N.Y. Retailers Explore Food Desert Options

MICHAEL GARRY

NEW YORK — A number of food retailer companies of varying sizes met last month to find out about how to receive publicly supported grants and loans that would help them build or improve stores in underserved neighborhoods in New York state — so-called “food deserts” that lack access to fresh foods.

The financing comes from a new public/private program, the New York Healthy Food & Healthy Communities (HFHC) Fund, which is making $30 million available to food desert projects. The fund — which includes $10 million from Empire State Development, a New York state agency, and $20 million from the Goldman Sachs Group — is designed to offset high infrastructure and other capital costs that can't be supported solely via conventional financial institutions.

The HFHC Fund is the latest example of a state-led effort to address food deserts, which have become a national issue affecting about 23.5 million people in urban and rural communities, according to the U.S. Department of Agriculture. The New York plan is based on a similar program in Pennsylvania, the Fresh Foods Financing Initiative (FFFI), which has invested in 88 new or expanded stores since 2004. (See “Success in Pennsylvania Stirs Hope for Food Deserts,” SN, March 15, 2010.)

The Low Income Investment Fund (LIIF), which is the lead administrator of the HFHC Fund, anticipates supporting a minimum of 27 projects in New York state, said Judith Kende, the LIIF's managing director, Eastern Region; she was one of several speakers at the fund's “Downstate Informational Event” last month at the Goldman Sachs Group's headquarters here. The fund will target low- and medium-income areas that have been identified on a map available at www.liifund.org/healthyfood/healthyfoodmap.htm. The LIIF expects to “create or preserve 740,000 square feet of supermarket space,” added Kende. “We anticipate the projects will be more concentrated in New York City where costs are higher.”

Grants obtained through the fund will range from $5,000 to $500,000, and loans will range from $250,000 to $5 million (or larger for New Markets Tax Credit Transactions). The financing is restricted to capital and real estate expenditures that may otherwise be barriers to development, including building construction and improvements, refrigeration and similar systems, as well as architecture and engineering fees, market studies and appraisals. Funding may not be used for working capital, inventory, job training or other expenses not related to real estate.

Wakefern Food Corp., the Keasbey, N.J.-based cooperative wholesaler owned by ShopRite store operators, was among the companies attending the HFHC informational event last month. Dennis Bachman, senior real estate representative for Wakefern, said that the wholesaler intends to use the funding to “provide fresh and affordable food to communities so we're part of the solution to solving this food desert problem.”

Wakefern has previously participated in Pennsylvania's FFFI. With the help of that program, six ShopRite stores have opened in underserved areas of Philadelphia. “We are emblematic of the success [the HFHC Fund] can have,” said Bachman. “We look forward to participating with everybody here to grow the ShopRite name in New York City and suburbs.”

Since last year, several other states besides New York have begun emulating Pennsylvania's approach to food deserts, including Illinois, Louisiana, Colorado and New Jersey.

A number of small retailers also sought information at the HFHC event. For example, Colin Xie, an owner of two-store Ryan Food in the New York City neighborhood of Flushing, was there to explore the possibility of opening stores in underserved parts of the city. Alexia Billiart and Ardenia Brown, co-owners of Butternut Market, a 950-square-foot specialty food store in the Bedford-Stuyvesant section of Brooklyn, also attended to learn about gaining support for their store, which will open in January.

Billiart and Brown live near their store, which they are launching to make up for what they call the lack of quality fresh foods in the area. “We see people getting off the subway carrying bags from Whole Foods and Trader Joe's,” said Billiart. The store will carry fresh produce, organic and conventional, as well as fresh meat and fish and everyday staples.

URBAN OBSTACLES

As the nation's largest metropolis, New York City has been especially vulnerable to the development of food deserts, with about 750,000 people living in those areas, according to The Reinvestment Fund, Philadelphia, one of the administrators of the HFHC Fund.

A 2008 study by the New York City Department of City Planning indicated that the city could support an additional 100 stores, and that the city loses $1 billion annually in grocery spending to surrounding areas. A subsequent study found that 19 of the most underserved neighborhoods in the city could support as much 1.1 million additional square feet of full-service grocery retail.

“In many urban areas, parcels of land suitable for a grocery store are difficult to assemble,” said Kende. “Since New York City is the densest urban area in the country, the problem is frequently cited by supermarket operators as a barrier to investment in new stores. Supermarket operators also cite high rents citywide as contributing to the problem.” Costly workforce development is considered another obstacle.

In upstate New York, especially in rural communities, the development of food deserts is consistent with other areas in the country, said Brian Lang, associate director, The Food Trust, Philadelphia, a third administrator of the HFHC fund. “Competition from supercenters, minimum purchasing requirements from wholesalers, and the lower population density create large swaths of land that are underserved by stores.” An estimated 950,000 people live in New York food deserts outside of New York City, according to The Reinvestment Fund.

The health impact of food deserts has also been well documented. “The Grocery Gap,” a recent report from the Food Trust and PolicyLink that summarizes 132 other studies, indicates that lack of access to fresh foods increases a person's likelihood of suffering from obesity, diabetes and heart disease.

“The U.S. is one of the few countries in the world where you can literally predict a person's longevity by the ZIP code they live in,” said Nancy Andrews, president and chief executive officer of the LIIF, who also spoke at the informational event. “The purpose of [the HFHC fund] is to get one step down the pathway toward finding a solution to that level of inequity.”

The HFHC fund evolved out of nine recommendations put forth last year by an ad hoc group, the New York Supermarket Commission, which comprised 40 representatives from the supermarket industry and the public sector, and was co-chaired by Nicholas D'Agostino III, president and chief operating officer of D'Agostino Supermarkets. Among the recommendations — now reflected in the HFHC Fund — was a call for New York state to “develop a business financing program to support local supermarket development projects.”

Goldman Sachs will contribute an additional $20 million to the HFHC Fund if the program can raise an additional $6.6 million in subordinate debt or grant funding, said Kende. A possible source of that funding, she noted, could be the federal Healthy Food Financing Initiative, a $400 million program designed to bring healthy food options to underserved areas. The federal American Recovery and Reinvestment Act is also being used to support supermarket development (see accompanying story) in New York.

Stores in New York City can improve their chances of receiving grants or loans through the HFHC Fund by leveraging other local programs. One of these is HireNYC, which connects free workforce development services with economic development programs like the HFHC Fund. Another is the New York State Energy Research and Development Authority's FlexTech program, which helps companies identify energy-efficiency measures. A third is the Pride of New York program, aimed at promoting sales of products grown or processed in New York state.

A separate program for stores in New York City, called FRESH (Food Retail Expansion to Support Health), offers retailers real estate tax reductions and zoning incentives. Approved by the city council last December, FRESH has so far provided tax reductions to two Foodtown stores and a Western Beef store, and zoning and tax breaks to an Associated Supermarket, said Barry Dinerstein, senior city planner, housing and economic planning, for the Department of City Planning, New York.

The HFHC Fund and FRESH have compatible requirements and can be used to support the same retail project in New York City. “We see the two programs meshing,” said Dinerstein.

Another program for stores in New York City, the Healthy Supermarkets Initiative, was launched in August by the Department of Health, with funding from the Centers for Disease Control and Prevention. It focuses on ensuring “customers have access to high-quality produce,” by helping retailers improve product placement, rotation, temperature control and display, according to the Department of Health. To date, the program has worked with nine stores, including Bravo, Key Food, Associated, C-Town and Best Yet, and aims to reach at least 40 stores in high-need areas by March 2012.