We are in a challenging economic time for developers and businesses looking to expand. Rising interest rates and increases in material and labor costs, coupled with commodity shortages and slowing economic growth, have made the cost of construction soar.
Last year, CBRE’s new Construction Cost Index showed a 14.1 percent year-over-year increase in construction costs — the second year in a row for a double-digit rise. They are predicting a smaller, but still high, increase of 5.4 percent in 2023.
This environment can be especially challenging for small and mid-sized enterprises. Fortunately, public-private opportunities exist to support these sectors. These can provide funding and alleviate cost increases, and also continue economic growth.
One source is the New Market Tax Credit program, which has had a transformative impact on Greater Cleveland. This program has broad applications to stimulate diverse businesses located in low-income communities. In Greater Cleveland, the list of projects receiving significant funding in recent years include Dave’s Supermarket, Lincoln Electric Welding, Glenville Circle North (a mixed-use development) and the Magnet Manufacturing & Training Center.
These tax credits are allocated through Community Development Entities such as Cleveland Development Advisors (CDA), a real estate affiliate of Greater Cleveland Partnership. CDA has invested over $510 million in projects in Greater Cleveland, generating $4.2 billion in total development. All communities have multiple such entities; a total of $5 billion was awarded for investment in communities across America in 2022 and another $5 billion is expected to be awarded by early 2024.
The Midtown Collaboration Center in Cleveland is a recent example of a project that tapped these tax credits to support its development. Led by The Cleveland Foundation, the center is a 95,000-square-foot building located in the heart of Cleveland’s Health-Tech Corridor. To complete it, the project accessed $10 million in tax credits from CDA and the Port Authority’s Northeast Ohio Development Fund. When completed in 2024, it will house multiple tenants including JumpStart, a Hyland Software training center, an ECDI-SBA Lending Center and Women’s Resource Center, and a University Hospitals wellness center. The building will also include a music venue and Cleveland’s first Black-owned brewery. The center’s tenants are expected to have more than 200 full-time jobs.
If your project does not fit the NMTC model, there are numerous other local, state and federal sources of funding available for small and mid-size businesses. These include Opportunity Zone Funds; Small Business Administration programs; Economic & Community Development Institute programs; and programs focused on minority-owned enterprises from the Minority Business Development Association.
To access these types of funds, start a conversation with your business banker; regional banks should be tapped into funding options for all sizes of businesses. Consultants can also assist and make connections. Minority business owners can find advice through specialized minority business development centers such as the MBDA, and the Women’s Business Enterprise National Council (WBENC) can make connections for WBEs. Finally, chambers of commerce and the Small Business Administration have numerous resources that can help SMEs not only survive in challenging times, but continue to grow. ●
Baiju R. Shah is President & CEO of Greater Cleveland Partnership