Across the country, as the demand for rental housing increases, the amount of money available for the preservation of affordable housing is shrinking. Real estate developers are buying up unsubsidized affordable housing with the aim of taking it out of the affordable stock and increasing the rents. In the process, low-income families who live there are being displaced. HPN, a Boston-based business collaborative of 100 of the nation’s premier housing and community development nonprofits, is helping preserve housing for low-income people by giving nonprofit affordable housing developers a chance to compete for the purchase of properties using a financing model long employed in the private sector.
To help preserve and improve affordable housing stock around the country, HPN has joined with 12 of its members, major foundations, and financial institutions to create the first-ever real estate investment trust (REIT) owned and operated by nonprofits. Known as the Housing Partnership EquityTrust, the REIT is a solution to a longtime problem—the struggle among nonprofit housing organizations to access financing quickly to bid competitively against their for-profit counterparts on the purchase of unsubsidized properties. The REIT provides acquisition funds that members can use to close on real estate purchases within 90 days, compared to the more typical time frame of one to two years.
“Our members are real estate developers with a mission to transform lives and communities, using housing as a stepping stone,” says Thomas Bledsoe, president and CEO of HPN, which was founded in 1990 by a group of affordable housing and community development leaders to build better futures and vibrant communities for low-income people.
So far, the REIT has closed three properties—in Illinois, California, and Virginia. Says Bledsoe, “In each case, the developer couldn’t have purchased the building without the REIT because they wouldn’t have been able to close within 90 days.”
Leveling the real estate playing field for even more nonprofit developers, HPN will implement its NEXT Award to expand from a $100-million REIT to a $500-million REIT in the next two years, helping its nonprofit members quickly access financing needed to expand affordable housing projects across the U.S. In doing so, it will preserve and rehabilitate 7,000 units of affordable housing and provide quality housing for those who need it most.
Detroit faces tough odds. Since 2000, the city has experienced a drastic drop in population. Thousands of abandoned homes and vacant lots create a desolate urban landscape in an area where the average home value is well below the state’s average. And residents, disproportionately low-to-moderate income, confront a 20% unemployment rate. Yet in this seemingly hopeless situation, Capital Impact sees tremendous opportunity, and it is working to revitalize the city that at one time embodied the American dream.
With a proven track record of helping to solve what are on the surface insurmountable problems of poverty across the U.S. Capital Impact has deployed nearly $70 million in financing in Detroit for education, affordable housing, and mixed-use projects. Such support is critical in this city with a virtually nonexistent credit market, where real estate developers and small businesses struggle to access financing.
“Some would say the problems in Detroit are so complex that we can’t hope to make a difference,” says Terry Simonette, president and CEO of Capital Impact. “But we understand the difference between risk and perceived risk and are able to assemble and deploy capital to situations where others can’t.” Known for its cooperative approach, Capital Impact partnered in 2010 with on-the-ground organizations, businesses, and foundations to focus on the revitalization of Detroit’s Woodward Corridor, the city’s main central artery. The partnership successfully supported six initial projects that will serve as an anchor for further growth.
“Capital Impact’s expertise and capacity focuses on the systems and sectors necessary to the overall health of a community,” Simonette explains. “We’re leveraging this to redensify the Woodward Corridor, which will lead the way to the revitalization of the rest of the city.”
With the NEXT Award, Capital Impact will increase its commitment to Detroit by expanding its place based strategy. This includes opening an office in the Midtown neighborhood and establishing a new fund that will provide long-term, flexible financing—in the form of 15-year loans—for key projects. This expansion strategy will help develop 300-400 units of new affordable housing; generate more than 500 jobs; support more than 20 small businesses; and deploy $40 million of loan financing and $2 million of predevelopment financing in the next two to three years. And, ultimately, it will improve the odds for the once-thriving metropolis.
Small businesses need capital to grow, but in many low-income communities financing is hard to come by and entrepreneurs struggle to achieve their dreams. Opportunity Fund believes everyone, regardless of economic background, deserves a chance to succeed. California’s leading microfinance provider has developed a loan product—EasyPay—that’s putting capital in the reach of small business owners in even the most underserved communities.
A few years ago, Opportunity Fund, which was founded in 1994 to advance the economic wellbeing of working people, began noticing that clients were reporting cash advances that didn’t show up on credit reports. The source of this capital was a burgeoning new product known as “merchant advances.”
These products advance a lump sum that businesses then repay with a percentage of credit or debit card swipes, rather than fixed monthly payments. “In theory, merchant advances are a great source of capital for entrepreneurs, especially those who don’t qualify for traditional loans because of bad credit or little or no collateral,” says Eric Weaver, Opportunity Fund Founder and CEO. “In reality, the interest rates of these unregulated products range from 60%-200%, which can create a financial stranglehold for small businesses that need some cash for day-to-day operations.”
Recognizing the innovation of the merchant advance concept, Opportunity Fund developed EasyPay as an affordable alternative. Like merchant advances, EasyPay loans are automatically repaid with daily debit or credit card sales. Unlike the advances, interest rates are much lower. And because EasyPay is a loan, it’s also a credit-building tool. These factors make it an attractive option for economically-disadvantaged small business owners, including those Opportunity Fund wasn’t able to lend to in the past.
Explains Weaver, “More than half of our borrowers would have gotten a smaller loan or no loan at all under our traditional underwriting guidelines, but they have the cash flow to qualify for EasyPay.”
Since winning the 2012 NEXT Seed Capital Award to pilot the product, Opportunity Fund has originated 85 EasyPay loans, totaling $1.2 million, in Los Angeles and the BayArea. Today, the CDFI is ready to take on additional California markets. The NEXT Opportunity Award will enable it to finance 1,000 entrepreneurs by 2016, creating and sustaining 2,900 jobs. Long-term, it seeks to offer a “white label” version to other CDFIs across the U.S., making the program replicable on a national scale and bringing new opportunities to entrepreneurs everywhere.
Virginia-based Freedom First Federal Credit Union is the recipient of the 2013 Seed Capital Award for its American Dreamer Loan product. The American Dreamer Loan product offers affordable, responsible financing to help Roanoke-area refugees, as well as immigrants who are legal permanent residents, apply for citizenship.