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FEDERAL
RESERVE
BANK OF ATLANTA
VOLUME
_,
14,
NUMBER 2,
2004
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Making Energy
Efficiency
Affordable
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Stemming
the Loss of
Affordable
Housing
Community
Development
Venture Capital
Funds Sow
Economic
Opportunities
Spotlight on
the DistrictMississippi and
Louisiana
partner s
i n community and eco no mic development
FEATURES
PA G E
7
Making Energy Efficiency Affordable
Affordab l<', Pn<'rg_y-C'fficient homC's hC'lp to inc-rC'as<'
savings for low- and modC'ratC'-in<·omC' homC'0\~11<'1'S by
rC'cluc-ing I lwir monthl.v utility bil ls.
PAGE
10
Stemming the Loss of Affordable Housing:
The Role of Nonprofits
Expiration of the affordabil ity r<'strictions for some
LIi iTC units has fwilwr C'xac<'rbatC'd growing housing
pr<'ser\'a t ion co ncC'rns. Bui ldin g nonprofit orga ni za ti ona l capacity to f'in ancC' ancl undC'rtake thC'se
proj C'c ts w i ll he lp to C'nsurC' l hC' rC'tC' nti on o r muc-h nC'edC'cl alTonlabiC' housing.
PA G E
2
Managing the Negative Impact
of Gentrifying Neighborhoods
PAGE
15
Community Development Venture Capital
Funds Sow Economic Opportunities
Revitalization efforts in certain urban neigh-
Community cle\·C'lopnwnt \·C' nturC' cap it al funds
borhoods have raised concerns about the
suppo11 inn'stments with a soc ial mission that produc-C'
invo luntary disp lacement of lower-income
new jobs and sC' tviccs for low- ancl moclcrnl P-inco rn C'
residents by higher-income households. Local
co mmun il iC's as wP II as fin a nc ia l rl'I Lm1s ror im·C'slors.
communities have responded by implementing
regional strategics that promote equitable
development.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
PAGE
18
Spotlight on the DistrictMississippi and Louisiana
Programs in the borclning state's of lississippi ancl
Louisiana lwlp low- and mociC'ratC'-inconw popu lations
purchase long-term assets.
Partners in Financial Education
Ov('l' the past year, I have seen a tremen dous increase
approach is to foster lina.n-
in inl<'rcst about Jimmcial and economic education, and
cial lit eracy by encouraging
I can 't stress enough how important thi s topic is lo both
synergy among existing pro-
chilcl n •n and ad ults. Recently I atle nclecl a large eco-
grams, forming effec t i vc,
nomi c- education summit held here al the A tlant a Feel
collaborat ivc pa.itncrships
or
in li eu o f n ea t ing colllpc•-
ancl learned that, stalis t ically, more kids drop out
college because of fin anc ial diffirnlt ics than for any
tilion . In many of our
other reason.
Districts we ha.\'c es t ab-
Let 's face it, times have changed dramati cal ly over the
relationship s wit h a number of nat ional orga ni-
P<tst couple of decades. When I at tended college, it was
zations that pro\·idc fin anc ial and economic education.
not t lw norm for st uclenls lo receive pre-appro\·ecl pe r-
We hm'C' also c-realccl a national website that includes
sonal lines of cre dit. And though many of us stru ggled
informal ion on our progra m object ivcs as we ll as
lo make ends meet , we generally weren't overwhelnwd
links to nationally recogn ized initiati ves.
li shcd stron g wo rkin g
with credit card c!Pbt before graduation .
Our work at the Allant a Rcsen·e Ba n k is ex tremely
Tod ay, credi t cards have taken schools by storm , and
"hands on. " With collaboration from our Public Affairs
st ud cn ts arc gelling into debt much earlier th an eve r
and lluman Resources ar eas , we have establi shed a
before. Wit11oul proper f"ma.ncial management educ-at ion ,
stro ng netw ork o f eclu c-ato rs incl udin g .Ju mp $tart
stud ents m ay be ca ught in a downward sp iral o f p('l'-
Coalition, Junior Aehie\'ement , Operation [!OPE, Georgia
sonal clebl before th ey even start working. Perso nal
Consort ium for Personal Fi nancial Litc•racy a.11cl several
ban krupl cies have i ncreased dram at ica.lly over the•
ot her es tablish ed organ iza ti ons w ith proven t rack
past se\·eral yea.rs, ,md demand for credit counse ling
records. We have used train ing progra!lls developed by
services has risen as weU.
the FDIC (Money Smart ), the National Council on Economi c- Educ-at ion and S(•vcral ollw r organizations lo
As a res ult of these growing tren ds, organizations
teach both children and acl ulls.
working to provide financial and economic educat ion
han' multiplied, leading lo a. host of new programs and
No org,mization is li ke ly to be able lo prO\icle aclequat('
ini tiatives to help stu dents, young peopl e and adults.
f"ma.ncial and economic ed ucation lo a.II people; howe\·er,
A lthough it is encouraging to sec so llluch momentum
by working t ogethcr and leveraging existi ng resources
i n address ing these highly im portant iss ues, organi -
we shou ld be able to make a significant difference in I he
za ti ons orten work in isolation , im·cnting their own
li\·es of the many peopl e who need this kn owledge.
trainin g c urricu la, in stead of part nerin g w it h esta blished organizations and ma.king the most of effective
resources that already exist.
Rath er than crea tin g some thin g new in the area o f
fin ancial educat io n ancl puU.ing the Peel seal on it , the
Federal Reserve has p laced a maj or emphasi s on
Juan C. Sanchez
dc\'clop ing effecti ve partnerships through ow- Systclll-
Com!ll unity Affairs Officer
wide fina n cial and economi c ed ucation effort s. Our
FEDERAL
RESERVE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BANK
OF
ATLANTA
one
Managing the Negative Impact
of Gentrifying Neighborhoods
The ben efits of successfu l urban revi talization arc
w idespread. Loca l governm en ts can capi talize on
renewed interest in w·ban living to attract highe1°i11come
residents, to revitalize the ci ty's tax base and to red uce
th e co nce ntratio n o f pover ty t hat has plagued many
urban co1m11unjt ics.
Ilowever, suc h revitalizati on may also b e accompanjcd by th e negative impacts of gentrification- a fo rce
th at can impose social and economic hardshlp on th e
ind ivid uals with the fewest reso urces to adapt to ch,m gc.
The key challenge for local government, business leaders,
commun ity activists and res idents is to maximize the
benefits of the revi tal ization process while also ensuring
that the adverse effects of gent rifi eat ion are minimized.
THE LAST DECADE HAS BEEN
What is gentrification?
MARKED BY A NATIONWIDE
Gentrification rose to th e forefront as a nat iona l
concern in the 1960s when gove rnme nt-fu nded urban
RESURGENCE IN URBAN AREAS.
renewal proj ects shredded the soc ial fab ri c of innc1°cit y
neighborhoods. In contrast t o the engi neered ge nt ri -
DRIVEN BY A STRONG ECONOMY,
fication of that ti me, recent gentri ficatio n is d1·iven by a
mi x of publi c an d pri vate in ves tmen t and reg io nal
STRATEGIC PUBLIC AND PRIVATE
economic forces.
INVESTMENTS, AND INCREASING
positive and negati ve connotations. It may simp ly
The term is ortcn used loosely and can have bo th
cl esc,ibe mban revi talization in a depressed mban neigh-
URBAN SPRAWL, COMMUNITIES
borhood . Or it may be fram ed in the co ntext of th e
decades of disinvestm ent and subsequent reilwcst mcnt
THAT WERE DESTROYED BY URBAN
in urban ar eas, seen as a takeover of a low-i11comc' commu nity by w ealthier residents and entrepreneurs.
RENEWAL AND OUT-MIGRATION TO
According to a 2001 study by the Local Initiatives Support Corporation ( LI SC) Cent er for I lome Ownl'rship,
THE SUBURBS ARE ONCE AGAIN
gentrification is defin ed as "the process by wluch lugherincome househo lds displace lowcr ineome resident s of
0
BECOMING DESIRABLE.
a neighborh ood, changing the essentia l character and
fl avor of that neighborhood." Wit hin this context, gcntrif'ication is acknow ledged to have been historically
two
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Federal Reserve Bank of St. Louis
VOLUME
14 ,
NUMBER
2
associatC'cl with clisplacC'ment of lowC'r-inconw minority
indi\iduals by higlw1°income whitC' n'sidC'nts.
The causes of gentrification
(;('lltrdkation has been a sign ificant eoncC'rn in a
limit C'd number of citiC's nationwidC' , and within thC'se
cit iPs, only in cC' rtain nC'ighborhoods. NC' ighborhoods
with littlC' vacan t land or few unoccupic'cl bui ld ings arC'
morC' likely to C'XpC'riC'nc-e gent1ilkation.
RC'gional housing market clynarnics appC'ar to play thC'
income housC'11olcls. The impacts of gentrificat ion niry
largC'st rok i.n cktcrmining whethC'r urban rC'\i l alizat ion
according to the stag<' oft lw re\italizat ion procPss. E:arly
will producC' gent ri fic-at ion. LISC rC'sC'arch has show n
in the procPss, the' benefits tencl to outwPigh tlw costs
that gentrifi cation is dr-iven by an imbalancC' in housing
for a.JI stakeholclers. In the' later stages, however, benefits
supply and demand. In regions oft hC' t l.S. whC'rC' housi ng
may acc nt<' to new, higher- i ncome rPsiclents at t hp
price's haw risen markC'clly i.n the past SC'\'C'ral yC'ars, rC'al
eiq)('nsc of the lower-income, long-tern1 n'siclents unlPss
cstatC' dC'vC'IOpC'rs \iP for low-cost land to maximize poten-
the advPr-SC' effects of gentrification arc addressee!.
tial profits. ln lhC' conrn1wlities whC'rC' housing prices have
incrC'aSC'cl clramat ically, there is a rapidly growing sho11-
Differen t stakeho ldei-s in con1111Lmity n'\'ita.Jizationnew and c'xisting resiclents and businPSSPS, the city,
agc of afTorclab lC' housing, pai1icu larly for thC' lowcst-
clc\·c lopcrs, ancl ot hers supporting the rp\·italization
in conw rC'siclC'n ts.
process- w ill experi Pnc·p the revita lization in clifTC'rcnt
.J ob growl h in a region also CTC'a t e's t hC' po tC'nl ial for
ways. Cit iPs, for exa mpl P, are likely to Pnjoy the posi-
gc,ntrificati on, putting pressurC' on housing supply ancl
ti\·e impacts of gentrifi cation, including increased tax
inc-rPasing clemand for pre\iously undC'sirablC' housing
rP\'Pnu(•s. New resid('nts ancl new businc'SS<'S impro\T
stock. r,\·pn wlwn jobs me located throughout tlw rPgion ,
pe r ceptio ns of a co mmunit y, as well as attract
gc,ntrificati on can still occur wlwn ot lwr fore-C's (Tcal c
acid it iona l in vestnwnt .
NP\Y bus iness owners also generally IJpncfit from gen-
inCTC'.:LSPcl clemai1d for urban living.
Traffic congPst ion c-reatecl by sprawling cle\'Plopnwnt
trifi cation as new rcs idPnts create a higlwr-incomc mar-
has IPcl to gentrifi cation as inclividu als look for rPsi-
ket and gPnPrate c!Pmand for a wicler nrngc, of goods and
de11t ial oppm1 un it ics that will sho rten t hPir cornmutPs.
ser vices. Escalating property valuPs, higher rpnt s and
Others have been drawn back to thP city by the cult ural
jumps in housing price's are goocl fo r both nrw and
amenitiPs, llistoric ncighborhoocls mid unique ru-cllitccturc.
Public sector policies to encouragP rc\italizat ion havP
existing propeIiy omwrs. NPw resiclPnts arC' often act i\·p
in shaping th e futu re of the commun it y and tend to
also prod uced ge nt rification. To increase' tlw l ax base
demand improvP mcnts in public sc hoo ls ancl oth\'r
and attract lliglw1°income residents, public oflicials hm·e
facilit iPs that will bPrwrit long-term n'sidPnts as well.
dcsigrwd tai·getPd incentives such as tax abatenwnts and
Long-tPrm resiclents ancl businessPs, on the other
bel ow-market financing to draw households and busi-
hancl , an• most likPly to lw cliviclecl O\'C'r tlw impact of
nessPs t o cleprPssecl co mm unit iPs. WhilP in cent ivps
revit aliza l ion. If they can afford to stay, low<'r-income
attract Iww invpst mpnt, they cru1 also chru1ge social amt
res iclPnts w ill probably bene(it from apprPciation in the
economic- conclitions in a community significantly.
\'a lu(' of t lwir home's, imprO\·ecl publ ic S<'IYiCC'S and
accpss to nPw busi nPsses. Ilowen'r, rp\·italization can
Consequences for new and
also rPsu lt in invol untary or volunt a1y clisplacenwnt of
long-tenn community stakeholders
ex isting homeownp rs, rPnters ancl businPsses. Such
Although re\ilalization benefits many community rPsic!Pnts, t hP costs of gpntrification oft Pn fall on the lowest-
FEDERAL
RESERVE
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Federal Reserve Bank of St. Louis
BANK
OF
ATLANTA
disp lacPnwnt is the most significant ,wgatiw c-onscquPncP of gPnt rificat ion.
I h re e
Involuntary and voluntary displacement
over I he long term , I hrough mecrns that generate a mini-
Research has shown that in voluntary displacement is
mum of transition costs that fa.lJ unfairly on lower income
m osl li kely among th e lowesl -in come r esiclenls. Ri sing
residents," state researchers Maureen Kennedy and Paul
prope rty values may force some reside nts, especially I he
LPnanl in the LISC Center f'or Home Ownership study.
clcl erly and those on fi xed in comes, from their hom es
when they can no longer afford llw property ta.xPs. Renters
Although comm unity clevelopmenl has tradi tionally
focused on individual neighborhoods, regional strategi es
may also be forced to relocate as l,mclJords raise rent, opt
offer new paradigms for addressing the negative effects
l o convert affo rdabl e renla.l housing to markel rate
of gentrification . Promoting and preserving a.!Torclable
housing, or sell rental property for conversion to conclos.
housing, cr eal ing job opportlmi l ies and providing adequate lransportation a.re critical an tid otes to the problems of gentrification, and they must be examined in a
MANAGING GENTRIFICATION , ESPECIALLY
regional context.
Within th ese large r frameworks, there are spec ific
IN THE EARLY STAGES OF REVITALIZATION ,
st rategies that local co mmunities can impl emen t to
CAN HELP TO MAXIMIZE BENEFITS AND
address gentrifi cat ion:
MINIMIZE ADVERSE EFFECTS.
A.fl'ordable housing production and protection.
Preservi ng ancl produc ing afford abl e housing is the most
im por1ant componen l of a gentrification strategy. Pub li c
Whereas exisl ing businessPs may benefit from a higher-
poli cies can protect allorclable renl al and owner-occupied
income cusl omer base, espec ially if they provi de cert ain
housing f'or existing low-income residPn ls. Some cilies,
basic serv i ces demanded by tlw new residents, they may
i nc-lu ding A tl anta, al low exis tin g residents to defer
also be forced to c-l ose clue to escalating rents. Expen-
property tax paymen ts until th ey sell their homes. This
sive specialty sto rf's or restauranls that m ove inlo lhe
is pcu1icularly important f'or elderly homeowners living on
neighborhood o fkn cater to lhe new popu lalion, k aving
a fi xed income who can nol a.!Torcl higher housing costs.
existing resiclf'nls without nC'eded goods and services.
Citi es can also prol ect afford ab le rental options. For
Long-time resic!C'nts may also voluntarily leave llw com-
in stance, because of lim ited affordable rental housing,
munity. Developers often enlicf' homeowners l o sell I heir
th e cily of San Franc isco restri cl s when landlords can
homes Vlrith offers I hat far exceed lhe original home price,
remove their unjts from the ren la.l marke t.
bu t rare ly will I he seller m ak e enough to pu rchase
C' iti Ps and st ates ca n further exercise pu blic po li cy
another, compa.r·able home. Residents may also IC'ave if
opt ions to ensure co ntin ued product ion of affordab le
I hey don't feel comfo1iablc wi lh lhe new demographics
housing. I-lousing trusl ftmcls, for example, exist in mcmy
of lhe populal ion or lhe accompanying changes in com-
slates and local jurisdictions to provide dedicated funding
munity leadership and instil utions.
Managing gent rifi cation, especially in th e early stages
of revitali zation, can help to maximize benefits a.ncl minirni zf' adverse eflf'cts.
for affordable housing. The Florida housing trust fund , a
nal ional model, has helped over 150,000 families accf'ss
affordable housing since its creation in 1992.
Anolhcr example is th e ena.clmenl o f fa.i.t0 share housing
policies that require conumlllities lo plan for both afforcl-
Regional approaches to equitable development
Slral egies lo manage genlrifi cal ion a.re mosl r!Tective
wilhi n a broad framework of e(]uilable development th at
considers I lw role of the commu nily in the larger region.
able and market rate housing. Th ese poli cies emphasize
location o f affordable housing near jobs lhroughou l the
region in order to minimize resiclenl s' transportation costs.
Inclusi ona.iy housing policies th at require new housing
Such strategiPs aim to create and maintain '·C'conom-
deve lop m ents to provide op tion s for lower-incomf'
ically and socially diverse comm un ilies that a.rf' slable
rC'siclf'nls represe nt another publi c po licy tool. So me
four
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Federal Reserve Bank of St. Louis
VOLUME
14,
NUMBER
2
program s require that developers either designate a
Planning and d eveloping a regional vision. Cities
percentage of uni ts as affordab le or pay fees in lieu of
can mitigate the adverse impacts of gentrification if they
constrncting affo rdable mtits. Fees go into a local fund to
identify early signs th at gentrificatio n is a concern.
construct affordable housing in other locations. In other
Although communities are unique, characte ristics such
programs, developers are encouraged to provide afford-
as distinct a.rchitectmaJ style, good transportation access
able housing through incentives such as density bonuses,
and low housing val ues make a neighborhood a likely
streamlined permitting processes, and fee waivers.
target fo r gentrification. A s hift fro m rental housing to
Consumer education and protection are equally in1por-
homeownership, an infl ux of young or artistic individ-
tant for preserving alJorclable housing. Residents in lower-
uals or a change to ward servi ces that appeal to higher-
income communities must know what programs are
income residents may all be indicators that genltificat ion
available to assist them, and they must know the ir
is a lready occurrin g. Ant ieipating gen trification in
legal rights to stay in their homes. Renters should be
advan ce allows cities to implement policies to manage
protected from eviction in gentrifying neighborhoods
the change, thus helping to captme the benefits and mi.rti-
and homeowners m ust be educated about predatory
mize potential problems.
lending to prevent unscrupulous lenders fro m taking
their homes.
Finally, a long-term , unified vision for a neighborhood,
city and region can help prevent the adverse impacts of
genttification. The process of developing this vision must
Us ing public assets . In addition to public policies to
include all stakeholders in th e revitalization process. In
promote affordable housing, cities and states have other
adclition to creating a shared vision for the comrnwuty,
resources available to help manage gentrification. If the
this process creates the worki ng relationships between
cit y acts in the early stages of the genttification to secme
new and existing residents needed Lo implement a
lancl and facilities, it can use them later to help those
plan over time.
who might be negatively im pacted by genttification. As
demand fo r land in underserved communities increases
and prices 1ise, these public assets can support afford-
Conclusion
The regional forces that produce gent 1ification show
able ho using ancl comm unity fac ilities that would be
no sign of changing, and affordable ho using and urban
ot lwrwise too cxp0nsivc. Many ci ti0s partner with non-
sprawl are growing concerns in many cities. Since more
profit organizations, providing U1cm ,vith land to develop
cities ancl communities unde rgoing revitalization arc
permanent affo rcl ab l0 housing. Cit i0s have cl ev0lopecl
like ly to sec gentrifi catio n, it is criti ca l to deve lop
similar partnerships with for-profit developers, off0ring
st ra t0gies lo maximize the benefits of this revitalization
lane! in desirab le neighborhoods in return fo r a com-
whi le lim iting disp lacement and the otlwr significant
mitmen t of affo rdab le housing. Citi 0s have also giv0 n
costs. The plans and public policies adopt eel by states
existi ng public bu ild ings Lo nonpro li ts or social se1v ice
and loca l jurisdicti ons mus t ensure that reso urces,
agencies to keep these se1vices in I lw n0ighborhood rm
ho us ing, transportati on, ancl jobs are arnilab le and
residents who need them .
accessib le for all residents, regard less of income.
Impro ving employment opportunities. Increasi ng
This is JHll 'I /1co ofa //11-r'l'- JIOI"/ sl'!"ies e.q1/ori11_1J /he issue 1!{
co111 1111111ilies i11 lrr111siti1m i11 //1eSi.l'll1 l) islricl.
access to employment is another important component
or a gentrification strategy. Although linking regional
employment growth to lower-income residents through
♦
T his art icit' was writte n by ,JPssica Lp\'p(' ll , llPgional
Community Dc,·clopnw nl i\lanagcr in thP Atlanta fpcJ"s
\Jas h,·i llP 13ranc-h.
imp roved access to jobs has not been widely practiced,
such a strategy wo uld improve residents' chances or participating in th0 b01wfits of the economic trans fmrnat ion
in tlwir conmrn nity.
FEDERAL
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Federal Reserve Bank of St. Louis
BANK
OF
ATLANTA
I i ve
ANDP Speaks to the Challenge of Gentrification
A prime example of the two-s ided nature of gentrifi-
7,800 units of affo rdable hous ing. Since its inception,
catio n, metro Atlanta is one of the fas test growing
ANDP has focused on mixed-income communities in its
regions in the country and is widely regarded as a para-
neighborhood revitalization effmi.s, and in 1999 it launched
digm of suburban sprawl. Aided by the interstate system,
the Mixed Income Communities Initiative (MICI), which
people and j obs ll ed the city for the suburbs, leaving
promotes policies to make metro Atlanta neighborhoods
lowe1°income minority residents behind.
accessible to people of all incomes. "We must push public
policy wi U1 a mixed-income agenda," said Hattie Dorsey,
Growth dynanlics in the city have changed dramatically
President and CEO of ANDP
in the past decade, however. Weary of long commutes
and high suburban housing prices, peop le are moving
To that encl , MICI is working to inform po licy makers
back to the city. Middle- and upper-income homeowners
and to ensure that there is a voice push ing for mixed-
are purchasing homes in poorer urban neighborhoods
income development. MICI has documented the growing
ripe for revitalization because of the ir historic character
housing shortage in Atlanta and the need for a regional
and other attractive amenities.
solution. Job accessibility is also a concern . "Affordab le
housing is removed from jobs," said Ms. Dorsey, and as a
New interest in these neighborhoods has cl1iven up prop-
result "there is an additional transportation penalty for
erty val ues and property taxes. Existing homeo wners,
low-income workers. " She notes U1at people can't afford
particularl y the elderly living on fixed-incomes, cannot
to live where their jobs are located, that they can't afford
afford the rising property taxes. Affordab le rental housing
to stay in the neighborhoods where they grew up , and
has been converted to market-rate re ntal housing or sold
Lhat the lowest-income residents ar·e increasingly pushed
for condominium development, forcing the lowest-income
into the least desirab le neighborhoods. "We need neigh-
renters to compete for a limited supp ly of affordable
borhoods of choice that provide a range of housing options
rental housing. The displacement of lower-income nlinor-
from bilth to death," said Ms. Dorsey.
ity residents by higher-income white households has
fueled racial tensions.
MICI brings together community development corporations, government, environmental groups and busi-
Although gentrification has brought some benefits-tax
nesses to build awareness and develop solutions that
revenues are returning to the city, and landowners are
speak to the syste mic problems driving gentrification.
enjoyi ng increased equity in their property-protecting
This dive rse coalition is malcing the case for an equitable
existing residents from displacement remains a challenge.
clistribuLion of affo rdable housing throughout the region
In addition, the shortage of affordable housing is becoming
and appealing to the interests of the business commwlity,
acute, particularly for those with the lowest incomes.
environmentalists, and others focused on social justice.
In the future MIC! p lans to advocate for in clusionary
The Atlanta Neighborhood Development Partnership
housing, a housing trust fund, expanded protection for
(ANDP) is working to address these chal lenges. In the
se niors a nd programs to help those with the lowest
past 12 years, ANDP has helped develop or renovate over
incomes secure affordable housing.
six
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Federal Reserve Bank of St. Louis
VOL U ME
14 ,
NUMBER
2
Making Energy Efficiency Affordable
ENERGY CONSERVATION IS A PERENNIAL SUBJECT. WE ALL KNOW THE INHERENT VALUE IN
REDUCING ENERGY CONSUMPTION TO SAVE MONEY WHILE HELPING THE ENVIRONMENT. BUT
HOW MANY REALIZE THAT ENERGY EFFICIENCY IS ESPECIALLY IMPORTANT FOR LOW- AND
MODERATE-INCOME HOMEOWNERS FACED WITH UTILITY BILLS THAT OFTEN ABSORB A
SIGNIFICANT PORTION OF MONTHLY INCOME?
Granted , many builders of affordabl e housing arc
payback point at which enl'rgy savings allow families to
aware of the need !'or energy effic iency, and today's
get ahead tends to be far in thl' future. Ne,·ertheless,
construct ion generally includes at least so me powc r-
some builders arc finding a way to pursue this goal.
conscni ng feat urcs such as insulation matl'rials an d
cnergy-ratl'd nwchanic-al systems and applianc-es. But
thl' l'ffccti,·l'nl'SS of builcll'rs· choices ,·aiics widely, and
rc·sulting energy smings tl'nd to be relatively minor.
So " ·hy don·t builders focus lllorc on constructing
affordab le hou es that use minimal energy-
or ('\'l'll
Solar technology for affordable housing
Affordable solar homes might seelll like an impossible
dream to most pl'oplc, but .Jeff Christi<m thin.ks othcrnisc.
Jeff is the dircc-tor of Oak Ridge National Laboratories·
Bui ldi ngs Techno logy Cen ter, and lw's forged a part -
generate their own l'nc rgy through solai· tC'c-hnology·7
nership with llab itat for llulllanity in Loudon County,
Tlw rl'ason is obdous: the increlllentaJ cost or ac-hieving
Tenn. , to build solar Habitat homes in Lenoir City about
thi s goal tends to exceed low- and modcrate-inconw
20 miles southwl'st of Knoxvi lle.
families· budgets, C'\'l'n w ith thl' help of special ized fin an-
Oak Ridge, a di,ision or the l 1.S. Department or Enl'rgy,
c-ing prod ucts such as "e nergy l' ffi cient mo rt gages."
is also partnering in thi s project wit h th e Joint Insti tute
Tlwsl' mort gages all ow a lender to stretch th r standard
for Energy & Environment in Kn oxvilll', Tenn.; th e lkpa11 -
loan qual ifi c-a ti ons, but the downs ide is increased finan -
rn cnt of Energy's Buildi ng America program ; and thl'
c-ial burclC'n for the homeo wn er. A lthou gh th e highn
Tennessee Valley Authority's (TVA) Energy Right " pro-
initi al cos ts or maj or rnergy-effic icncy cl(• mcnts are
gram. As th e region's pri.Jmu)' C'lectric- supplier. TVA recog-
ew·ntua lly compensated by smings on powN bills, tlw
nizes the need to rein in de1mmd that's likely to outpace
producti on capacity in tlw long run , if left tmc-lwckccl.
Fi\'e homes haw thus f~u- been const111c-ted i.J1 I labitat ·s
Hai·lllony Heights subcli,-ision , and lllore ai·e p lanned .
Each hollle is its own rcsl'arch projec t or "li,·ing laboratory" in \\·hi ch slight , ·ariations in clc>sign, lllatcrials
and construct ion techniques help determine oplilllal
combinations or featmrs. For exainple, the first hollle
uses a standai-cl type of structmal i.Jisulated pai1rl (SIP)
for th e floor, walls and roof. The next two homes use
Solar roof panels make the difference on these energy
efficient Habitat houses in Lenoir City, Tenn .
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different combinati ons or SIP types. Lead cai1)en t crs ai·c
trained to install the spec-ialt y features. As ½ith other
s even
llabitat programs, volunteers contlibutc labor for the primary construction.
All th e homes have solar technology, hut they arc still
ti ed to Ill e local electri c grid. Th e cos t or energy consump ti on is offse t by the home's gc ,wrati on o r so lar
energy, which is contri bu t eel I.Jack to th e power grid.
This c-r<'a tcs a cred it for the homeowner that's appli ed
against the cost or electric it y. To elate, the average net
Variations in solar features help researchers identify
optimal modifications.
utility cost of the solar homes has been approx im ately
50 cen ts a cl ay or about $1!5 a month . Th at's for an allelectric home wi th central air and heat. The ultimate goal
Spreading a good idea
o f colllb ining cncrgy-eJ'ficicnt design ancl solar panels is
l labitat f"or llurnanity has benefit eel great ly from the
to ac hi eve "zero-energy" homes- o nes th at ge nerat e
int erest ge nerated by these solar homes. Supporters ar c
sufficient solar power to CO\'Cr all of th e energy needs of
cnthusia<;t ic- about how th ese houses can help families
a typical ranlily.
achieve ongoing, substantial savings clue to "zero-energy"
or near-zero energy constm1ption.
Making the numbers work
A Jll1:,jor hmcllc in afforclablc, energy-e ffi cien t housing
is the cost of solar panels an d ot her hi gh-energy con-
The more units of cncrgy-eJ'ficicnt , affo rdable homes
th at arc bui l t over time , the more v iab le tlw progra111
wi ll beCOlll<' to local housing authorities, nonprofits,
struct ion. In the case of the Lenoir Cit y subdivision , th e
cl cvclopcrs, r11ncl ers ancl other partners interested in
incrcnwnl al cos ts run approximately $1!5,000 to $20,000
afTorclablc housing. Many such partners have a passion
ror the subject because th ey understand th e signifi cant
SUPPORTERS ARE ENTHUSIASTIC
impact lowN power costs w i ll have on their client s.
"Eco-friendly" or "green'' featmcs can also Pnhance
ABOUT HOW THESE HOUSES CAN
eligibility ror afforclabl P housing tax cre dit s, and this is
HELP FAMILIES ACHIEVE ONGOING ,
another rPason those concemecl with affordable housing
SUBSTANTIAL SAVINGS.
find the program appPaling. The success or th e
program also helps edu cate consumers t o uncle rstancl
t lw bene fit s, a11cl this leads to increased clemancl.
per house. llowcvcr, extra costs have b<'en mitigalPd so
that honwbuyers encl up paying tlw sanw as for a standarcl Ilabil at house.
Acknow ledging the grE'at potPntial that exists fo r this
111arkE't, Jpff notes, "A lwy part of this project is gelling
the public w1d btLildE'1-s to visit Uw homes and lcmn about
Donal ions of enE'rgy-effic icnt material from many mm1-
th em. We 're proving th at enngy-cfficic nt , affordab le
ufacture rs 1:uicl suppliers have hC'lpccl to lower construe-
ho using ca n bE' ac hieved for real fam ili es today, and
tion costs. Whi le th ese groups disp lay business acumen
wc'rE' poised to be able to help many more families in the
in pro111oting their products, th ey m·c also c-omrn itt ccl to
Iw1:u-
future. " ♦
achievi ng th e proj ect 's long-range goal- creatio n or
comprehensive whole-house "kits" that nm be sold at a
reasonab le price through mass produ ct ion, as so lar
tech nology cont inues to improve an d manufacturin g
costs come clown. By the year 2010, .J pfT anticipates
For more i11ror111ation on solar tech nology fo r affordablehousing de\'elopers, cont act Jeffrey E. Christi an at
c-hristianjp(a ornl.go,· or visit www.orn l. gO\-/btc.
This a1ticle was written by Wayne Sm ith, Community Affairs
Director al Jill' Allai1ta Fl'd.
that th e "kits" wil l bring the pri ce or l oday's energy
efficie nt solar homes in lin e with that of c-onvE'nt ional
Photo on p. 8 courtesy or Oak Ridg!' National Laboratory,
ll.S. Departm ent of E1wrgy.
affordabl e homes.
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VOLUME
14, NUMBER 2
New Ideas for Energy
Efficient Construction
Omni Innovation, LLC, is a Nashville, Tenn., company on
the forefront of creating energy-efficient, affordable
housing that costs less than conventional construction.
Founded by Larry E. Elliott, Omni is developing the use
of Expanded Polystyrene Foam (EPS Foam) as the primary material in home construction. Not only is the
material less expensive, but reduced construction time
results in lower labor costs. EPS Foam construction
generally takes one-fifth to one-third as long as traditional housing construction.
As a home builder and licensed building inspector, Lany
felt frustrated with the industry's inability to provide
energy efficient, affordable housing to lower-income
families, and he began to experiment with alternative
approaches. Six years of engineering, testing and prototyping led to a patented technology that allows Omni to
build affordable housing in a limitless range of styles and
exterior facades. Almost any house plan can be converted
into or emulated by Omni's EPS system.
EPS Foam has been approved for strength and durability
against fire, heat, cold, rain, wind, hailstom1s and earthquakes. The material is of no interest to bugs or tennites,
and it has sound-reducing qualities. It emits no fumes or
gases, has no other adverse healtl1 implications, and it
can be recycled when a house is tom clown.
Because EPS Foam serves as the wall structure, roof
and flooring, the homes are highly energy efficient.
Traditional housing has insulation factors ranging from
R-1 5 to R-35, whereas the Omni EPS System is rated
from R-48 to R-60. In addition to ongoing energy savings,
homeowners benefit from lower maintenance. For
Omni 's prototype of EPS foam construction shows
arch itectural adaptability.
example, standard roofing lasts 50 years versus the
typical 20-year roof in most traditional, affordable homes.
Omni's EPS technology should not be confused with
homes based on Structural Insulated Panels (SIPs). SIPbased homes also use EPS foam, but require strand
board for structural support and a traditional wood truss
roof system, neither of which Omni uses.
Prototype homes have been built in Texas and Kentucky.
Finished homes look no different than traditional homes
either inside or out. Interior walls are finished with fireresistant sheetrock, and kitchens and baths use traditional cabinetry and fixtures. These homes qualify for
conventional financing the same as traditional homes.
Omni's initial focus is on working with both urban and
rural community development corporations (CDCs) and
economic development corporations (EDCs). The in1mediate goal is to establish a track record by bringing more
homes to market in order to familiarize affordable
housing practitioners with Omni's product and its value.
To help do this, Larry has assembled a tean1 of professionals including Christopher Urban, Omni's chief executive officer, who has a background in engineering,
finan ce and marketing. Chris shares Larry's enthusiasm with this innovation in energy-efficient, affordable housing.
Only tin1e will tell how this form of construction will
affect the nation's housing market. ♦
For more information on foam construction in affordable
housing, contact Christopher M. Urban at
chris.urban@owen.vanderbilt.edu.
Photo on p. 9, top right, courtesy of Omni Innovation, LLC.
Larry Elliott and Chris Urban are the leadership team
behind Omni Innovation, LLC.
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ni ne
Stemming the Loss of Affordable
Housing: The Role of Nonprofits
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VOLUME
14 ,
NUMBER 2
FOR MANY YEARS THE AFFORDABLE HOUSING INDUSTRY HAS BEEN FOCUSED MAINLY
ON PROVIDING ADEQUATE, SAFE HOUSING FOR LOW- AND MODERATE-INCOME HOUSEHOLDS. THE LOW INCOME HOUSING TAX CREDIT, INSTITUTED IN 1986, ALONG WITH
OTHER SUBSIDIZED HOUSING PROGRAMS, HAS PAVED THE WAY IN MEETING THIS GOAL.
Now housi ng advocates are co ncerned about pre-
Th e Lil ITC program works bes t when leveraged
serving th e ex isting afford able h ousing supply, as
th rough co mbination or layering with other federal pro-
well , w hich is at ri sk of being lost throug h physi cal
grams and private monies to finance affordab le renta l
deterioration, expiring affordabi l ity restrictions and
develop ment. It was not inte nded t.o nnance the entire
the need for recapitalizati on.
development. This approach can enhance the effective-
Afford able housing preservation not only calls for pro-
ness and emciency of' the program, which largely clepencls
tecting the mm1ber of low rent w1ils in the housing stock,
on its inherent abilit y lo react to market forces, as well
but also for ma in taining the quality of un its available to
as to provide flexib ility in targeting, financing and moti-
low- and mode rate-inco me renters. Each affordab le
vating affordable housing production to meet th e needs
rental prope11y presents different challenges ancl requires
of local com1mmities.
a unique combi nation of tactics lo surmount the barriers
Although administered by the Internal Revenue Se1vice,
to preservation.
the practical adm inistration of the LIIITC such as unde r-
When affordability restrictions expire
agencies (lIFAs). This system allows states to set specUie
w ri ting and all ocati on fa lls to stat e housing l'inance
In 2000, renta l affordability restrictions technically
began to e;,q)ire for a fraction of Low Income I lousing
all ocation c riteria for awarding cre dits that t arget
identified affordable rental housing needs, as ou tlin ed in
Tax Credit (LIIITC) units, those with credits allocated
the state's Qualifiecl Allocation Plan. FwthermorP, l lF'As
bet wee n 1987 ancl 1989. Expiration of the restriction
also control how tax credits can be combined w ith other
('or so me units o nl y exacerbated a sim il ar preser-
financing programs they administer. Combined programs
vation problem in protecting the U.S. Departm ent of
can improve th e leveraging of the funds either to iinancC'
H ousin g and Urban Devel opmen t's (IIUD) portfolio
specialized housing develop ment or Lo boost in cC'ntives
of ass isted un it s developed through the Mark-to-
to developers tar getin g a specific ho using nC'ed iden-
Market Program in the 1990s (see Partners v. 11, n. 2).
ti!Ied by the state.
According to a Neighborhood Reinvestment Corp-
For example, U1e Florida Housing Finance Co1poration
oration study by Kate Collignon in October 1999,
(Ll1C' state I !FA) has set priorities for funding afford able
three main chall enges threaten the affo rd ability of
housing fo r farm workers, the elderly and the homeless.
t ax cre dit deve lopments: (1) co nversion to market
Projects tha t develop transitional housing ror the home-
rents; (2) cessati on or reduction of targeting t.o very
less, for instance , receive an auto mati c 9 percent tax
low-inco me households; and (3) a need for capital infu-
credit , w hi ch is se t aside w h en they r eceive fu nding
sion lo ensure continued financ ial feas ibili ty and
throu gh th e State Apartment Ince ntive Loan (SAIL).
pre,·ent physical deterioration. Colli gno n's resear ch
SAIL is also adm inistered by the age ncy.
recommends that LII-ITC sponsor s sho uld be aware
of these potent ial problem s as they consider regu latory and partnersh ip agreements, market factors, the
Role of nonprofit developers in housing preservation
The success of prese1ving tax-cred it developments
physica l cond ition of the property, the l'inan c ia l
will largely hinge on the involvement. of organizations
climate , and owner preferences and the ir priorities.
with a social mission that includes protecting existing
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Overview of the LIHTC Program
Created by the Tax Reform Act of 1986, the Low Income
Housing Tax Credit (LIHTC) is the most important
resource today supporting the production of affordable
rental housing. The tax credit structure was proposed
to offset the 15-year depreciation associated with the
production of low-income housing. Acting as equity and
typically combined with other funding smuces, the tax
credit helps to finance the acquisition, rehabilitation or
construction of affordable rental housing units.
One condition for a development to be awarded tax
credits is that a portion of the units must be set aside
for low-income households for a period of 15 years.
Shortly after the progran1 was created, legislators were
alerted to the threat of expiring HUD affordable housing
finance contracts and realized the importance of
amending the LIHTC policy to ensure affordablehousing preservation. As a result, the original 15-year
rental affordability agreement that supported the tax
credit allocation to developers was extended an additional 15 years in 1989. In some states the affordability
agreement has been extended well beyond-to 50 years
in California and 99 years in Utal1.
In return for a commitment to maintain affordable rents,
The LIHTC progran1 is managed by the Department of
the developer receives a 10-year federal tax credit stream
Treasury's Internal Revenue Service, which delegates
that can be converted into equity by selling or syndi-
administration to state housing finance agencies (HFAs).
cating the tax credits to investors. This creates a cash
Each state is allocated tax credits based on $1.75 per
infusion to finance the project. In the early years of the
capita. This figure was set to adjust with inflation begin-
program, investors in LIHTC ventures were more inune-
ning in 2003. State HFAs award tax credits each year to
diately associated with the projects and purchased the
multifamily developments as well as monitor comp-
tax credits directly from the developer. At that time the
liance with affordable rental agreements. Because
tax credit price averaged 45 cents on the dollar.
demand is well above supply in most states, allocations are awarded to affordable housing projects on a
As the LIHTC matured and as further legislative actions
competitive basis.
♦
ensured the continued viability of the credit, syndication
through intern1ediaries gave access to larger corporate
investors and to greater economie of scale. Amendments to the Community Reinvestment Act and the
growth in socially responsible investment also added
value to the tax credit. Today credits are sold at an
average of 80 cents on the dollar.
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NUMBER
2
low- and moderate-income tenants from displacement.
e1iies al risk of conversion to mai·ket rents. Even though
Thus preserva ti on is increasingly depe nd ent on non-
I-IFAs oft en impose a right-of-first-re fusal agr eement with
profi t o rgan izati onal capacity both to develop and
nonprofit s if a developer opts to sell the property at th e
main ta in properties.
encl of the 15-yea.r affo rdab ility period , mai1y nonpro fits
Although at least 10 percent of I.ax credits a.re se t aside
may not have the resources necessa ry t o finan ce th e
for nonp rofit developers, many non profits fin d the pro-
acquisition or recapitalization necessaiy for t hesc aging
gram in accessibl e. Less sophisti cated nonprofits or
properti es. Fl IFC see ks to remedy this situation .
those w ith limited resources arc disco uraged by a
comp li cated and demanding application process, and
some find it d iffi cult to compete agains t more expe-
Florida nonprofit develops preservation strategies
Several lai·ger nonprofits with adequate capacity ai1d
experience compe ting for tax credits ai·e developing
rienced applicants.
For som e tim e, nonprofits have bene fited finan-
preservati on strategics. Greater Mia.mi Neighborhoods
cially by partnerin g with for-profit deve l op ers eager
(GMN) is one of th e largest nonprofit deve lopers in
t o improve their app licati ons' co mpetitiveness by
F'lo1ida. and a freq uent sponsor of Lil-ITC developments.
incorporating th e nonp rofit devel oper factor. This
Elena Donlinguez-Duran, vice president of development
"rent-a-nonprofit" process, as it is referr ed to by some
with GMN , says that i n its first 10 years of operati on,
in the industry, does little to build capacity within th e
they foc used on new constructi on. Now, using its own
apprentice organjza.tion if, as is often the case, they are
pmtfolio, GMN is developing successful models to recapi-
not allowed lo paiticipa.te in the development process.
talize aging tax credit properti es. Speci fically, GMN is
Advocates fo r building nonprofit capacity ai·gue that
expl oring how existing prograi11s ai1d resources ca.ii be
these develop ment paitnerships should not only involve
used to recapital ize 10- to 15-year old properties U1at wilJ
the nonprofit in the applicati on process, but also encour-
become available as for-profit developers opt to sell.
age the nonprolit's active participation in the constrnclion
"The properties have to be looked al on a deal-by-deal
ai1d prope11y management as well.
basis," says Dominguez-Dura.ii. " We look at the opera.ting
Florida Housing Finance
price and th en look at available financing. " She says that
Corporation assists nonprofits
th e nature of layered finai1cin g req uires that th ey start
expense and opera.ting income, determine the purchase
Stephen A uger, Deputy Director of Multifamily Devel-
looking at properti es two or three year s in advance l o
opment al Florida Housing Finance Corporati on (FI-IFC),
develop a st ra.tegy and stru ctme the fin anci ng in time to
explains that llFAs ai·e interested in building the capacity
acquire th e proper1 y in the fifteenth yeai· w hen ii
of nonprofit developers to finance ai1d w1dertake proj ects
becomes available.
as weU as improving their access Lo tax credits. Nonprofits,
Dominguez-Duran explains tl1at GMN also benefits fi·o m
he not cs, ai·e socially conmlitted to preserving a1Torclable
having th e resources necessruy to obtain interi m fin an-
housing and have th e abili ty to develop and mai1agc sup-
c ing to secure acqui sition of at-risk prope r! ies w hi le
port ive housing th at serves the lowest-income residents.
workin g o ut the permanent fin anc in g arrangemen t.
The FIIFC' is hosting a series of cli a.logucs with sma.lJ
nonpro fit developers a.bout how to simplify the LIIITC
appli cati on process and m ake it m ore accessibl e.
This is not an op tion available to many sma ller or less
establ ished nonprofi ts.
Some HFAs ai·e setting aside a porti on o f th eir LIIITC
According to Auger, expiring tax cred it affo rdability
allocations for the preservation of existing ta,x -crcclit
periods clicl not have a substantial impact in Florida since
properti es th at ar e at risk. Conce rn exists t hal th is
a relative ly small mm1ber of propert i es were affected .
strat egy could spread available resources too I hin ru1 d
Nonetheless, since Florida has one of the largest LIIITC
dilute the lax credit's impact in meeting growing needs
potifolios, preservation strategies ai·e a priorit y as the
for a1Tordab le housing. If th e t ax cr edit 's son equ ity
state faces recapitalization and rehabi litati on of prop-
is r equired to make acquisi ti on an d recap itali zatio n
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thirteen
possib le, it is
Greg Melanson, Bank of Amelica's senior vice
cri tical to begin
president of Commun ity Development, says that one of
the process early
the more effective ways banks can support emerging
in order to coordinate the
a nd growing nonpro fits is thro ugh inte rmedi aries.
application rounds and varied funding cycles.
"Investments in the intermediaries and loans to their
HUD database aids preservation efforts
fmancing that are not traditionally available from banks."
loan funds," he says, "provide predevelopment and gap
This s trat egic approach to preservation has been
Supporting intermediaries allows banks to fu el nonprofit
aided by HUD's creation of a national Lll-lTC database
development effectively by linking funding to technical
that provides information on each tax-credjt property and
assistance that ensures greate r levels of s uccess for
thus allows preservation sponsors to identify where best
challenging projects.
to focus their planrung.
The database is also drawing attention to the quantity
of affordable rental uni ts t hreatened by deterioration
and expiration of affo rdability agree ments. Like most
affordable housing properties, tax-credit deals
FI-IC is also advocating for policy changes to expand
the availability of resources applicable to preservation
activities. Tax credits, says Greger, seem to be harder to
access for rehabilita tion. "In markets w here fund ing
sources are more ab w1dant," she continues, "many n on-
involve several layers of funding . Often the addi-
profits have become very good at complicated layering
tional fund ing sources have longer affo rd-
s tru ctures to finance p reservation ." But other com-
ability periods that provide stro nger protection. But the pressure to stay financially feas ible
remains a constant challenge in low-rent development
and property management.
The Florida Ho using Coalition (FHC), a nonprofit that
munities find that accessible funding so urces are less
diverse, and they will have to depend more on the fl exibility of available resources to meet their needs.
As the discussion surround ing affordable housing
preservation grows, nonp rofit organizations will emerge
provides technical assistance and advocates for afford-
as a cornerston e for long-term strategies to protect
able ho us ing, maintains a list of Florida properties fund ed
housing s tock for the lowest-income re nters. Building
by tax credits a nd oth er fina ncing that face
capacity and improvin g the respons iveness of
expiring affordability restrictions. Wight
fund ing program priorities, like the LII-ITC, will
Greger, FHC's Senior Teclmical Advisor,
allow nonprofits to build and mai ntain quality
says that th e interm ed iary organi-
affordable ho us ing and strengthen the economic
zation is trying to find nonprofits inter-
vitality of o ur conummities.
♦
ested in adding these properties to their housing
portfolios. The first s tep, however, is to determi ne
wheth er the nonprofit already has the capacity to
Thi s article was written by Ana Cru z-Taura, Regional
Co mmunity Deve lop me nl Directo r in th e Alla nta Fed 's
Miami Branch.
acquire and rehabilitate the buil dings, or if they will
have to develop the capacity.
"Capacity," says Greger, "is the biggest barrier to rehab.
In-house expertise or access to the necessary expertise
is essential to handle the trials of rehab." Particularly in
buildings with operating reserves that a re inadequate to
maintain the propetty, explains Greger, acquisition and
rehabilitation become more demanding on a nonpro fi t's
resources. Intermediaries, like FHC, a re focus ing on
building financial, technical and administrative capacity
to manage the more challenging projects.
Digitized fourteen
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VOLUME
14,
NUMBER
2
Community Development Venture Capital
Funds Sow Economic Opportunities
Now co mm uni ty developers w ide ly recog ni ze t hat
DURING THE 188Os, A SMALL
fostering economic revitalization a nd oppo1tunity is the
NUMBER OF AFRICAN-AMERICAN-
issue, tl1e com1mmity development ve nture capital (CDVC)
key to creating sustainable communities. To address this
industry invests in businesses 1hat provide jobs an d
OWNED BANKS ANTICIPATED
wealth-bu ilding opportunities in distressed comm unities.
TODAY'S COMMUNITY INVEST-
capital f·unds is much like compaii ng apples to orai1gcs.
Explaining CDVC fw1ds in terms of traditional ven ture
Both are the fruit of well-capitalized plans that s tern
MENT VEHICLES BY PROVIDING
from a so lid business concept, and both are nurtured
thro ugh infus ions of equity and prude nt management
AFFORDABLE CAPITAL AND
oversighL. Furthermore, both usually reap a s ignifican t
cash retu rn afte r several yea rs of investme nt, as well
ACCESS TO BASIC FINANCIAL
as now-ish the economic health of the conm1unilics or
SERVICES IN UNDERSERVED
distinctly different.
COMMUNITIES.
Comparing traditional and community funds
indu stries they s upport. The flavo rs , however, are
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Traditional ventw-e capital fw1ds ain1 to produce signifi cant fin ancial re turn s by offerin g high yields in
exchange for assuming risk. In contrast, CDVC funds
expand the defi niti on o f rewa rd to in clude not on ly
interest ai1el clividends to investors but a lso new jobs an d
services for low- a nd moderate-income pop ulations or
distressed commu ni ties. This investment with a soc ial
mission resu lts in a "double-botto m line."
CDVC funds can be structured as f01°profit, nonproli t,
or "hybrid " organizations in which a for-pro fit CDVC
fun d is affiliated with a no nprofit organization. The latter
approach has the distinct advantage of enabling access
to grant fund s, according to a 2001 study by Julia Sass
Rubin in Cha nging Fi nancial Markets aml Co mm un ity
D euclopmcnt. All CDVC funds strive to engage quality
management leai11s, who bring significant e:\.'Perience in
the traditional private equity industry as well as strong
relationships with bai1kers, coqJoralions ai1d other economic development engines.
fifteen
According to a statement from the Community Devel-
capital ftmds. According to Rubin a nd others in a study
opment Venture Capital Alliance (CDVCA), an ind ustry
presented to a 2003 Fed conference on Sustainable Com-
group for CDVC organizations, CDVC fund s represent
tmmity Development, the average investment is $186,000
one of the "fastest growing sectors of conummity devel-
per round and $393,000 per company as compared with
opment finance." The munbe r of CDVC fun ds in the U.S.
the traditional ven ture capital ind ustry's average o f
has grown from 52 funds managing $300 millio n in cap-
$8 million per roUJ1d of investment.
ital at the end of 2000 to over 80 managing $548 million,
Finally, intensive technical assistance is critical to the
as of the second quarter of 2003. Research for a San
success of both the CDVC funds and the businesses in
Francisco Fed publication by Kerwin Tesdell and Charity
which they invest.
Shumway in 2003 ind icates that the CDVC industry
In both types of venture capital fu nds, providers
grew by 38 percent over that same period, which marked
need to "ha1 vcst" or exit the investment to return a profit
one of the most clifficult fundraising envirorn11ents in the
to investors and re-capitalize funds for new investments.
ventme capital inclust1y 's estimated 30-year history.
According to Rubin, at t he e ncl of 2000, CDVC funds
Not unlike their traditional coUJ1teq)at·ts, CDVC funds
tracked in the study had exited 67 of their 237 to tal
seek to invest in businesses with solid business concepts,
investments. More than half of exits as of 2002 we re
good management teams a nd high growth po tential.
through acquisition From outside buyers, and 32 percent
However, CDVC funds pursue distinctly different types
in volved management and owner buy-backs.
of investment to achieve this goal compat·ed to traditional venture capital funds.
Assessing the financial and social performance
Several factors make it difficult to evaluate how s uc-
Characteristics of CDVC investments
Unlike traclitional venture capital fun ds, CDVC funds
cessful CDVC Ftmds have been from both financial and
community development perspectives. On the financial
aren't restricted to high-growth areas or a particular
side, the majority of funds arc less than seven years old
stage of business development. Rather, th ey are more
a nd not many have exited their investments. The fi nan-
likely to extend to all businesses in urban at1d rmal low-
cial evaluation is further complicated because some of
income communities thro ughout a geographic region.
the fu nds received operating subsidies, used a combi-
For cxai11ple, SJF Ventures in Durhat11, N.C., is concen-
nation of debt at1d equity instruments, or both.
trated in the eastern United States and invests in compat1ies at all stages of development (see sidebat}
Another difference is that CDVC fund investments ai·e
Although the available data are limited, preliminary
assessment of the industry's social impact is encouraging. Rubin tracked the jobs created by businesses
not Ukely to be ind ustry-specific. While private ventme
iinat1ced by tlu·ee of the oldest ftmds at1d fOLmd that they
capital funds in the 1990s invested in technology-related
created more than 4,000 jobs at at1 average cost of less
fi rms, for exan1ple, CDVC funds focus on investments
than $10, 000 equity invested in the company per job.
I.hat will create quality cntty-level jobs with good benefits
These jobs were in economically clistressecl rural com-
and livable wages. Like traditional fun ds, they provi de
mu nities and provided higher than average (for the
"patient capital": that is, investors don't realize a payment
region) benefits and wages.
on their investt11ent Lmtil the business is well-established,
usually several yeat°S after the investment is made.
Unlike tracli tional venture capital fu nds that seek high
To learn more about the commUJ1ity development venture capital ind ustry, visit the Commw1ity Development
Venture Capital Alliance's website at www.cclvca.org.
♦
returns on higheHisk investments, the fmancial retwns
on CDVC fu nds arc usually more modest, with an additional payoff in the form of conu11UJ1ity benefits s uch as
T hi s artic le was written by Nancy Montoya, Regional
Comm unity Development Manager in the Atlanta Fed's
New Orleans Branch.
job creati on or neighborhood stabilization. The size of
the investment is also smaller than traditi onal venture
sixteen
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VOLUME
14, NUMBER 2
Community Development Venture Capital Fund Close-Up:
SJF Provides Capital Boost for Community-Minded Atlanta Business
Established in 1999, SJF is comprised of two organizations: SJF Ventures, a community development
venture capital fund, and SJF Advisory Services, an affiliated nonprofit that offers workforce development
and sustainable business services. SJF's overall mission is to "create quality employment for low wealth
citizens and communities by financing and assisting companies that generate social, environmental and
financial gains."
SJF Ventures invests in innovative, growing companies that provide high quality, entry-level jobs with good
pay and benefits as well as a strong financial return on investment. It has made $10.1 million in equity
investments in 18 companies throughout the eastern United States, including the Sixth District states of
Georgia, Flmida and Tennessee.
One of SJF's successful projects is Ryla Teleservices, Inc., located just outside metro Atlanta. Since 2002,
SJF Ventures has invested a total of $700,000 in the company, which provides outsourced customer
contact, data verification and validation services for business-to-business interactions. Since SJF's initial
investment, Ryla has grown from 20 employees to 280 employees. Benefits for their employees include
100 percent employer-paid health insurance premirnns for pem1anent workers, a 401-K savings plan,
extensive training opportunities and opportunities for promotion.
SJF's companies are further supported by SJF Advisory Services, which invests in technical assistance to
create, retain and enhance long-term jobs for t he residents of economically distressed communities.
Its role includes matching these companies with services, such as job placement and training, welfare-towork, and economic development progranIB for employees.
The advisory arm of SJF has assisted Ryla through
board involvement, introduction to potential investors, assistance with management recruitment and
legal counsel. In keeping with their mission to build
wealtl1 for employees, SJF Advisory has also worked
with management to launch a multi-tiered stock
option plan to provide incentives and rewards for
employees at all levels.
Mark Wilson , Ryla's CEO, was featured in the
February 2004 issue of In Focus as a successful
"Innovator ofTom01Tow." In 2003, Ryla was named
tl1e U.S. Department of Commerce's Minority Business Development Agency's "Local Service Firm of the Year." The company was also featured in a New
Ym·k Times (10/31/2003) article, "Capital for Companies that Aid Communities," and was spotlighted at the
annual Comrnrn1ity Development Ventme Capital Alliance (CDVCA) conference in March 2004.
SJF's 10-member staff maintains offices in Durham, N.C., and Philadelphia, Pa.
For more in.formation, please visit SJF Venture's website at www.sjfund .com or contact Rick Larson, Managing
Director, at (919) 530-1177 or rlarson@sjfund.com.
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seventeen
Spotlight on the District
An impaired or insufficient cred it history is a com-
the benefit of any appreciation through a forgiva bl e
mon stumbling block for low- and moderate- in com e
grant fro m MHC. To assist in the initial loan closing,
borrowers attempting to buy a home. Thanks to the
7.5 percent of down payment and closing cost assistance
"Get On Track" (GOT) program, prospective Mississippi
is included to avoid depletion of the client's cash flow.
homeb uyers with impaired credi t now have a new
The seller may also conttibute up to 3 percent.
opti on: they can lease the home of their choice for a
The loan initially extended to MI-IC is a 7/1 acljustable-
pre-determined period and work in the meantime to
rate mortgage with a 30-year amortization and a CLUTent
repair cred it or establish a qu alifyi ng c redit score
rate of 6.425 percent. Because the lease payment includes
for homeownership .
rental insurance and other management fees, it is usually
about 10 percent higher than the actual mortgage pay-
Mississippi's Get On Track program
The GOT program, a partnership with the Mississippi
ment. MHC closed 34 loans totaling $2,505,418 between
the time of its inception in July 2002 through May
Home Corporation (MHC), Freddie Mac, Cons umer
2004. 1\venty loans totaling $1,800,000 are cwTently in
Credit Counseling Services (CCCS) of New Orl eans
the pipeline.
One deterrent to t he program is processin g tim e,
and local lenders, targets prosp ective homebuyers
with incomes up to 140 percent of area or state median
which has averaged about 102 clays, slowed clown by
income, whichever is higher. The prospective ho meowner
the time required for prospective homebuyers to com-
works through a local lender and CCCS to cletemune how
plete credit counseling and establish a workout plan
much they would qualify to bo1Tow with a credit score
with their creditors. Currently one lender with two
of 620. CCCS then helps the client map out a credit repair
branch offices handles loans thro ughout the state.
program for the 39-month lease pe1iod. The next step for
Loans are eventually sold to Freddie Mac. The pro-
the applicant is to work with a builder or realtor to select
gram was fun ded through a bond issue and is set to
a home t·o purchase at the encl of the lease period.
expire on December 31, 2004. MI-IC is evaluating the
MHC then purchases the home at clos ing and leases it
b ack to the prospective hom ebuyer for a term of
future of GOT, wh ic h addresses a significant barrier
10
homeownership.
♦
39 months, at which point the program partic ipant
can assume the o utstandi ng Fredd ie Mac loan for a
one percent assumption fee. The homebuyer also enj oys
eighteen
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For more inform ation, vis it MI-IC's web site al
www.mshc.com or call Charles L. "Chuck" Morris, SVP at
(601 ) 718-4624 or Franc isco Lara, AVP at (601) 718-4653.
VOLUME
14,
NUMBER
2
Individual Development· Accoun ts (IDAs) 31-e matched
the oversight a nd guidance of the Tulane/Xavier
savings accounts that e ncourage low-income families
Na tional Center for the Urb a n Comm unity, provided
to save money, gai n fina nc ial skill s and build wealth
one-on-one inte nsive cred it cou nse li ng, case man-
through the p urc hase of assets. Two years ago, in
age ment and coaching, homebuyer training, a nd finan-
partnership wi th the Louisiana Department of Social
cial literacy classes.
Services, the IDA Co ll aborative
Eigh t fi nancial institu tions made
of Louisiana (IDACL) embarked
savings accou nts a nd mortgages
on an a mbi tio us effort to he lp a t
availab le, as we ll as offered bank
least 500 low-in come fa mi lies
expertise and g ui dance to the
qual ifie d for benefits from Temp-
Advisory Boa1-cl. Several fom1dations
orary Assistance for Needy Fam-
supported the program with oper-
ili es (TANF) purchase a home,
ating and matching grants. The pro-
expand a business or furth er a
gram has also reached far and wide
post-secondary e du cation.
both geographically and cultmally:
gradua tes come from as far as Lake
At its closing deadline of June 30,
Charles, La., a nd t he Delta region;
2004, the TANF IDA program
Felicia Bazille, a graduate of the
reports impressive results: 1,796
IDACL program, was able to
they are from both m'ba.n and rnral
households have received cred it
purchase a home in New Orleans.
co1m11mlities; they represent diverse
counse li ng; 1,101 have enrolled in
popula tion s, including pmticipants
an IDA program; 1,029 have completed fina ncial education c lasses, a nd 895 have completed asset-specif'ic
from the Vietna111ese and faith-based comrnmlities.
Worki ng with s uch diverse partners brings its own
training. To elate, 616 participants have purchased
challenges: data management and repo rting can be a n
assets, including over 343 homebuyers.
administrative nightmare. To address this issue, Tulane
invested its own resources to create a web-based enrollment, trac kin g and invoicing program. It not only pro-
Growing to this scale req uired more tha11 just the pro-
vides necessary forms, but also serves as a source of
gram's $2 million in fun din g and the Stat e's progres-
critical program s urnrnm·y reports for the media, ser-
siveness. Over 42 statewide "service providers," under
vice providers a nd oth er interested parties. The
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ninetee n
state-of-the art system helps IDACL to administer
initiatives thro ugh policy advocacy, fLmcl development
programs efficiently and effectively.
and refmement of its partnerships and programs.
0 ,_
m
0
♦
For mo re inform ation on the lDA CL, visit th e website at
http://iclaco la. tu lane. r el u.
The TANF IDA program accomplished what it set out
to do: provide an infrastrnctm e for IDAs throughout the
state and build the capacity of its partners; demo nstrate
T his arti cle was writte n by Nancy Mont oya, Regional
Comm uni ty Devel opm en t Manager in th e A tlanta Fed 's
New Orl eans 13rnnc h.
that IDAs can help low-income worke rs purchase longterm asse ts ; and bring together vario us organizations
and in itiatives to leverage resom ces for the working poor.
Like many othe r IDA programs across the nation , its
next challenge is to ensw·e the long-term survival of IDA
The Enterprise Foundation's 23rd Annual Network Conference
is the nation's premier meeting on affordable housing and
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COMM UN ITVDEVELOPM ENT
THE ENTERPRISE FOUNDATION ANNUAL NETWORK CONFERENCE
OCTO BER 13 - 15, 2004 MARRI OTT MARQUIS NEW YORK CITY
"
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VOLUME
1 4,
NUMBER 2
Double Bottom Line Investing:
An Introduction to the CDVC Approach
A Workshop by the Community Development
Venture Capital Alliance
The Federal Reserve Bank of San Francisco Conference Center
San Francisco, CA
Tuesday, September 28, 2004
This workshop is targeted at anyone interested in how equity investing can create
social and financial returns: community development practitioners, investors, finance
professionals, policy makers and others who are interested in using equity tools
in innovative ways to benefit distressed communities and low-income individuals.
Participants will get a comprehensive overview of the rapidly growing field of community development venture capital (CDVC) and have an opportunity to engage with
some of the most experienced CDVC practitioners.
We are enthusiastically reaching out to new community development and finance
professionals who are interested in enhancing their knowledge of the best practices
in the CDVC field and using their skills to build viable businesses that contribute to
healthy communities.
To register, visit CDVCA's website at www.cdvca.org. If you have any questions,
please contact Cynthia Holahan at cholahan@cdvca.org or (212) 594-6747 ext. 25.
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