Photo Credit: Jerry Monkman
FROM BUILDING COMMUNITIES TO PROTECTING OPEN SPACE: Veteran Nonprofit Underwriter Joins OSI's Conservation Loan Program

NEW YORK, NY - June 23, 2006 - Each year, 3 million acres of land an area equal to the size of Connecticut -- are lost to development across the U.S. Land trusts often must act quickly and marshal interim capital to purchase a parcel before it is lost forever. Through its Conservation Loan Program, OSI is helping land trusts creatively use debt to facilitate permanent land protection. From his perch in rapidly developing western North Carolina, Marc Hunt is familiar with the need for quick, smart land trust action. Formerly with The Center for Community Self-Help in Durham, NC, one of the nation's leading community development lenders, Marc now serves as OSI's Credit Manager analyzing and helping to develop conservation loans. He spoke with OSI's Amy Offen after a recent trip through New Jersey and western Massachusetts, where he took a first-hand look at some recent and potential loan projects.

AO: What did you see on the ground?

MH: In New Jersey, I visited with Hunterdon Land Trust Alliance, which is trying to create a permanent greenbelt around Frenchtown to protect its rural character and provide needed recreation. I also visited the Great Meadow project in Hadley, MA, which the Kestrel Trust purchased earlier this year with an OSI loan. It will continue as a working farm with an easement restricting development, part of an extraordinary agricultural landscape that Kestrel has been working to protect for many years. Both projects rely on significant community support and will protect key community assets.

AO: These are all relatively small groups? Are they your typical borrower?

MH: In many ways, yes. We want to help smaller and regional land trusts wherever possible because they often don't have access to low-cost loan capital. We also work with larger borrowers, including The Nature Conservancy and Trust for Public Land as well as established regional organizations such as the Society for the Protection of New Hampshire and the New Jersey Conservation Foundation.

AO: Isn't debt pretty scary for some of these organizations?

MH: It can be. And it's clearly not for every organization. But debt can be catalytic. The Carolina Mountain Land Conservancy (CMLC) used a $3 million loan from us to help protect a 1,500-acre tract in western North Carolina. CMLC had never spearheaded a project this size before. But they pulled it off and transferred the land to the State of NC within seven months. In the process, CMLC raised its profile and deepened its relationship with key donors, several of whom helped to guarantee the loan. In Massachusetts, the Mt. Grace Conservation Land Trust has received two loans from OSI, including one where it secured almost $90,000 in guarantees from local citizens concerned about potential development. The organization has distinguished itself for its quick action, and earned the support of its community.

AO: You just mentioned guarantees? What are they, and what role do they play in OSI's loans?

MH: It's usually a legal commitment by a supporter to back the loan if there's trouble, i.e., to repay the lender in the event of default. Depending on the borrower and the geography, we're occasionally able to make “unsecured” loans, i.e., without any collateral. In most instances, we do require some kind of security, e.g., financial assets or, in some instances, real estate. And that's where third-party guarantees come in. It's a very efficient way for a land trust to secure a loan.

AO: So you do take real estate as security?

MH: We have. But we're a bit leery of relying excessively on real estate for collateral. If a loan runs into trouble, we would prefer not to trigger a foreclosure that might lead to a parcel's being developed. Where we do take real estate as security, we ask our borrowers to provide an appraisal of its "conservation value," which effectively limits its financial value in our underwriting process.

AO: What about price and term? How do you set those?

MH: We typically provide shorter-term loans, 1 3 years. Our loans are low-cost, ranging from 3% in some places to LIBOR (London Interbank Offering Rate) plus a little. With market interest rates up around 7%, we're able to reduce our borrowers' interest costs by offering below-market rates.

AO: So how is OSI different from a commercial bank?

MH: Well, we're like a bank but with a big difference. OSI has many years of land acquisition experience in New York. We understand land conservation and transactions, including the sometimes rocky road to closing deals. We can move quickly and also provide flexibility when there are bumps in the road.

AO: What's the most interesting loan you've made?

MH: Every loan is interesting. One of the more unusual involved the Unexpected Wildlife Refuge (UWR), a small group that operates a wildlife reserve in the New Jersey Pine Barrens. They wanted to buy an adjacent 127 acres and expand the reserve. Our loan is being repaid, in part, through the sale of Pineland Development Credits, which are attached to one of the parcels being acquired. A developer can acquire and use these credits to develop in designated “receiving” zones. Right now, there's a fairly robust market for these credits. It's an innovative program by the state of New Jersey to finance land protection and channel growth into appropriate places. We are pleased our loan program could facilitate this initiative.

AO: You've said debt isn't for everybody. When's it appropriate, inappropriate?

MH: First, there has to be some urgency, i.e., a selling landowner needs to close and can't wait for a land trust to raise all the funds that are needed. But a prospective borrower also has to think about how it will repay the loan, where it will find the money to pay the interest on the loan, and what effect that debt will have on the overall organization. We work with groups to assess these issues, and look for groups whose board and staff understand these issues. Taking out a loan is inappropriate when permanent funding is very unclear or when a land trust is not quite stable and thus ready to take on debt.

AO: Is there a lot of demand for loans among land trusts?

MH: There is when you aggregate it across a larger region. But in any given sub-region, demand can vary tremendously. In general, we find more demand for loans in places where there's strong development threat, and the presence of public or private money that may be delayed in some way. Where there's no such "take-out" funding, land trusts are, understandably, often hesitant to take the risk of purchasing a parcel before they know where the permanent funding is to come from. Conversely, where permanent funding is plentiful and available without delay, there's very little demand for bridge financing. Because we operate across a larger geography, we tend to do a fairly steady volume of loans.

AO: Does OSI offer any additional assistance aside from loans?

MH: Yes. Where requested, we help borrowers think about how best to structure a transaction and think through the decision to borrow. More broadly, we want to help land trusts think about capital planning and undertaking transactions in a more strategic way, and toward that end are offering a half-day course on the subject at the Land Trust Rally in Nashville in October (click here to learn more).

AO: Let's say I'm a land trust and want to start my own revolving loan fund. Can you help me?

MH: Very likely. We're exploring right now how we might help selected land trusts with a mix of technical and possibly financial assistance to do just that. Clearly, there's no reason to start such a fund if you don't need it, or can't raise enough money to make it worthwhile. You have to be careful how you use such a fund, and whether you want to maintain or grow it. That'll have a lot of bearing on whether you charge yourself some kind of interest rate on the money.

AO: Do you have any advice for land trusts contemplating the use of debt?

MH: Exhaust all other reasonable alternatives. Delay the closing or secure an extended purchase option in order to buy time to raise funds. If you must take a loan, investigate all your options. Sometimes a donor might provide a loan, or a local bank, sometimes even a local foundation; there are also other revolving loan funds around. You also should make sure you've adopted and are current with LTA's Standards and Practices, and that your board is fully aware of the benefits and costs of taking on debt.

AO: If you're applying for a loan from OSI, what typically to you have to provide?

MH: Our loan application asks for all the usual things: how much is needed by when, what are the sources of repayment of principal and interest, background information on the organization, etc. Most applicants find that our application process is a great help in thorough planning of the project. Once we have the necessary materials, we can often turn around a loan request in 30 days or so.

AO: So do you use any screens to rule our loans?

MH: In some of our geographies, some of the providers of our capital have expressed certain preferences, e.g., for working landscapes in western Massachusetts. But in general, we presume that our borrowers' projects have conservation value and verify that very quickly, e.g., is land being protected, is there appropriate public access, etc. What we spend more of our time on is financial due diligence, i.e., does it seem like the loan will be repaid, what are the organization's financial assets, etc.


AO: Where exactly will OSI lend?

MH: We lend in the eastern US, with a focus on NJ, NY, western MA, and northern New England, as well as the Southern Appalachian region (sections of NC, TN, SC, GA, and AL). But we'll consider loan requests elsewhere in the East and encourage potential borrowers to contact us if a loan seems to be the right fit. Click here to meet our Field Coordinators.

AO: Does OSI ever lend directly to public agencies?

MH: We have not to date. But in some instances we work closely the public sector and communicate with staff there about their priorities. But obviously, our borrowers have the key relationships with public agencies.

AO: And what is exactly the source of OSI's loan capital?

MH: Our lending program is capitalized with a mix of capital. This includes grant and loans from the Kohlberg, Dodge, William Penn and Doris Duke Charitable Foundations, as well as OSI's own endowment. Right now we have a pool of about $30 million, and we want to grow that to $50 million.


AO: So how did you come to conservation?

MH: Growing up outside of Chattanooga on a section of the Cumberland Plateau, I spent lots of time exploring the river, the rocks, and the woods. I was later involved in the whitewater outfitting industry in the region as a company owner and manager a very entrepreneurial experience... It was then that I got a real taste for conservation when I became involved in leading a broad-based campaign to develop a long term resource protection and recreation plan for the Ocoee River, one of the most popular whitewater paddling resources in the nation.

AO: You worked for awhile in community development finance. What lessons does that world hold for ours?

MH: For eleven years, I worked for Self Help, a large nonprofit community development financial institution. Community lenders learned early on how to understand risk and lend where traditional banks had not done so before. They also helped their borrowers become strong institutions. I think that OSI and other conservation lenders can do the same thing for land trusts.

AO: So, what kinds of projects are you working on now?

MH: We're investigating a potential project in western Mass involving a working farm, and will close soon a project in western North Carolina that will form a part of a new state park. We're also tracking potential projects in New Jersey and monitoring closely opportunities to help bridge land acquisition opportunities in Tennessee that may require bridge financing.

AO: Good luck.

MH: Thanks!





  Return to Press Releases
 
Marc Hunt (far right), at a recent gathering that included Tennessee Governor Phil Bredesen (fourth from left), and other land conservation leaders in the region.
Photo by Terry Bonham, 2006
Marc Hunt
Marc Hunt was previously Director of the Charter School Loan Fund for the Center for Community Self Help, a $1 billion nonprofit community development financial institution. He has extensive experience in lending and program management. Also, with an earlier career in the whitewater outfitting industry, and having grown up in Chattanooga, Tennessee, Marc is an avid outdoorsman with a love for the landscapes of the Southern Appalachian Mountains.

Marc is based in Asheville, North Carolina, where he resides with his wife, Catherine, and their two sons, Colin and Taylor.

 

All active news articles

What You Can Do

Donate to support OSI’s work

Become a part of our mission to safeguard at-risk places through your tax-deductible gift.

Donate

Subscribe to our newsletter

We get in touch once a month with our most important news, stories, and updates.

Please leave this field empty