A Match Made on Main Street: Channeling Greenhouse Gas Reduction Fund Dollars to Small-Scale Deals

When Main Street America launched the Small Deal Initiative last August, we did so with a commitment to identifying new sources of capital that could be made available to support small-scale real estate projects. Our Fall 2022 research affirmed a need for this work across the Main Street America network, with 70 percent of Main Street America local leaders reporting that the lack of built-out space holds back economic development in their downtowns or district, and 45 percent of these leaders reporting difficulty accessing capital for small deals.

In the ensuing months, we’ve identified promising channels to drive more funding to small-scale real estate development projects, including increasing investment in these deals through Program Related Investments (PRIs) or PRI-Like investments by charitable organizations and federal advocacy to encourage the financing of more adaptive reuse and location-smart projects (those located in walkable areas and near transit) in the Greenhouse Gas Reduction Fund (GGRF) created through the Inflation Reduction Act (IRA).

With our work to advocate for adaptive reuse projects as eligible through the GGRF at a key juncture, this blog will focus on our policy work, while a subsequent blog will focus on efforts to increase PRI or “PRI-Like” investments and a pilot project to test this idea.

Channeling IRA Dollars to Small-Scale Deals 

Small-scale buildings are the fabric of our Main Streets and revitalization of our downtowns and districts requires that we put these places back into active use. While many factors make financing these deals difficult, one challenge stands out above the rest: with so many Main Street America communities located in disinvested downtowns and districts, the underlying economics of rehabilitation are unfavorable. Put simply, many much-needed projects in Main Street simply won’t provide conventional rates of return, and will require patient, low-cost capital to make it across the finish line.

This inability to access below-market capital holds back our Main Streets in more than one way. We know that small-scale rehabilitation is needed to create new space for entrepreneurs. MSA staff in the field frequently report that they are providing technical services in communities where small businesses have the appetite to open or expand in a downtown or district but are unable to do so because of a lack of developed space. And the Main Street America research team has extensive data documenting the housing shortage on Main Streets, with more than 80 percent of local Main Street America leaders reporting housing supply doesn’t meet demand. At the same time, however, more than 90 percent of MSA leaders report vacant or underutilized buildings downtown.

We often have the existing square footage to provide for these key housing and small business needs, we just can’t use that space because it requires renovation to meet modern-day needs – and it’s increasingly difficult to find the capital to support these projects. 

Beyond the obvious point that reusing downtown buildings and adding infill can help to address the housing shortage and accelerate economic development by supporting small business growth, there’s another less apparent reason to care about breathing new life into old buildings: reusing existing buildings reduces our greenhouse gas emissions in a substantial way. In fact, reusing existing buildings typically saves between 50-75 percent of the carbon that would be expended in constructing a new building. An op-ed from fall 2022 I authored with Vince Martinez (FAIA) of Architecture 2030 provides a much deeper look into the carbon savings associated with building reuse and explains why making the most of what we already have built is an important part of efforts to address climate change.

In addition to the carbon savings from reusing existing building fabric, putting old structures back into use in a downtown or district further reduces carbon emissions, as development in compact, connected, walkable, and mixed-use neighborhoods drives down the carbon-intensive infrastructure needed to serve buildings and it helps reduce Vehicle Miles Traveled (VMT), a key driver of greenhouse gas emissions.

The connection between decarbonization and reusing our existing buildings or developing infill projects on our Main Streets potentially opens a pathway to what we most need to reactivate these places: low-cost, flexible capital. The Inflation Reduction Act created a $27 billion Greenhouse Gas Reduction Fund (GGRF), which will provide low-cost loans and grant funds to support projects reducing or avoiding carbon emissions in the built environment. The Environmental Protection Agency (EPA) will allocate these dollars to multiple intermediary organizations that will deploy this funding nationally. Consortiums of Green Banks, Community Development Financial Institutions, Credit Unions, and other community-serving lenders, including non-profits, will apply to EPA for these funds.

In partnership with Smart Growth America, the American Institute of Architects, the U.S. Green Building Council, the National Trust for Historic Preservation, and several other national partners, Main Street America is leading a coalition urging that the EPA make available the GGRF funds for adaptive reuse and location-efficient projects because of the substantial greenhouse gas emissions reduction offered by such developments.

Based on a proposed implementation framework recently released by the EPA, adaptive reuse would potentially be permitted under one of three national funding pools created by the GGRF. We have been working with partners to urge that the EPA identify adaptive reuse and location-efficient projects as “safe harbor” activities under the GGRF. If successful, the GGRF will provide a pathway for supporting high-impact community projects.

We expect to learn more about the EPA’s decision regarding the use of GGRF for adaptive reuse projects later this summer and will share what we learn.

Read comments to EPA (December 2022) from Main Street America and partner coalition. Read comments to EPA (May 2022) from Main Street America and partner coalition.

Preparing to Leverage GGRF Funds 

Irrespective of whether GGRF funds can be used to support repurposing vacant or underutilized buildings, Main Street leaders should be thinking now about how our network can make use of this funding to drive down the cost of operating buildings (and of course drive down greenhouse gas emissions).  A 2013 report by the National Trust for Historic Preservation’s Green Lab found small commercial buildings consume about 47 percent of the energy consumed by commercial buildings overall; notably small, neighborhood businesses such as restaurants, grocers and retailers can improve profitability by more than 10 percent through smart investments in energy savings.

Nationally, it is expected that green banks, Community Development Financial Institutions, and Credit Unions will receive allocations of GGRF funding to deploy on building retrofit projects.  While more details will emerge in the coming months regarding who will serve as community lending partners, you can be prepared to leverage this unprecedented source of funding by doing the following:

• Make sure your district building inventory is up-to-date and includes contact info for building owners for easy outreach once more GGRF program details are available. 
• Consider conducting a survey to understand the interest of property owners in making upgrades to lower their energy costs.
• Get to know potential lending partners.
  • Learn whether your State has a green bank; Never heard of a green bank? The name can be a little misleading. There are 23 of these organizations across the country, and while they are not traditional banks, they provide low-cost loans and other financing instruments to support solar and window power, electrification of buildings, and other carbon reduction projects. 
  • Get to know Community Development Financial Institutions (CDFIs) that serve your community. CDFIs are lenders that typically provide low-cost and flexible financing to projects that traditional lenders will not lend to. They specialize in investments to individuals, organizations, and businesses in under resourced communities. While not all CDFIs are likely to participate in the GGRF as lenders, many will likely do so. You can find CDFIs that serve your community here. 
  • Get to know Credit Unions in your community. As with CDFIs, not all Credit Unions will participate in the GGRF, but it is likely that many with provide loans through the program. You can find a credit union locator here.  

By building partnerships and understanding the dynamics of your district’s underused property, you will be ready for investment of all kinds. Main Street America will continue to advocate and inform you about the opportunity to bring GGRF funding to bear in your adaptive reuse projects as well as other potential for increased financing opportunities for small-scale projects.