Wright-Patt Makes Loan Leap in Ohio

Five Rivers Health Centers of Dayton, Ohio decided two years ago it wanted to expand in a way that would not only improve the physical health of area residents, but the economic health of the community.

CEO Gina McFarlane-El met with Heather Corbin and Scott Everett, two business-lending ­managers at Wright-Patt Credit Union, and explained the non-profit’s plan to move to a predominantly Black, low-income neighborhood on the west side of the city.

“They were the first ones who said yes,” she said. “They wanted to be part of this neighborhood-changing project.”

Everett, vice president of member business services, said Wright-Patt was eager to get involved because it fit the credit union’s mission. However, he realized the credit union could not do it alone.

Over the past two years, Five Rivers and Wright-Patt put ­together a team that was able to close $31.6 million in financing in December, including $8 million from Wright-Patt.

The Dayton-based credit union ($6.2 billion in assets, 421,569 members) teamed with National Cooperative Bank to provide a $16 million loan for Five Rivers Health Centers’ new facility in west Dayton called the Edgemont Campus. Two other parties provided the other parts of the funding.

The facility will replace five existing leased clinic spaces to allow Five Rivers to provide integrated and expanded services in one location. It now serves more than 25,000 area residents and handles 90,000 visits per year. That volume is expected to double after it opens this fall.

Everett said Five Rivers “provides vital services to citizens with limited economic means and in areas with limited access to quality health care.” It “produces great outcomes for their patients but also maintains a strong financial performance, which is how we were able to support the financing,” he added.

The loan is significant for Wright-Patt for several reasons, Everett said.

While the credit union has made larger commercial loans, this is its largest for a non-profit. It granted $147.3 million in real estate-backed commercial loans in the 12 months ending Dec. 31, three times its originations in 2019. Its average loan last year was $1.8 million, up from $726,538 in 2019.

But Everett said the more important significance is the internal growth it represents for the credit union in being able to handle riskier, more complex financing to serve a critical need in the community.

“This is a higher risk loan that would be easy to pass on,” Everett said. “We valued this member and believed in their mission, so we found a way to get comfortable with the unique structure and potential risks so we could grow the relationship. We want to do more of this for fellow non-profits.”

Five Rivers was created in 2011 from the merger of three former hospital residency clinics. The goal was to become a Federally Qualified Health Center (FQHC), dedicated to helping to meet the needs of an underserved area. An FQHC provides primary outpatient services and opportunities for employment for the community, often while working to meet community initiatives.

It has grown from 77 employees serving 12,000 patients in 2012 to 245 employees serving 28,007 patients in 2019. It is now the ninth largest of Ohio’s 56 FQHCs.

The Edgemont neighborhood is separated from downtown Dayton by the Great Miami River. Much of the area’s population growth happened in the early 1900s with the industrial boom of World War I and Great Migration of Blacks from the South, according to a neighborhood plan published by the City of Dayton in 2018.

The area attracted factories in the early 1900s, developing large employers through the century that included Standard Register Co, the Sunshine Biscuit Company (perhaps best known as the maker of “Animal Crackers”), General Motors and Delphi Automotive Systems.

“By 1960, the majority of the population of Edgemont was middle-class Black homeowners,” the plan’s report said.

The construction of I-75 from 1957 to 1970 sliced off a section of the neighborhood. Deindustrialization began sweeping the Midwest in the 1980s, and the last of the manufacturers were swept away by the Great Recession of 2007-2009.

As businesses left Edgemont over the years, the community suffered, McFarlane-El said.

As of 2016, the Census Bureau found the area was home to 2,276 people, 46% of them below the poverty line and 94% of them Black. Its median household income was $24,447, compared with $45,394 for Montgomery County as a whole.

Five Rivers worked with the local community development agency that put together the neighborhood plan. Five Rivers bought a 4.4-acre parcel where an elementary school had closed and been demolished in 2001.

Five Rivers now has the equivalent of 218 full-time workers, and will have 264 after the clinic opens in January 2022.

“This project will be the first major employer to open in the neighborhood in the past 10 years,” she said. “We hope we’re going to be a catalyst for other organizations to join us in the neighborhood.”

Already, a retailer and a small manufacturer are making plans to open there, she said.

Making it possible is a 10-year financing package. It includes the $16 million loan that closed Dec. 22 from source lenders Wright-Patt and the National Cooperative Bank, $7 million from the sale of the tax credits to a third-party investor and $8 million in equity from Five Rivers.

The New Markets Tax Credit program is administered by the U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund.

It’s designed to attract private capital into low-income communities by permitting individual and corporate investors to receive a tax credit against their federal income tax in exchange for making equity investments in specialized financial intermediaries called Community Development Entities. The credit totals 39% of the original investment amount and is claimed over a period of seven years.

“The loan is very unique for us,” Everett said.

For one thing, because the borrower was a non-profit, the lenders could not get the typical personal guaranty. For another, while the $16 million loan is classified as a “real estate-backed commercial loan,” the tax credit’s rules prevent the source lenders from filing a mortgage against the collateral for the seven year period when the tax credits can be realized.

And instead of dispersing the funds at given milestones, all of the proceeds had to be released at the project’s start.

“Our team had to get comfortable with the risk profile of this transaction and spend a lot of time educating ourselves about New Market Tax Credits,” he said.

Everett said these deals are usually assembled by for-profit banks that can both provide the source loan and purchase the tax credits.

“Credit unions rarely see these types of opportunities because we cannot use the tax credits,” he said. “Five Rivers chose to partner with us due to our longstanding relationship with them. We worked together to find a bank that would buy the tax credits.

“There were a lot of moving parts, interested parties and lawyers galore involved in putting this together,” he said. “During the final two months leading to closing, we were on nearly daily conference calls with upwards of 50 people working through the logistics.”