WaterFire Arts Facility in Providence, RI

By Kate Bramson
Journal Staff Writer
Published in the Providence Journal Nov 13, 2016  

Tax credits, bridge loans and private investment propel the nonprofit agency’s conversion of the cavernous former U.S. Rubber plant in Providence’s Valley neighborhood.

PROVIDENCE, R.I. — When the nonprofit venture WaterFire bought the long-vacant former U.S. Rubber factory to renovate into the WaterFire Arts Center, determining how to finance the $13.7-million project challenged lawyers, bankers, community-development experts and nonprofit-agency leaders.

Those involved say the financing structure for this project in the Valley neighborhood is one of the most complicated they’ve worked on. Since WaterFire did not have the money to launch the redevelopment on its own, it has relied on federal and state grants, bank financing, federal and state historic tax credits and the competitive New Market Tax Credits, a U.S. Treasury program that helps finance commercial and economic development in low-income communities.

The budget for the project is nowhere near as large as the $220-million South Street Landing renovation of an old power station into a nursing school and university building in the city’s Jewelry District. That project required leases among the developer, CV Properties, and the University of Rhode Island, Rhode Island College and Brown University, and it also relied on federal and state historic tax credits.

Even so, financing of the WaterFire Arts Center was “much more complicated,” said Mary A. Thompson, a senior vice president at Bank of America Merrill Lynch who worked on both projects as a tax credit equity investments expert. The bank’s involvement in both projects is connected to the federal historic tax credits each project secured.

Plus, the WaterFire project includes “twinning” those credits with the New Market Tax Credits, Thompson said. Using both types of federal tax credits required WaterFire to follow different rules for two separate federal programs, and to make sure that meeting the requirements of one program didn’t violate the other’s regulations.

WaterFire must still raise about $1 million to complete the financing.

But the New Market Tax Credits required WaterFire to deposit all the money for the project into bank accounts long before the work is completed. That meant the nonprofit needed bridge loans. 

A key piece of the puzzle was getting a private investor.

In this case, longtime WaterFire supporter Bank of America Merrill Lynch invested about $5 million into the project, Thompson said in an interview. That’s not a loan. In return, the bank will be able to use the federal tax credits from the two programs, credits that will equal the money the bank invested, to offset its tax liability in future years, she said.

The primary reason for Bank of America’s involvement in the project was to invest in a low-income community in one of the bank’s key markets, Thompson said. The WaterFire building is in the Valley neighborhood, which is just north of Olneyville, another area where the bank has already invested. Although the bank has supported WaterFire for its 22-year existence by sponsoring the event on the city’s rivers, this was the first time it could invest in a physical location for the agency, Thompson said.

Projects all over the country seek the competitive New Market Tax Credits. The program’s goal is to generate jobs, provide vocational training for low-income people and develop community facilities that offer cultural, recreational and educational programs.

In WaterFire’s new Arts Center, the nonprofit hopes to offer educational programs, host events for the larger community, book conferences and train the next generation of boat-builders, founder and artistic director Barnaby Evans says.

The last Tuesday in October was a momentous occasion for the project, WaterFire Managing Director Peter A. Mello told a crowd of about 100 people gathered on Nov. 4 to celebrate the work on the building. That was the day all the money for the project was invested into separate investment funds that Bank of America will manage to pay the construction bills as they come due, said community-development consultant Barbara Sokoloff, whose Providence company helped WaterFire to structure the deal.

Barbara Sokoloff Associates helps community organizations work out the financing and development of such projects — and she, too, says this was “one of the most complicated” financing deals. Her Dyer Street firm helped coordinate financing and guided development of projects involving Amos House, the Dreyfus Building, the Mercantile Building and the Boys and Girls Club in Pawtucket, as well as out-of-state theater and commercial-development projects.

Not just any entity would have been eligible to use the New Market Tax Credits, said Derek Farias, vice president at Sokoloff Associates.

“What the government is trying to encourage here is private investments in these low-income neighborhoods,” Farias said. “They want the private investment — the banks — involved, underwriting these deals, managing these projects. This is not just a one-time, we-write-a-check-and-go-away.... Bank of America is going to be WaterFire’s partner and monitoring the project to be sure WaterFire is meeting its goals.”

By the numbers

$13,747,105 - Total costs:

$425,000 - Purchase price of the land and building at 475 Valley St., Providence. [Several grants helped cover acquisition costs and early building maintenance: $250,000 from the Providence Economic Development Partnership, a $250,000 Community Service Grant from the Rhode Island General Assembly, and about $80,000 from several local philanthropists.]

$600,000 -Three grants from the U.S. Environmental Protection Agency for brownfields remediation of the site.

$3,162,600 - The amount allocated to WaterFire after Rhode Island voters approved a $35-million bond referendum in 2014 for matching grants to a number of arts and culture institutions.

$3,173,587 - One of two investments in the project made by Bank of America Merrill Lynch, which will redeem that amount in federal New Market Tax Credits in future years, after project completion.

$1,635,884 - The second investment by Bank of America Merrill Lynch, which will redeem that amount in federal Historic Tax Credits, once the project is completed.

$2,250,000 - The amount of state Historic Tax Credits that WaterFire can redeem with the state once the renovation is completed.

$450,000 - The Local Initiatives Support Corporation (LISC) Rhode Island/Admiral Bank recoverable grant.

$1,198,305 - Nonprofit Finance Fund, a capital campaign loan that’s expected to be paid back as WaterFire raises additional money. NFF, a community development financial institution, is headquartered in New York City.

$586,729 - Capital campaign funds that WaterFire has already raised.

$265,000 - A 2014 grant from the Champlin Foundations, in Cranston, for work on the building’s new roof.