How Capital One uses tax program to lift up Atlanta enclave

Editor's note: This article was originally published by the Atlanta Business Chronicle.

Twenty years ago, a major player in the credit card market announced intentions to diversify its business model by buying a bank. Two years later, they found the perfect fit, as Capital One acquired Hibernia, which had millions of customers in Louisiana and Texas.

The deal prompted many new opportunities, but one lasting impact was that it opened the door for Capital One to participate in the federal New Markets Tax Credit (NMTC) program, which encourages community development and economic growth through the use of tax credits to attract private investment in distressed communities.

Since then, Capital One has invested more than $4 billion in structured investments through its community development entity (CDE), the Capital One Community Renewal Fund, and other CDEs. Whether serving as an investor, leverage lender or CDE, the company has knowledge and expertise to understand project goals, anticipate developers’ needs and offer beneficial connections with other business partners across the industry.

“Early on, it was important for the bank to focus on distressed communities by supporting economic development and job creation in those areas,” said Spencer Gagnet, managing director at Capital One responsible for NMTC investment activities. “The program also was critical to the bank in the beginning as it expanded client relationships. It allowed us to work with our Community Reinvestment Act team to broaden our commercial banking footprint to different regions of the country, while also making a meaningful impact in these regions.”

The NMTC program was established as part of the bipartisan Community Renewal Tax Relief Act signed into law in 2000. According to the NMTC Coalition, a network of 150 members advocating for the program, the NMTC program empowers local decision making on critical economic development projects, rather than having Washington, D.C. pick winners and losers. Nonprofit and industry sectors receiving the financing are diverse and reflect a cross-section of America’s economy.

The projects fueled by NMTCs are transformational for communities that are distressed, in part because of historical disinvestment. Examples of these projects include facilities that offer affordable housing along with workforce development training for its residents; hospitals and medical centers in Medically Underserved Areas; infrastructure for broadband internet; youth arts and education programs; new manufacturing facilities; early childhood education centers; and operations that provide food, clothing, legal and social services.

The NMTC program aligns with Capital One’s mission “to change banking for good by bringing humanity, ingenuity and simplicity to banking.” This includes efforts to revitalize communities as detailed in its Environmental, Social and Governance framework.

In 2022, Capital One financed 27 NMTC projects and invested nearly $439 million of capital in projects that increased access to food and shelter, provided more equitable health and education facilities and created quality jobs. And so far this year, the bank has invested approximately $486 million among 23 projects, with more slated before year end

“This is a place-based program that brings projects to life that deliver critical services to these communities,” Gagnet said. “Capital One is committed to investing in disadvantaged neighborhoods and to providing access to opportunities so that low-income people can prosper.”

Since establishing its CDE, Capital One has helped shape the impact of the federal NMTC program by supporting organizations such as the Historic District Development Corporation (HDDC).

Founded in 1980 by Coretta Scott King, her sister-in-law Christine King Farris and civil rights advocate John Cox, HDDC pioneered the “block- by-block” redevelopment strategy in the 1990s. By building new properties adjacent to where they were rehabilitating existing structures, residents would not be displaced.

In 2022, Capital One’s CDE provided $3 million in federal allocation toward a $30.5 million NMTC transaction for the development of the Front Porch in the historic Sweet Auburn neighborhood of Atlanta.

When it officially opens sometime in 2024, this community-driven development project will help combat social and racial inequities through a master-planned, mixed-use development comprised of more than 100,000 square feet of green space, retail and residential units, with opportunities for home ownership and affordable rentals.

The project's name – Front Porch – pays homage to the communal spirit of the district and presents the opportunity for the community to maintain its character and culture.

"Front Porch on Auburn symbolizes a progressive attitude and commitment to rejuvenating our culturally significant community. Working alongside Capital One and receiving support from Congresswoman Nikema Williams has been crucial for this groundbreaking project's success,” said Chenee Joseph, President and CEO of HDCC. “The mixed-use development stands as a symbol of hope for minority entrepreneurs, affordable housing, and eco-friendly living, all while respecting the heritage of the Sweet Auburn neighborhood."

The development is the signature, early-stage project in what will be known as the SAGE (Sweet Auburn Green and Equitable) District, located in a severely distressed census tract that has a poverty rate of nearly 33% and a median family income that’s 29% of the national average.

Gagnet said “but for” the NMTC program, projects like the Front Porch would not be possible. That’s because these investments kick-start projects and allow developers to leverage additional financing. The program offers “patient capital” on seven-year terms to give developers the time needed to bring their ambitious visions to life.

In Georgia, Gagnet said the program accounts for investment of $1.7 billion and the creation of 6,700 permanent jobs and 7,000 construction jobs.

Because of this, Capital One supports the bipartisan NMTC Extension Act of 2023 that would make the program permanent. The legislation was introduced in Congress in April. Three years remain under the current authorization.

Gagnet describes how nonprofit developers need multiple years to fundraise, staff teams, design projects and complete construction before a facility can open. For both the developer and the investor, knowing the NMTC program will remain intact is crucial to being able to continue these types of developments in the future, he said. “Financial markets like certainty,” Gagnet added. “Making the program permanent removes the uncertainty and allows this vital form of community revitalization to continue.”

Capital One is committed to improving underserved communities through the New Markets Tax Credit program. Please contact us if you are interested in speaking with a Capital One NMTC professional about your potential project.