|Rob Bennett for The Wall Street Journal|
... By Warren Kirshenbaum
Construction is nearly complete on a $37 million classical music center for Orchestra of St. Luke's slated to open in Hell's Kitchen in March.
Complete with rehearsal and recording space to accommodate a full symphony orchestra and chorus, a music library café and even showers for musicians, the 20,000-square-foot building will be the orchestra's first permanent home since its debut in 1974.
The center will also serve dozens of arts groups that rent space in the city's increasingly crowded rehearsal and performance spaces, including the New York Pops and the American Symphony Orchestra.
Raising money for building projects in the past few years hasn't been easy for the city's nonprofits. Decreases in donations and a tightening grip on public dollars have hurt funding for capital projects by charities in particular. Many donors also have focused their attention on emergency programs for the hungry and homeless.
With traditional funding harder to obtain, the Orchestra of St. Luke's became one of a growing number of nonprofits turning to a federal tax program for capital financing. This week, it will announce it has received a $4.6 million equity infusion from financial institutions including Goldman Sachs Group Inc.'s Urban Investment Group, Solomon Hess and United Fund Advisors through a federal program that provides tax credits to investors putting money into community development projects.
[ORCHEST2] Rob Bennett for The Wall Street Journal
Street view of the center at 450 W. 37th St., which is also home to the Baryshnikov Arts Center.
"We needed these tax credits to ensure the project would happen on time and as planned," says Zev Greenfield, the orchestra's vice president of finance and Operations. "While we received $4.6 million directly, we saved millions more on financing and fund-raising costs."
In 2008, the orchestra and the Baryshnikov Dance Foundation closed on a three-party deal for 450 W. 37th St., which formerly housed a consortium of theaters. The orchestra paid $16.6 million for 20,000 square feet, taking on a $7 million mortgage and a $5 million line of credit from M&T Bank.
To fund the deal, the orchestra had received multimillion-dollar pledges from donors including financiers Joe DiMenna and Victor Elmaleh, and an $8.5 million pledge from the city's Department of Cultural Affairs. However, when the financial crisis deepened, additional fund-raising slowed and donations were delayed.
"Donors were supporting the project but needed to do it over a longer period of time, and that's why the credits became such an essential piece of the puzzle," says Katy Clark, the orchestra's president and executive director.
To fill the funding gaps, the orchestra hired a consultant and applied for the federal New Markets Tax Credit Program, rushing to close on financing before the end of 2010. Created in 2000 to spur economic revitalization through private sector investment, the program allows financial institutions to provide equity to projects in depressed neighborhoods and receive federal tax deductions in return.
The interest in tax credits heightened after the financial crisis hit, leaving cities eager for ways to tap the federal funding faucet to spur economic growth.
The New York City Economic Development Corp. partnered with financial-services company United Fund Advisors in 2008 to stimulate more projects using tax credits in the city.
Since then, they have financed more than $500 million of development costs, utilizing $89 million in New Markets tax credits.
The credits have allowed the city's nonprofits to raise financing for other large capital projects such as a new 75,000 square-foot museum and condo for the Museum for African Art on Fifth Avenue.
Slated to open this year, the museum received $18.8 million in New Markets tax credits. Other projects include a $13 million conversion of warehouse space in Lower Manhattan into a recreational sport facility called Basketball City USA, to be completed this summer.
The city and United Fund Advisors hope to obtain an additional $135 million allocation in tax credits later this year.
Still, nonprofits say qualifying for the tax credits generally requires the use of paid consultants, months of paperwork and complicated financing structures.
"It's an incredibly complex set of processes," Mr. Greenfield says. "You have to really spend the time to delve into the details."