Mercy Corps Community Investment Trust

Mercy Corps Unveils First Cit

Posted by Derek Andersen on May 11, 2017

Sven Gatchev, right, Mercy Corps Northwests Community Investment Trust business analyst, talks to attendees at the opening ceremonies announcing the creation of the Community Investment Trust last month.COURTESY MERCY CORPS NORTHWEST/ANGELA HOLM PHOTOGRAPHY

Mercy Corps Northwest has launched a program that it hopes will become a model for community financial development nationwide. Described as a low-dollar, tangible and safe opportunity for all people to collectively own a piece of a thriving commercial real estate property in their own community, the Community Investment Trust is a form of real estate investment trust. Tangibly, it is Plaza 122, a nondescript business park on a bland stretch of Southeast 122nd Avenue near the intersection with Southeast Market Street.

Mercy Corps Northwest bought the U-shaped strip mallstyle business center in 2014, reportedly for $1.2 million, after several years of preparations and planning that included attempts to buy at least one other property. Mercy Corps stabilized the complex, raising occupancy from 60 to 90 percent. With the help of pro bono lawyers, the trust was formed. Opening ceremonies were held April 25.

Organizers hope to see a rise in civic engagement as well. People wanted to be part of something bigger, but they didnt have the opportunity, Gatchev said. He called the trust an on-ramp to financial stability and inclusion.

Mercy Corps Northwest

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Reimagining Real Estate Investments To Close The Racial Wealth Gap

Jennifer Breedlove was born and raised in Portland, Oregon, where four generations of her family have lived since the 1940s. They lived alongside other Black families in Northeast Portland, an area notorious for discriminatory redlining. For decades, Jennifers paternal great grandparents, grandparents, and parents made homes in some of the citys historically Black neighborhoods until they were driven out by gentrificationforcing Jennifer into a brief period of homelessness when she was just 14 years old.

Jennifer and her familys story isnt unique. In a country ruled by white-dominant power structures from its inception, racist policies and practices across government and the private sector have shaped a financial system that severely disadvantages people of color particularly Black and Brown people. According to the Institute for Policy Studies, todays median Latinx family owns just 4% of the wealth a median white family does. For Black families, that number drops to 2%.

Jennifer, who is now a mother of four and working to ensure a better life for her family, is pushing against institutional racism that has long created barriers for communities of color to invest in real estate through the Community Investment Trust , a Mercy Corps program.

Triangle Plaza Hub Receives Novogradac Community Development Award: Real Estate Qlici Of The Year

Winners of the Novogradac Journal of Tax Credits Community Development qualified low-income community investments of the Year Awards were honored in a ceremony Oct. 23 for attendees of the Novogradac New Markets Tax Credit Conference in New Orleans.

A select panel of industry experts judged the nominations of community development entities that made QLICIs in the past year. The judges chose five exceptional CDEs that exhibited a well-executed vision, measurable community impact and a commitment to positive change by bringing more people and places into the economic mainstream.

Were proud to congratulate this years winners of the Novogradac Community Development Awards, said Brad Elphick, conference chair and partner in Novogradacs metro Atlanta office. The winning investments showcase how versatile the new markets tax credit is in serving the unique needs of underserved communities across the country.

The accomplishments of the Novogradac Journal of Tax Credits Community Development QLICI of the Year Award winners and honorable mentions are described in the following pages. Each QLICI improved the surrounding community through the use of NMTCs.

Additional details about the winners and information about how to nominate an NMTC-financed development for the next Community Development Awards round can be found online at www.novoco.com/awards.

Small Business Honorable Mention

Small Business QLICI of the Year

Operating Business QLICIs Honorable Mention

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Neighborhood Investment Trusts Are Promising Wealth

American Cities

In Cleveland’s Clark-Fulton neighborhood, a major planned hospital could enable current residents to benefit from future investments and subsequent property value increases. Illustration credit: Lisa Troutman.

How can residents steer the course of market-driven development in their neighborhoods while also building wealth? Neighborhood Investment Trusts provide residents with tools to pool small-dollar investments into large-scale capital that can be invested in revitalizing properties in their communities.

The Kresge Foundations American Cities Program is convening a network of community development organizations and foundations in 13 cities to explore and seed Neighborhood Investment Trust models.

For Kresge, this community of practice represents an opportunity to explore a number of ideas that are important to us: mechanisms through which residents can benefit directly from revitalization of their neighborhoods the potential for distributive ownership of local real estate and new cross-sector problem-solving tables that enable community leaders to engage with their public and private-sector counterparts, said Rip Rapson, president and CEO of The Kresge Foundation.

Mercy Corps previously led the creation of a community investment trust in Oregons most diverse and high poverty neighborhood. The study is expected to yield a ten-step process that will support local organizations develop CITs in each city.

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A new study for Oregon State University shows that the choices coastal planners make about where to allow development and where to build seawalls may have just as much of an impact on coastal communities as climate change.

A new study for Oregon State University shows that the choices coastal planners make about where to allow development and where to build seawalls may have just as much of an impact on coastal communities as climate change.

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Updates On Past Winners

2009 Real Estate

The 2009 Real Estate QLICI of the Year Award went to Consortium America, Enterprise Community Investment, Local Initiative Support Corporation , National New Markets Fund LLC, NCB Capital Impact and U.S. Bancorp Community Development Corporation for their NMTC investment in the Argonaut project in Detroit. The development, now called the A. Alfred Taubman Center for Design Education, is a 630,000-square-foot facility that serves as a second campus for the College for Creative Studies . Since opening in 2009, the development has spurred economic growth for the local community by creating more than 1,000 temporary jobs, 391 permanent jobs and 167 part-time jobs. USBCDC reports more than 1,300 students are enrolled each year.

2009 Operating Business

National Development Council won the 2009 Operating Business QLICI of the Year Award for its NMTC investment in Yonkers Pier in Yonkers, N.Y. National Development Council reports that since its revitalization, Yonkers Pier has had significant positive effects on the surrounding neighborhoods. One of the commercial tenants, the restaurant X20, has created more than 50 full-time jobs for local residents. Peter Kelly, the owner of X20, said he has hired and trained more than 300 students and interns from local schools. National Development Council says that the new restaurants and boutiques have also contributed to the waterfronts revitalization by increasing foot traffic and tourist activity in the area.

2009 Metro

Socap: Inclusive Wealth Creation: Reimagining Real Estate To Profit Renters Communities And Investors

The traditional American Dream has long included home ownership as a connection to community. But barriers in financial systems make it more challenging for People of Color or low- or moderate-income people to attain loans to realize that goal.

More inclusive real estate investment models are emerging as alternatives to the current system, where the wealth generated by rentals and commercial real estate tends to pass through communities. During this SOCAP21 session, foundation leaders and community innovators offered a look at some of the new models they are advancing, where renters can profit from apartment buildings where they live, communities can earn from places where they shop, and impact investors can create a new frontier of wealth creation for generations to come.

Session moderator Chris Herrmann, Senior Vice President at Enterprise Community Investment, Inc., said these models stand to benefit local communities by strengthening residents neighborhood connections as well as their finances. Both are important components in the pursuit for a more just and equitable society, he said.

This broader concept of shared equity can apply in multiple forms of real estate. Certainly there are challenges. The subject is worth the effort. The goal is ultimately worth breaking down those reasons not to do something. Chris Herrmann, Senior Vice President at Enterprise Community Investment, Inc.

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Solution Cost And Time Frame Of Execution

In the very early phases of the CIT, Mercy Corps Northwest funded the program with their own unrestricted net assets and donations. Once they were readily fundable, the CIT raised capital from a range of sources listed in the table below. To purchase the property, CIT chose to use conventional bank debt they received real estate loans from Northwest Bank and Beneficial State Bank. The primary lender provided a letter of credit under their structured loan underwriting and covenants under federal law, this letter of credit was the key in ensuring that community investments in the property are risk-free. It ensured that all investments are liquid and secure from loss. Mercy Corps Northwest and two other impact investors provided a loan to cover the propertys initial equity this debt is the equity that the communitys investors are purchasing over time.

The Collins Foundation provided funding for capacity building so CIT could hire an operations manager, and CIT was also able to raise funding from JPMorgan Chase and the Meyer Memorial Trust in order to deliver the Moving from Owing to Owning course and translate it into five languages. Impact investors also returned as private donors to support program operations.

Creating Community Wealth Through Community Investment Trusts

Creating an investment vehicle for moderate and low-income individuals to build assets is necessary in order to help individuals of moderate means have opportunities to move into better socio-economic status. Through owning an asset , an individual or family can leverage the value of the asset to obtain income for other purposes . Owning an asset also gives a family the ability to transfer something to their loved ones which can provide the recipient a security blanket. For instance, parents can transfer their homes upon their death to their children which the children can then choose to either live in, rent out and generate a stream of income, or sell and use the income for their own purposes.

Mercy Corps Northwest first CIT project is in a 29,000 square foot shopping plaza in outer Southwest Portland. The shopping plaza currently has 26 to 30 businesses and nonprofit tenants. With the shopping plaza being located within the zip codes of the investors, it gives the people the ability to see their investment dollars at work and feel a sense of ownership in their neighborhood. They are more incentivized to patronize the businesses of the shopping plaza because they know that the money they spend at the businesses will eventually end up back in their pockets and not in the pocket of some wealthy individual or institution outside of their community.

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Past Shared Equity Efforts

The City has engaged in various SE strategies over the years. To date, HPD has facilitated the creation and preservation of thousands of limited equity cooperatives, including cooperatives formed under the Article XI of the Private Housing Finance Law , as well as homeownership units, mutual housing associations , and community land trusts .

Examples of SE strategies include HPDs active support of the growth of new CLTs in the City. Since 2017, HPD has been collaborating with CLTs in the preservation of affordable housing and new homeownership opportunities on City-owned land. Using grant funding from Enterprise Community Partners, the City supported the CLT Learning Exchange, a two-year capacity building program of workshops for community-based organizations on various CLT topics such as financing, governance, and property acquisition. The City, with Enterprise Community Partners, has also provided predevelopment and rehabilitation funding for a number of CLT projects across the five boroughs.

To build on these efforts, for the purposes of this RFI, the City is interested in learning about SE strategies apart from conventional CLTs, limited-equity housing cooperatives, MHAs, and other SE models the City is already practicing.

What Is Shared Equity

For the purposes of this RFI, SE encompasses a range of housing and economic development strategies that create opportunities for extremely low-, very low- , low-, and moderate-income households, and Black, Indigenous, and households of Color in particular, to build wealth and/or participate in sustainable ownership. Specifically, the City is interested in learning about SE strategies that advance one or more of the following goals for low-income and/or marginalized communities:

• Preserving or creating long-term affordability for housing and/or community assets
• Promoting racial and social justice
• Supporting wealth accumulation for individuals and communities
• Addressing housing insecurity and/or promoting equitable development
• Promoting community stability and prevent displacement
• Supporting individual or community resiliency, preparedness, and recovery in the face of environmental, economic, or social shocks and stresses
• Building and sustaining community power and facilitating community-decision making
• Offering alternative forms of sustainable ownership for individuals and communities

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Plaza : You Buy It You Own It

Joseph Gallivan

Nonprofit Mercy Corps is known for its overseas work bringing relief aid to disaster zones. It has also long been a champion of microfinancing and business education, both home and abroad.

In November 2017 Mercy Corps opened its first Community Investment Trust, which is like a REIT for low-income people. Instead of an apartment building, the usual asset by which investors earn a steady income, Mercy Corp chose a run-down shopping plaza on Southeast 122nd Avenue.

The immediate goal was to allow low-income people to make small monthly investments in the plaza, buying shares which generate an annual dividend. The deeper goal to bring more people into the investment class, as well as promoting local pride and a sense of ownership.

Two-and-a-half years after buying the property with other “impact” investors, as he calls them, John Haines, executive director of Community Investment Trusts for Mercy Corps took the Tribune on a tour of the property.

This pilot program is now in its 10th month, and the trust had just declared a 9.6 percent dividend for end-of 2017 investors.

Key Components Or Features

The Community Investment Trust describes its model as containing the following features:

• Low dollar investments .
• Geographic boundaries by ZIP code for investor participation.
• Short- and long-term returns for investors through an annual dividend and share price change annually.
• Guaranteed protection from loss for investors through a direct pay letter of credit from a bank.
• Investor education courseMoving from Owing to Owningoffered in five languages, covering budgeting, goal setting, and the risk and return profiles of investments.
• Investor efficient management and communication, including a website: investcit.com.
• A user-friendly and efficient investor management portal.

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Challenges And Lessons Learned

Legal challenges and lessons

The CIT model uniquely incorporates a built-in provision to protect their investors from loss through a letter of credit, but this feature did not come to be without major challenges. Although the CIT wanted to provide risk protection for their investors, there were security law hurdles that made it difficult to offer risk-free, loss-protected investment opportunities to unaccredited investors. CIT sought an investment security that was exempt from registration for unaccredited low-income investors with the U.S. Securities and Exchange Commission and the state. After utilizing legal expertise to find a solution, the CIT team discovered that, under federal law, they can provide a direct pay letter of credit from a bank to exempt their investors from registration, while investors receive liquidity and loss protection against any decline in their principal investment over time.

Commercial real estate challenges and lessons

The CIT team shared the following lessons after undergoing the process of purchasing Plaza 122:

About The Shared Equity Rfi

New York City low-income residents, particularly within communities of color, face significant housing challenges. The limited availability of affordable housing relative to need, rents that outpace wage growth, and significant demographic changes in various neighborhoods, have all contributed to fears of displacement and a distrust of development as part of a broader affordability strategy. The COVID-19 pandemic has exposed long-standing racial disparities across neighborhoods and a national discourse on civil rights and social justice have shed further light on the need for policies and programs that go further to advance racial equity.

To this end, New York City is interested in exploring new models of community wealth building and ownership through Shared Equity . In the 2020 State of the City address, Mayor Bill de Blasio committed to exploring SE models as one approach to addressing housing and economic disparities. Through this RFI, HPD, EDC, and DCWP-OFE are sought information from entities that practice, finance, support, develop, or research SE models of housing and economic development. The City anticipates releasing a subsequent Request for Expressions of Interest or Request for Proposal for SE projects, incorporating information gathered through this RFI.

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Why An Rfi

The City is seeking information on SE models through an RFI in an effort to learn about additional models of SE. This RFI seeks information from a wide range of organizations that have researched or have experience with SE strategies and their implementation and/or financing to help shape potential models and standards of effectuating SE models in New York City.