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Ninth District

September 1 986

Number 2

1220 Morgan
Responding to the



There are many examples of innov
atjve housing and business devel
opment in the Ninth District. In this
article uie focus on one rehabilita
tion project in Minneapolis and on
one of the organizations that helped
make it happen.
For the residents of Minneapolis’
Morgan Avenue North, the building at 1220 Morgan was more than
an eyesore.
Its neglected condition and unsta
ble population hampered the
neighbors’ attempts to upgrade the
street, and their fix-up requests to
the landlord remained unan
swered. The neighborhood resi
dents decided to appeal to Northside Residents Redevelopment
Council for help.
Northside Residents Redevelopment Council, or NRRC, is a
neighborhood association serving
the near north neighborhoods in
Minneapolis. The group was
formed in 1969 to meet federal
requirements for citizen input into
urban renewal and redevelopment
projects and to give residents the
ability to influence and direct the
development of their community.
Over time, the limitations of its
citizen participation role became
apparent to NRRC. At the same
time, there was an obvious and
growing need for community-based
housing development. So in 1983,
NRRC entered the housing devel
opment business.
1 220 Morgan: A Compelling Need

Normally, the NRRC board selects
an available property for rehabili

1220 Morgan Aven’ue, Minneapolis, after renovation by Northside Residents
Redevelopment Council and Project for Pride ‘in Living.

tation; but in the case of 1220
Morgan, the need was so compelling that NRRC sought out the
owner and offered to buy the building. Because the building wasn’t on
the market, “we paid more for it
than we might have under our
usual procedures,” says Jackie
Cherryhomes, development specialist. “But,” she continues, “we made
a conscious decision to purchase
because of the social benefits to the
total community.”
Jackie says that the building “was
the filthiest I’ve ever seen” when
she first visited it. But her past
experience and practiced eye convinced her that the project was
affordable and worth the effort.
However, while NRRC was lining
up the contractor and financing,
the owner ceased all maintenance
on the building and filled it with
additional, transient tenants.
Produced in the Office of Public nformalion
Federal Reserve Bank of MnneapoIis

Hence, although the building was
structurally sound, it required
extensive cleaning and extermina
tion as well as renovation.
The 1220 Morgan renovation project was undertaken by a partnership of NRRC and Minneapolisbased nonprofit housing
corporation, Project for Pride in
Living (PPL). The partnership has
been active in several north Mmneapolis renovation projects. In a
typical project, such as 1220
Morgan, actual construction work
is done by PPL, while NRRC acts
as property manager. Describing
the successful partnership, Jackie
says, “PPL manages the 2 x 4s and
NRRC manages the people.”
Although some buildings must be
gutted, the scope of renovation
Continued on page 2

I 2() contvn/u,ed from )i(LçJe 1

*_i_L__--r .rnm1

work on 1220 Morgan was moder
ate, consisting mainly of thorough
cleaning and decorating. Only the
kitchens were gutted. The building
was at least partially occupied dur
ing the work, which made some
tasks, such as extermination, more
difficult. Renovation began on the
empty units and proceeded unit by
unit throughout the building. Resi
dents were moved out of or around
the building as necessary.


V ‘si.


Jackie Cherryhomes, devlopin€nt
pecia1ist at NRRC, s(?es the cooperat’ice
housing model as one way to m.aintan
affordable housing. Jack’ie, whose ioots
are in ‘rural North l)akota, beiie’t’es that
it could ‘work in smaller towns, n.’Iu”re it
may be that only the scale of housing
‘rweds, and flOt the 1u((iS themselves,
differfrom large cities.

Running the Numbers

The Community Within

NRRC does the initial financial
projections for a project. Jackie
says the first step is to make an onsite inspection of the property,
which enables her to project the
building’s operating expenses and
spot any obvious structural prob
lems. Based on her inspection, and
drawing from experience, she can
make an initial estimate of the project’s cost.

Like other NRRC projects, the
renewed 1220 was set up as a
leasehold cooperative. The struc
ture pyramids down from the
building owner and manager (in
this case the partnership), to the
cooperative association leasing it,
to the individual tenants with
occupancy agreements. Tenants
form an association, elect officers,
and meet regularly to make deci
sions affecting their building. They
also maintain the building’s com
mon areas on a rotating basis.

The next step, according to Jackie,
is “to figure out how much of a
subsidy we can reasonably get
from the Minneapolis Community
Development Agency (MCDA).”
Although a public subsidy is neces
sary, NRRC seldom seeks the maximum amount available. Jackie
explains that “because we can
attract private financing, we don’t
want to be a drain on public
resources. And it also makes our
proposals very competitive when
we apply for funds.”
So of you may be receiving
Conimunity for the first time. The
first issue was published in April
1986 by the Federal Reserve Bank
of Minneapolis community affairs

To obtain copies of that issue or to
make comments about Community
Carolyn Line
Office of Public Information
Federal Reserve Bank of
250 Marquette Avenue
Minneapolis, MN 55480
Or you can call (612) 340-2048.

NRRC then figures out how much
a deal might attract from private
investors. In the past, NRRC has
worked with local investment
bankers to place limited partnership interests with private inves
tors. Jackie notes that their projects have been investment quality
because buildings are wellmanaged and maintain their value.
Tax code changes will have an
impact on this investment source;
nevertheless, NRRC and PPL are
committed to finding a way to continue funding projects without
relying on the maximum available
subsidy. The remainder of the
development cost generally comes
from a lender.
Financing 1220

The financial arrangements for the
1220 Morgan project were typical
of all NRRC projects, which to date
have been arranged as syndica
tions. Each project requires some
public money, which typically
comes from MCDA. The projects
have also attracted private investment, which is arranged through
local investment hankers. And the
balance is a loan, from a bank or
insurance company, for example.
The total development cost of the
nine-unit 1220 Morgan building
was $350,000 compared to the
bu ilding’s post-rehab valuation of
$2E55,000. A subsidy, in the form of
a $179,904 loan from MCDA, supplernented the $89,000 mortgage
loan arranged through Union Bank
and Trust in Minneapolis. The
remain(ler was placed with private

Prospective tenants for a new
cooperative are screened by
NRRC’s rental service. NRRC’s
objective is to identify individuals
who have the minimum skills
necessary to live in a cooperative
setting and who could benefit from
additional training and encour
agement. Tenants must also have
at least one positive reference from
a previous landlord, the financial
ability to pay the damage deposit
and the first month’s rent, and
commitment to the cooperative
Those former residents who are not
considered appropriate for the
cooperative are referred to other
housing. “Our goal is not to evict
people,” says Jackie, “but to make a
project successful, residents need
some living and social skills.” In
keeping with its goal of no dis
placement, NRRC helps tenants
who are not staying on find new
places to live. And Jackie adds that
“95 percent of the residents were
Northsiders before moving into our
(‘ofltiflhle(l on pugt 4

Community Development
Mobilizing Community

Community development corpora—
tions (CDCs) were developed in the
1960s as a community response to
local economic development prob
lems. Today, CDCs are typically
local associations of residents,
businesspeople, or both, created to
organize community resources
such as land, labor, capital, or
entrepreneurial talent to combat
community problems. They might
be designed to provide better hous
ing, enhance educational and
employment opportunities, attract
new sources of capital, or otherwise
promote the economic development
or revitalization of local
CDCs can be formed in several
ways, and their exact nature will
vary, depending on where or by
whom they are formed. Our focus
in this and upcoming articles is on
bank holding company CDCs. Note
also that national banks and, in
some states, state-chartered banks
can similarly participate in CDCs
(see box, page 4).
A Bank Holding Company Option
for Community Development

The Federal Reserve Board
believes that hank holding compan

This newsletter is designed primarily to assist
financial institutions in the Ninth Federal Reserve
District in developing creative responses to consumer issues and to the goals of the Community
Reinvestment Act.
Produced by the Office of Public Information under
the direction of Richard K. Einan, assistant vice
president and community affairs officer, and
Carolyn P. Line, community affairs coordinator.
COMMUNITY is available without charge from the
Office of Public Information, Federal Reserve Bank
of Minneapolis, Minneapolis, Minnesota 55480
(telephone 612-340-2048).
Articles may be reprinted if the source is credited
and the Office of Public Information is provided
with copies of reprints.

ies, with their unique combination
of financial and managerial
resources, are particularly suited
to play a meaningful and substan
tial role in responding to the eco
nomic and housing needs of disad
vantaged communities. The CDC
offers a bank holding company one
option for helping address com
munity problems. By establishing
a CDC, a bank holding company
broadens its ability to contribute as
a corporate citizen to the welfare of
its community.
A bank holding company CDC is a
holding company subsidiary
formed to address these needs. It
may engage in certain otherwise
prohibited activities that the Federal Reserve has determined are
both closely related to banking and
in the public interest. For example,
a CDC can make loans and grants
to other organizations involved in
community development; make
equity investments in small busi
nesses and commercial development projects; and purchase, own,
rehabilitate, construct, manage, or
sell real property.
The CDC Must Have
a Public Purpose

These powers are granted to a CDC
on the condition that it meet cer
tam requirements. First, the CDC
must have a public purpose. That
is, it must directly promote cornmunity welfare. While highly prof
itable projects are not foreclosed to
CDCs (there is no profitability
test), the project must have the
direct result of benefiting low- to
moderate-income persons. Second,
the investment must not represent
an undue risk to the banking
A CDC may be either for-profit or
nonprofit. Each structure has
advantages. A for-profit CDC can
return income to its parent holding
company. In many cases, however,
only nonprofit organizations are
eligible for grant money from
foundations and the government,
and grants can be a valuable
resource for a CDC. While the nonprofit CDC cannot return income
to the holding company, it can
reinvest earnings in new develop-

ment projects, and many bank
holding companies choose to retain
CDC earnings in the subsidiary to
fund future development activities.
Some holding companies have both
for-profit and nonprofit CDCs;
occasionally, one is a subsidiary of
the other.
Since CDCs are formed to benefit
the community, many have com
munity representatives on their
board of directors. This is not
required by the Federal Reserve.
Still, successful projects usually
have some mechanism for cornmunity input, and a number of
CDCs have chosen to include
members of the community on
their boards for that reason.
The Federal Reserve requires no
specific level of investment by the
holding company in the CDC. The
Board does, however, expect that
the company will fund the CDC
prudently, in accordance with
safety and soundness considera
tions. Leveraged activities, for
example, would normally require
capital beyond that required for
purely advisory activities.
CDC activities have been as diverse
as the needs of their communities.
Two rural CDCs have developed
and operated housing. One devel
oped a single-unit project and
another, a multi-unit project for
low- to moderate-income elderly in
their communities. A Twin Cities
CDC developed, in cooperation
with the local YWCA, transitional
housing for women. Other CDCs
have been involved in housing
rehabilitation, commercial strip
revitalization, and job creation projects.
Management is Crucial

Not every CDC has been successful. Where CDCs have been inef
fective, the most frequently cited
problem is that personnel are
inadequately trained in the special
requirements of community devel
opment lending. Sometimes, too,
projects have been started without
thorough understanding of cornrnunity issues and needs. Further,
as in every organization, the man()nti11u(’(i. on ))(J.(,IP 4

CDCs continued from page 3

agement and staff capacity to
achieve goals and objectives are
cruciaL When a bank holding cornpany contemplates forming a CDC,
it should be particularly attuned to
the special nature of its proposed
activities, and to the experience
staff will bring to the venture.

NiitiOflitl banks, (lfld where 4t(it(’ 10/1’ J)(’flfl’its, StUte ban/cs, ea
similarly participate in CDCs. For ‘information, contact the
Comptroller of the Currency’s Cutonie’r and Industry Affairs
J)ivision at (202) 287-41 69, yowr state bin.king s1pe’r7isOr, or

Carolyn Line at (612) 340-2048.
S&Ls can contact the ft3low’ing iiidiv’idiais to discuss corn rn anity inL’estment oppo’rh1nities.

Next time: A closer look at CDCs
and applying to form a CDC.
For more information, contact:
Carolyn Line
Office of Public Information
Federal Reserve Bank of Minneapolis
250 Marquette Avenue
Minneapolis, MN 55480
(612) 340-2048
James W. Lowell
Division of Consumer
and Community Affairs
Board of Governors of the
Federal Reserve System
Washington, DC 20551
(202) 452-3378


Mr. Michael Thomas
Federal Home Loan Bank of Indianapolis
1350 Merchants Plaza, South Tower
1 15 W. Washi’ngtan Street
Indianapolis, IN 46204
Mr. Charles Hill
Executive Vice President

Federal Home Loan Bank of Chicago
ii 1 E. Vaeker D’ri’e, Sieite 80()
Chicago, IL 60601
No rth Dakota,

Mr. Gayle Buhi

South Dakota:

907 Walnut Street
Des Moines, IA 50309


Ms. Beverly Hoskin
Housing Prograims Coordinator
Federal Home Loan Bank of Seattle
1 501 FourthS A venue

Federal Home Loan. Bank of Des Mo’ncs

Seattle, WA 98101-1 693

1 220 co tjflue(i from page 2
A Training Program Is Vital

Since most new tenants have not
had a cooperative living experi
ence, a year-long training program
prepares them for assuming cooperative living responsibilities. Dur
ing the monthly training meetings,
tenants learn how to prepare a
budget, arrange maintenance
schedules, and generally, to make
decisions affecting their building.
Jackie explains that the monthly
sessions are necessary to give peo
pie time to get accustomed to the
cooperative arrangement. “We
have very independent people.
Showing them the benefits of
working with each other can be a
real challenge,” Jackie observes.
Each NRRC building has a
“shakedown” period of about 18
months before it stabilizes into a
community. Even with the selec
tion process in place, there is some
initial turnover. Eventually, buildings seem to attract similar types
of residents: single-parent households, single people, or larger fami
lies, for example. After about a
year and a half, Jackie says that “a

property establishes its own personality.” And at that point, the
building’s “community” becomes
remarkably stable.
Rents Are Affordable,
Not Subsidized

Although designed to be affordable, rents are not subsidized in
any NRRC properties. At 1220 Morgan,
a one-bedroom unit rents for $310
per month, and a two-bedroom unit
Cor $350, including heat. These
rents reflect the low end of the
Twin Cities rental market. At this
writing, the building has 100 percent occupancy and is largely
settled by small single-parent fami
lies who will attest to the project’s
Since it became a housing devel
oper, NRRC has completed over 80
units of renovated cooperative
housing, and in the process, has not
only reclaimed deteriorating hous
ing, but has generated benefits
that extend from the individual
resident to the community at large.
Investors benefit, the city has a
more valuable building on the tax

rolls, and the neighborhood has rid
itself of an eyesore.
But perhaps most importantly, a
community has been created
within the community using the
cooperative model. Through the
training process, residents both
develop new skills and build a
sense of cooperation within the
building that extends to the larger
community outside.
And that is at the heart of NRRC’s
mission—to help make the northside a viable and thriving commu
nity. According to Richard Parker,
NRRC’s executive director, they
have “begun an all-out effort to
change the face and image of the
new northside.” He continues, “If
responsible Northsiders stand
together, we can make this dream
a reality.”
For more information, contact:
Jackie Cherryhomes
Northside Residents

Redevelopment Council
1040 Plymouth Avenue North
Minneapolis, MN 55411
(612) 348-6849