assembled for child care, charter school, and other community facilities. Bredehoft said that NJCC’s NMTC structures provide “strong financial and social returns with limited risk to investors and ultimately provide critical cost saving for schools, allowing them to allocate more of their limited financial resources toward their educational programs.” NJCC used its initial $15 million NMTC allocation for six transactions, including three charter schools, a child care center, and other community and commercial facilities, she said.
NJCC often makes loans to repeat borrowers with excellent track records who understand their community’s needs and choose to expand their programs accordingly, Bredehoft said. Discussions on expansion are already underway with three charter schools that have been funded in part with NJCC’s NMTC allocation. Scheck noted that the costs of constructing new child care facilities are prohibitive and that larger facilities with at least 180 students are more feasible.
In addition, NJCC has replenished its capital by selling loans to the Community Reinvestment Fund (CRF), a nonprofit purchaser of community development loans in Minneapolis, Minn. Since 2004, NJCC has sold loans of about $8.77 million to CRF, including $5.1 for charter school loans and $3 million for child care centers, Bredehoft said.
A student at North Star Academy in Newark, N.J. The school, which opened as a charter school in 1997, is one of the highest-performing schools in the state. Photo credit: Stephen Shames.
Early in 2007, NJCC received an $8.15 million grant from the U.S. Department of Education to creditenhance loans, leases, and investments for charter school facilities, primarily in New Jersey. The CDFI has provided credit enhancements in four New Jersey charter school transactions since receiving the award.
In one of the most complex facility transactions financed by NJCC, the CDFI assembled a $4.84 million financing package in 2005 that enabled the North Star Academy Charter School in Newark, N.J., to reduce its occupancy costs and commit the resulting savings to educational programs for 300 students who attended the school. Today, the school serves 450 students. PNC Community Partners Inc., a community development subsidiary of PNC Bank, provided a portion of NMTC equity and purchased tax-exempt capital appreciation bonds issued by the New Jersey Economic Development Authority. The funding package included the sale and leaseback of real estate.
From fiscal 2005 to 2007, NJCC has closed 44 economic development and commercial real estate loans totaling $56.2 million; 51 affordable housing loans totaling $23.3 million; and 32 child care, charter school, and other community facility loans totaling $22 million.
Delinquencies in all of NJCC’s funds, including its NMTC I fund, were 3.24 percent as of September 30, 2007, while historic net chargeoffs for all funds was 1.03 percent, according to NJCC.
Scheck explained that NJCC offers its financial institution partners a variety of ways to support its mission. NJCC issues CD Notes (an unsecured debt instrument) and equity equivalent (EQ2) investments to raise capital for its real estate debt funds. Also, NJCC’s real estate debt funds offer participatory interests in some of the financings it provides, as well as occasionally offering whole loans for sale. In addition, NJCC issues equity in the form of nonvoting common stock and preferred stock to raise capital for its small business investment company. Finally, NJCC’s nonprofit affiliates accept charitable contributions to improve the capitalization of real estate debt funds, capitalize specialized loan funds, provide technical assistance to its clients, and undertake critical research and development.
For information, contact firstname.lastname@example.org or Jennifer Bredehoft at (609) 989-7766, ext. 401, or email@example.com; www.newjerseycommunitycapital.org. Twenty CDFIs active in child care lending participate in peer learning and policy advocacy through the National Children’s Facilities Network. For information, go to www.ncfn.org.