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Community Developments Investments (August 2012)

The Reinvestment Fund: A Healthy-Food Financing Leader

Patricia L. Smith, Senior Policy Advisor, The Reinvestment Fund

A loan from TRF helped Greensgrow Farm, a nonprofit organization in the Kensington neighborhood of Philadelphia, Pa., expand from an urban farm into a commercial farm, a retail nursery,  and more.
A loan from TRF helped Greensgrow Farm, a nonprofit organization in the Kensington neighborhood of Philadelphia, Pa., expand from an urban farm into a commercial farm, a retail nursery, a food distribution business specializing in locally grown and produced products, and a shared-use commercial kitchen.

For an estimated 24.6 million Americans, access to full-service supermarkets is severely limited, according to a 2011 study by The Reinvestment Fund (TRF). This deficit is particularly pronounced in low-income urban, rural, and minority communities. A lack of access to healthy food is preventing families from eating well and fueling the country’s growing obesity problem and the high health costs that accompany it. Communities without full-service grocery retailers also lose out on steady jobs, decent wages, and other amenities these businesses can bring. TRF, a leader in neighborhood revitalization and a certified community development financial institution (CDFI), has been working to improve healthy-food access in underserved communities for much of the last decade.

Financing Food Access

Beginning with the Pennsylvania Fresh Food Financing Initiative (FFFI) in 2004, TRF has developed a comprehensive approach to improving the food landscape in low-income, underserved communities. The FFFI was developed as a public-private partnership to serve the financing needs of supermarkets and grocery stores located in or considering operations in communities where infrastructure costs and credit needs could not be met by conventional financial institutions. The initiative relied on market analysis, leveraged capital, and the momentum of public policy to stimulate private investment that supports an increase in the availability of fresh food in low-income areas.

The FFFI was a partnership among the commonwealth of Pennsylvania; TRF; the Food Trust, a nonprofit that advocates for healthy-food access and good nutrition; and the Urban Affairs Coalition, a group of 75 organizations that work on a variety of community issues. As the development financing intermediary for the FFFI, TRF aggregated private capital (see “A Coalition of Capital” ), used local market knowledge to build a successful portfolio, underwrote and serviced projects, and worked effectively with public, private, and civic stakeholders. TRF leveraged $30 million in seed funds from the commonwealth with nearly $150 million in private and public resources for grocery stores and supermarkets. Recognized for its successes by Harvard University’s Innovations in American Government Award, philanthropies, and federal, state, and local governments, the FFFI is a model for supermarket financing programs in underserved communities nationwide.

Healthy-food retail financing is now one of TRF’s core lending activities. To date, TRF has made $11.8 million in grants and $104.4 million in loans to 103 projects across the mid-Atlantic region. Project development costs exceed $260 million, and these projects have created or retained more than 5,819 jobs and 1.85 million square feet of healthy-food retail space. TRF is also the manager of a food-access program launched by the New Jersey Economic Development Authority for which TRF recently secured a $12 million investment from the Robert Wood Johnson Foundation.

TRF’s supermarket customers are primarily developers and healthy-food project operators who need financing help to overcome some of the higher start-up costs associated with locating in low-income, underserved neighborhoods. TRF offers these customers access to credit at the early stages of predevelopment and site acquisition, flexible construction lending standards, and longer amortization schedules for term debt, among other flexible debt terms. Rather than attempting to subsidize projects that are otherwise economically infeasible, TRF financing provides an incentive to encourage viable operators and developers to select sites in underserved areas. Food projects can also access TRF financing at lower interest rates for the energy-efficiency components of their development projects.

Creating National Momentum

Among CDFIs nationwide, there is a growing interest in launching initiatives modeled on the FFFI. In 2010, the CDFI Fund and the Opportunity Finance Network selected TRF and others to develop a curriculum, prepare training materials, and conduct workshops and webinars for their Financing Healthy Food Options initiative. The initiative is designed to build the CDFI industry’s capacity to finance projects that increase healthy-food options in underserved communities. More than 100 CDFIs have participated in TRF’s training workshops so far. TRF has also advised peer organizations working on statewide or local healthy retail financing initiatives in Arizona, California, Colorado, Georgia, Louisiana, Maine, Massachusetts, Missouri, New York, North Carolina, Ohio, South Carolina, and Texas.

TRF is working with policymakers and advocates pushing for a smart, sustainable way to invest in healthy food and good jobs in low-income neighborhoods. In early 2009, TRF started collaborating with the Food Trust and PolicyLink, a national research and action institute dedicated to advancing economic and social equity, to raise awareness of limited food access in communities across America. Together with national advocacy, TRF’s financing successes in Pennsylvania helped fuel the Obama administration’s launch of the Healthy Food Financing Initiative (HFFI). Additionally, First Lady Michelle Obama launched the Let’s Move campaign in February 2010 as part of a national public-awareness effort to tackle the problem of childhood obesity. One of the four pillars named in the campaign is improving access to healthy, affordable food.

The HFFI is a shared effort among the U.S. Departments of the Treasury, Agriculture (USDA), and Health and Human Services (HHS) to provide financing for developing and equipping grocery stores, small retailers (See “Financing Helps Rural Towns Keep Healthy Food, Community Pride”), corner stores, and farmers markets that sell healthy food in underserved areas. The federal fiscal year 2012 budget approved $32 million for the HFFI through Treasury ($22 million) and HHS ($10 million). Additionally, there are programs at the USDA that integrate healthy-food access, including Rural Development, the Farmers Market Promotion Program, Community Food Projects, and programs within the Food and Nutrition Service. In fiscal year 2011, the three agencies also used a variety of existing programs, including new market tax credits (NMTC), to bring healthier foods to underserved communities.

In November 2011, a bipartisan coalition in the U.S. House of Representatives and the U.S. Senate introduced legislation (HR 3525, S 1926) that will authorize the HFFI as a program within the USDA and appropriate $125 million in federal funds to improve access to healthy food. The legislation calls for a Community Development Financial Institution, selected through a competitive process, to serve as a national fund manager that would be responsible for raising private money to create a national HFFI fund and support the efforts of local public-private partnerships.

TRF’s national effort continues to gain momentum through federal support, financing, and community involvement. To date, more than 90 organizations representing a diverse set of stakeholders have voiced their support for a national solution to the lack of access to healthy food. They include the Food Marketing Institute, the National Grocers Association, the Local Initiatives Support Corporation, the Opportunity Finance Network, the Children’s Defense Fund, the National Urban League, the Food Research & Action Center, the Community Food Security Coalition, the American Public Health Association, and the United Food and Commercial Workers International Union.

Supporting Financing With Analytical Tools

As TRF continues to work on improving access to supermarkets in underserved communities, significant resources have been devoted to understanding such access.

In 2012, with support from the CDFI Fund, TRF completed a nationwide Limited Supermarket Access (LSA) analysis, identifying communities across the nation with unmet demand for healthy-food retail options. Whereas many analytical efforts to identify underserved areas are based primarily on distance measures, TRF’s methodology also factors in an area’s population density and car-ownership rate, both of which significantly influence how far households can be expected to travel to shop for food. TRF’s analysis identifies 1,519 LSA areas in the continental United States where there are no supermarkets. In approximately half of these LSA areas, the unmet demand within the communities is large enough to support a full-service grocery store.

The LSA analysis helps CDFIs and other stakeholders around the United States consider demand and market viability when determining the type of projects to finance in their respective markets. TRF’s analyses are available free on PolicyMap, TRF’s online data and mapping tool. Users can identify communities with inadequate access to full-service supermarkets and estimate the percentage of grocery retail expenditure leakage from the area. These data, when combined with health and socioeconomic data and local market knowledge, can help point CDFIs, supermarket developers and operators, and local government officials to viable areas for opening and expanding supermarkets. In New Jersey, TRF is using LSA analytics to help determine whether a project is located in an eligible area.

TRF contracted with the Econsult Corporation to conduct an econometric analysis of the effects of supermarkets using an FFFI-funded store as one of the study subjects. The study examined the effects on economic activity, employment, earnings, tax revenue, and real estate values. The supermarket’s strongest impact appeared to be on real estate prices. According to the study, the introduction of a new supermarket immediately boosts the value of nearby homes. For example, a typical low-income Philadelphia homeowner living in a $50,000 home within 0.25 to 0.5 miles of a new supermarket can expect to see a home-value increase of approximately $1,500. In low-income communities, the opening of a supermarket also appears to largely mitigate any downward trends in local property values.

In 2007, with support from the CDFI Fund, TRF explored the extent of urban-suburban cost differences, the effectiveness of subsidy programs, and the impact of supermarket development on communities. TRF found that there are location-specific cost differences that make creating and expanding supermarkets in urban areas more expensive than doing so in suburban locations. For urban stores, start-up costs can be considerably higher, and the cost of training new employees can be nearly seven times higher than in the suburbs. Higher costs discourage supermarket development in inner-city communities, so residents of these areas have to travel to other neighborhoods to find affordable food options, or they must shop at smaller, more expensive stores nearby. Shoppers who can easily travel to the suburbs do so, taking their grocery dollars to neighboring municipalities and depriving the city of much-needed tax revenue. Moreover, the money they spend helps support the creation and retention of jobs in suburban neighborhoods instead of in their own neighborhoods, where steady employment is often difficult to find.

Looking Ahead

TRF is identifying more opportunities to work with food cooperatives, community-supported agriculture (CSA) programs, and food hubs. These nontraditional food retail enterprises are a growing segment of local food systems, contributing billions of dollars to regional economies. For example, TRF provided financing to Mariposa, a food cooperative in a low-income neighborhood in Philadelphia, to acquire and renovate its new facility. Despite double-digit sales growth in recent years, Mariposa’s small space limited its ability to expand. With TRF financing, the co-op has relocated just blocks from its former location. Construction began in early July 2011; the doors opened on March 17, 2012. As a member-owned operation, Mariposa sells healthy, locally grown fresh produce and sustainably produced products while educating consumers on the benefits of healthy eating.

TRF is also developing strategies to broaden its successful food-retailing investment program into a diversified sustainable agriculture and local food system initiative. After examining the landscape of food production, processing, and distribution in southeastern Pennsylvania and southern and central New Jersey, TRF in 2012 provided debt capital to support the expansion of Chesapeake Gardens, a food manufacturer that purchases local produce and poultry from area farms and makes wholesome soups, stocks, and sauces for wholesale. These items are then used in school lunches for charter schools throughout the region. Chesapeake Gardens also produces individually frozen meals for retail sales in grocery stores. TRF’s loan helped Chesapeake move into a larger space and purchase new equipment to fill larger orders for its customers. In addition to providing financing, TRF analyzes the requirements for supporting emerging food systems development with an emphasis on sustainability. Through this work, TRF identifies critical problem areas and expansion opportunities and successfully executes progressive investments in local food systems.

Banks can play an instrumental role in bringing healthier food options to communities that have lost their grocery stores or are struggling to keep them. Banks can use the Small Business Administration (SBA) 7(a) and USDA Business and Industry Guaranteed Loan (B&I) programs to finance healthy-food retailers and supply-chain businesses. The SBA 7(a) program offers a guaranty for the majority portion of small business loans, typically term loans for equipment, working capital and other fixed assets. The B&I program guarantees loans for economic development or environmental projects in rural communities.

The Partnership for a Healthier America, an important HFFI stakeholder, is working with major financial institutions and has secured several important commitments. In 2011, the U.S. Bancorp Community Development Corporation and JPMorgan Chase announced plans to use a significant portion of their NMTC allocations for projects that increase healthy, affordable food availability in low-income areas. Finally, national and regional banks also can offer NMTCs and low-cost debt facilities and grants to the growing number of CDFIs that are managing local initiatives dedicated to improving access to healthier foods in their communities. TRF’s successes in Pennsylvania can be attributed to the breadth of capital sources (grants, loans, NMTCs) that enabled the FFFI to offer a broad range of financial products to its customers.

Patricia L. Smith can be reached at (215) 574-5800 or

A Coalition of Capital 

The primary source of capital for Fresh Food Financing Initiative (FFFI) loans to Pennsylvania supermarket operators and developers was a bank-syndicated loan fund. The bank loan pool, which was dedicated exclusively to financing supermarkets, was led by JPMorgan Chase, with investments from Wachovia (now Wells Fargo), PNC Bank, Merrill Lynch CDC, HSBC, and Citizens Bank. The loan fund offered five- and seven-year loan products, which The Reinvestment Fund (TRF) used to finance equipment, acquisition, construction, renovation, leasehold improvements, and energy-efficiency measures. The loan pool also was available to finance real estate projects with multi-tenant uses beyond a supermarket anchor. The banks provided $32.4 million, supported by a loan loss reserve funded by an FFFI grant totaling approximately 20 percent of the pool. TRF closed 20 loans using $9.8 million of the $32.4 million pool.

The terms presented below are typical of TRF’s lending through this pool. These terms may have varied according to specific project and borrower circumstances.

  Data table explaining uses, rates, term, and collateral.

Financing Helps Rural Towns Keep Healthy Food, Community Pride

With financing from The Reinvestment Fund, Brenda, Douglas, and Randy Sprankle were able to add two stores that were in danger of closing to their rural Pennsylvania grocery chain, allowing two small communities to maintain their access to fresh food.
With financing from The Reinvestment Fund, Brenda, Douglas, and Randy Sprankle were able to add two stores that were in danger of closing to their rural Pennsylvania grocery chain, allowing two small communities to maintain their access to fresh food.

Sprankle’s is a small chain of grocery stores serving rural communities in Armstrong, Westmoreland, and Cambria counties in western Pennsylvania. With financing from The Reinvestment Fund (TRF), owners Randy and Brenda Sprankle were able to add two new stores to the three they already owned: an 8,500-square-foot store in Vandergrift and a 10,000-square-foot store in Apollo. The Vandergrift store is the only grocery in town; the Apollo store has been in the community for more than 40 years.

The Sprankles had become business associates and personal friends of the Olivers, a husband-and-wife team who owned and operated two supermarkets near two of the Sprankles’ stores. In 2007, the Olivers decided to retire and offered their two stores to the Sprankles. The concern, however, was that a Walmart was going to open near these stores.

The Sprankles hesitated because they had already felt the impact of a Walmart at one of their stores, in Portage Township: Sales decreased by 3.6 percent the year the megastore opened. But the Sprankles wanted to prevent the Olivers’ family-owned business from closing. As the only grocery in town, the Vandergrift store was an important community hub. Similarly, the Apollo store had served the area for generations.

As much as the Sprankles wanted to help, they simply did not have the money to purchase the Olivers’ stores. Even by mortgaging their home, which the couple considered, they would not have been able to make payments. Fortunately, the Sprankles had heard about TRF’s Pennsylvania Fresh Food Financing Initiative (FFFI) through one of their suppliers. The Sprankles applied for financing through the program and qualified for a $1.2 million FFFI loan and a $248,000 grant to purchase the Olivers’ two stores.

The benefits of small, family-owned grocery stores range from the tangible, such as jobs, to the more intangible, such as community pride, neighborhood spirit, and providing residents with a place to meet. In addition to the 25 jobs each of the Sprankle’s stores provides, both the Vandergrift and Apollo stores, community institutions for generations, provide a sense of connection to the small towns’ storied histories.