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NMTCs, HTCs Help North Carolina Charter School Dream Come True

Published by Brad Stanhope on Friday, May 6, 2016

Journal cover May 2016   Download PDF

Combine a historic school building, an underserved community, an ambitious educational nonprofit and two types of tax credits. You can get multigenerational, transformational change.

That’s the expectation in Durham, N.C., where Self-Help is rehabilitating and expanding the former Holloway Street School into the new home of KIPP Durham College Preparatory School, a public charter school that will welcome its second class of fifth-graders this fall. Tammi Sutton, executive director of KIPP’s Eastern North Carolina region, said the facility “is enormous for so many reasons. This building was a school, but it didn’t serve that purpose for decades. Now it’s back to being a school. You see a group of kids in an under-resourced area who are going to go to a beautiful new school.”

The school has ambitious goals and a strong track record. KIPP (Knowledge is Power Program) is a 22-year-old nationwide group of nearly 190 schools. The KIPP Eastern North Carolina region began in 2001 and includes four other schools: an elementary school, a middle school and a high school in Gaston, N.C., plus another middle school in nearby Halifax, N.C. KIPP targets low-income and minority students and its results are impressive: Every member of its initial graduating class in Gaston received an offer from a four-year college and 64 percent of those graduates received a college degree within six years–eight times the national rate for low-income students.

From Idea to Construction

From the start, KIPP ENC had an eye on Durham. “For several years, we knew Durham had a high need for KIPP and we were looking into it,” said Ben Adams, director of development and External Affairs for KIPP ENC. “We looked into the need and saw what the reception might be. There was tremendous support.”

The search focused on East Durham, especially the historic Holloway Street School, which was built in 1928 and added wings in 1950 and 1954, then a gymnasium in 1975.  The district-run public school closed in the 1990s and the facility was sold at auction.

“For 15 years, we looked at different kinds of properties in different places,” Sutton said. “In Durham, it was more about finding a building in the target community we wanted to serve. To be able to find a school building was a bonus. We did about six months of due diligence, but out of the 15 or so buildings we came across, this was at the top of the list.”

“It’s very intentional for this project to be where it is,” said Dan Levine, project manager for Self-Help. “It’s a historic building in a part of town that has faced decades of disinvestment.”  The company’s experience as a real estate developer with tax credit experience was key to KIPP, which needed a developer more than a lender for this project, he said. Self-Help purchased the building in early 2015 and leased part of it to KIPP. The program enrolled 91 members of the Class of 2023 while project partners completed the financing and construction started. The 26-room building was largely vacant since begin sold at auction and the gymnasium–where fifth-grade classes met this school year–was little used. 

The choice to hold the first year of classes at the permanent campus, despite being an active construction site, was deliberate. “In North Carolina, charter schools aren’t geographically based, so we wanted families to know where their kids are going to be and not have to move again after year one,” Levine said. “They’re excited to be in the neighborhood and watch the progress.” The approximately 60,000-square-foot facility will ultimately serve 600 students.  Levine called the historic brick building “a beautiful place for kids to learn. There is a big auditorium and generous classroom sizes with high ceilings and natural light.” The gymnasium will be returned to its previous use when the main building is renovated and students move into it. 

Launching a New School

KIPP Durham will introduce a new class of students each year, eventually reaching 12th grade. The original class of fifth-graders was the result of “recruiting,” by going door to door in the neighborhoods during the months leading to the opening. “Our first meetings start in the house,” Adams said. “We’ve had great support from families and the community has been engaged since.”

Each year, the school will add about 95 students and five to seven staff members. The building is designed for middle and high school, Adams said, and KIPP is committed to educate the students through high school graduation and support them through college. “We’ll get there,” he said.

Levine said he likes having the students on site. “The first day of school, they brought in the initial grade into the new building to show them the investment the school was making in their education,” he said. “I think there’s a tremendous cultural benefit for students [to see construction],” Adams said. “They see a building that’s there for them and know they’ll have opportunities.”

Plenty to Like

For those involved in the development, it was largely a labor of love.  The National Trust for Historic Preservation (NTCIC), which assisted in financing, had no hesitation in supporting the project. Michael Dubansky, NTCIC senior project manager, said, “As a mission-oriented syndicator ourselves, we were drawn to both Self-Help and the school’s mission and vision for this rehabilitation. KIPP is a great program and the project will rehabilitate a historic school in an economically distressed area.” NTCIC enables tax credit equity investments that support sustainable communities nationwide and focuses on developments like KIPP Durham that have high economic impact on the surrounding community. “NTCIC has been an innovator in the twinning of historic and new markets tax credits since 2000 and we are proud to have been part of this transaction,” Dubansky said.

William Turner, senior vice president of Wells Fargo Community Lending and Investment, the sole new markets tax credit (NMTC) investor, pointed out that in addition to the 600 students, 68 full-time jobs will be created by the school. 

Historic, but Improved

While approximately $4.4 million of the $13.3 million project was covered by new markets tax credit (NMTCs) equity, state and federal historic tax credits (HTCs) played a major role–and of course, the historic structure created some hurdles for developers. 

Levine said the biggest design issue is that the existing school was constructed over several decades starting in the 1920s–“in the 1920s, for instance, you didn’t worry much about parents being able to drop off their kids in cars,” Levine said.

Financing the School

The school development received federal NMTCs, state HTCs and federal HTCs. Morgan Wilson is vice president of development operations for The Community Builders Inc. (TCB), which allocated $5.7 million in NMTCs to the development. The nonprofit organization focuses on affordable and mixed-income housing and uses its NMTC allocations to improve the communities where it has affordable and mixed-income developments. “This side of Durham, east of downtown, is isolated and a disinvested community,” Wilson said. “For children in the four nearby TCB Communities to have access to the KIPP community for education is important. For our objectives, this is pretty much a perfect fit.”

Impact of Development 

Turner said it was an attractive investment for Wells Fargo for several reasons, chief among them was community impact, which is expected to go well beyond simply the students. “Our No. 1 goal is students, but if our school only affects students in the classroom, that’s not enough,” Adams said. “The students have siblings and cousins who need help. We’re here to serve the community of Durham.”

Turner echoed those sentiments. “I think the best possible outcome is the continued growth and vibrancy of East Durham,” Turner said. “Quality education stabilizes communities and as a result, more residents will view East Durham as a viable option. It’s one piece of the broader economic development.”

Tax Credits Essential

Sutton said the tax credits were essential. “[Without tax credits,] it would have been a beautiful idea and a beautiful building, but at the end of the day we’d have to walk away. Or we would have had to make sacrifices that take away from our strengths.”

Brad Elphick, a partner in Novogradac & Company LLP’s Atlanta office, who consulted on the development, said the school shows the power of using a variety of tax credits in a community that desperately needs the help. “Without NMTCs and HTCs, the financial end of this deal would be almost impossible,” he said. “Instead, this school will make a huge impact in the community, and, more importantly, in the lives of the students.”

Sutton expressed “enormous gratitude that these [tax credit] programs are available and for Self-Help’s ability to make it work. At the end of the day, we’re talking about a positive, multigenerational, transformational change to families.”

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