How to get funding & resources for equitable communities

Commercial real estate investors are increasingly considering environmental, social, and governance (ESG) practices when underwriting investments and operating properties.1 Such practices consider community benefits and “triple bottom line” outcomes when evaluating enterprise/organizational performance objectives.

• Traditional banking institutions are increasingly required to document that they are investing in underserved communities via "responsible banking" ordinances, making qualified investments an increasingly important part of their portfolio. The city of Dallas recently passed a “Responsible Banking Ordinance" requiring banks receiving city of Dallas deposits to offer capital in low-income and minority neighborhoods.
• In 2022, the Community Disaster Resilience Zones Act created a natural hazard assessment program that “show[s] the risk of natural hazards and include ratings and data for loss exposure, social vulnerability, [and] community resilience” in identified census tracts (CDRZs) and makes financial, technical, and other assistance available to eligible resilience and mitigation projects within designated CDRZs.3

References:

1. Borland, Kelsi Maree. “Behind The Surge In ESG Commitments.” GlobeSt.com. 2021.
2. Peters, Senator Gary C., D-MI. Community Disaster Resilience Zones Act of 2022.

Successful funding for projects in underserved communities often relies on a multi-faceted approach to financing. This includes the marrying of conventional sources of capital, incentives, grants, crowd-funding, micro-lending, and impact investment dollars from various entities to form a “capital stack.” The Urban Land Institute notes that “the cobbling together of funds from many sources is both typical of difficult urban projects and an example of why many private developers are reluctant to enter urban markets.”1 Architects can help facilitate the creation of a multidisciplinary team that includes a capital advisory professional who understands the community and the landscape of funding opportunities. Funding mechanisms are likely to include conventional debt and equity alongside nonconventional sources.2

• Regenerative capital models of community investing can grow economic resources and economic resilience within local communities. The New York Fed and the U.S. Impact Investing Alliance have documented merging sources of capital aimed at driving investment in underserved communities at scale.3 If capital investments are circulated locally within the social, human, and economic ecosystem of the community, they will become regenerative regional investments, fostering local health and prosperity within the community.4
• Community Land Trusts (CLTs) emerged in the mid-20th century as a model of shared equity developed to establish and sustain community control over land development. More recently they have been used to create permanently affordable housing and to forestall the effects of speculative development on current residents. A recent study identified initiatives aimed at “creating permanent affordable housing [by] facilitating collaborations between local CLTs and land banks.”5 In particular, the authors “evaluate how CLTs can leverage collaborations with land banks as a tool to scale up permanent affordable housing and community control.” Another article outlines the history of CLTs as a solution that “effectively removes the land from the speculative market and allows for less marketable uses that might benefit disadvantaged communities.”6

References:

1. Lane, Bridget and McAvey, Maureen. “Retail in Underserved Communities.” Urban Land Institute. 2014.
2. Heather Burpee Interview with Molly McCabe & Hayden Tanner. 2022.
3. “Impact in Place: Emerging Sources of Community Investment Capital and Strategies to Direct It at Scale.” The U.S. Impact Investing Alliance commissioned by Federal Reserve Bank of New York. 2021.
4. “Impact in Place: A Participatory Model for Restorative Community Wealth Building: A Look into the Ujima Fund.” The U.S. Impact Investing Alliance commissioned by the Federal Reserve Bank of New York. 2021.
5. Lowe, Jeffrey S., Prochaska, Natalie, & Keating, W. Dennis. “Bringing Permanent Affordable Housing and Community Control to Scale.” Cities Journal. 2022.
6. DeFilippis, James, Stromberg, Brian, & Williams, Olivia R. “W(h)ither the Community in Community Land Trusts?” Journal of Urban Affairs. 2017.

The following represents various funding resources that have been utilized in projects that help create equitable communities. This list is not comprehensive but includes examples of various funding sources, including federal, regional, state, city, and foundation, among others. Multiple mechanisms may serve a single project as parts of the overall “capital stack” that is created to finance the initiative.

• Federal infrastructure funding is available for projects that support clean energy and energy efficiency, clean transit, affordable and sustainable housing, training and workforce development, remediation and reduction of legacy pollution, and the development of critical clean water and wastewater infrastructure. Under the Justice40 Initiative, the federal government has “made it a goal that 40 percent of the overall benefits of certain Federal investments flow to disadvantaged communities that are marginalized, underserved, and overburdened by pollution.”1
• Community development financial institutions (CDFIs) invest in some of the poorest communities in America where poverty is more than 30% of the population or median incomes are less than 60% of the area median. CDFI Certification is a designation given by the CDFI Fund to organizations that provide financial services in low-income communities and to people who lack access to financing. CDFIs include regulated institutions such as community development banks and credit unions and nonregulated institutions like loan and venture capital funds.2 CDFI investment helps reinvigorate populations that have been left outside the economic mainstream. In the FY 2018 round of CDFI program awards, 28% of the award recipients primarily served rural target markets that had high rates of poverty and unemployment.3
• Community development loan funds: The HUD Section 108 Loan Guarantee Program provides Community Development Block Grants (CDBG) to recipients with the ability to leverage their annual grant allocation to access low-cost, flexible financing for economic development, housing, public facilities, and infrastructure projects.4 Organizations such as Homewise, a nonprofit in New Mexico, offer comprehensive services directly to low- and moderate-income families seeking an affordable path to homeownership.5 Recently the Chicago Community Loan Fund (CCLF) partnered with Starbucks Corporation using existing CDFI program financial assistance resources to provide “$11.5 million in total financing and has leveraged $32.5 million in additional private and public investment for commercial real estate, community facilities, and social enterprise projects located in distressed areas in Chicago’s Southside and Westside neighborhoods.”6
• U.S. Department of Agriculture (USDA) Rural Development program: USDA Rural Development funding supports public bodies, community-based nonprofit corporations, federally recognized tribes, a spectrum of infrastructure, and essential facilities such as hospitals, libraries, and schools in underserved rural communities.7 Specific programs offer loans and grants for “low- and very-low-income applicants to obtain decent, safe, and sanitary housing in eligible rural areas.” Other USDA programs support loans and grants for investment in rural renewable energy systems and energy efficiency improvements.
• Community-based tax incentives include the Low Income Housing Tax Credit (LIHTC), New Markets Tax Credit (NMTC), Opportunity Zones, and those in the Community Reinvestment Act.8 For example, NMTCs, funded under the CORE Act, match businesses and economic development projects in low-income, rural communities impacted by coal industry job losses,9 and “Tax Increment Reinvestment Zones” make financial incentives available for developers.10 Additionally, the American Rescue Plan Act has established funds to support gap financing.11
• Grants: Projects have received grants from corporations, cities, foundations, and other entities to implement equitable communities.10 These opportunities continue to arise, including the recent Department of Energy “Buildings Upgrade Prize” for equity-centered innovation,12 the National Equity Fund, and private funding such as Amazon’s commitment to affordable housing.13
• City or local incentives: The city of Austin, Texas, has a development-based bonus program wherein developers that agree to build half of a project as affordable housing receive size bonuses, fee waivers, and other incentives from the city.11
• Hyper local micro-investing: Innovative community micro-investing organizations, such as SmallChange.co, have created transformative and accessible real estate investment and capital opportunities that allow community members to invest relatively small amounts at the local level, enabling them to take part in community-funded projects. Such funding mechanisms enable small, nonaccredited individuals to invest, which can help uplift both the local community and the individual investors. As a result, community investors are vested in the success of the project and community both financially and emotionally.14 Projects such as Wallbrook Junction aim to provide strategic scalable investments to build Black wealth and provide a competitive return on capital.15

References:

1. Justice40, A Whole-of-Government Initiative. 2022.
2. CDFI Certification | Community Development Financial Institutions Fund.
3. CDFI Coalition Homepage.  
4. U.S. Department of Housing and Urban Development. HUD Exchange. Section 108 Loan Guarantee Program.
5. Welcome to Homewise®.
6. Thomas, Gail. “Starbucks Partners with CDFIs to Help Chicago’s Underserved Communities | Community Development Financial Institutions Fund.” CDFI Fund Impact Blog. 2022.
7. USDA Rural Development Programs.
8. “Impact in Place: Emerging Sources of Community Investment Capital and Strategies to Direct It at Scale.” The U.S. Impact Investing Alliance commissioned by Federal Reserve Bank of New York. 2021.
9. Capito, Senator Shelly Moore. The Creating Opportunities for Rural Economies (CORE) Act. 2016.
10. Lane, Bridget & McAvey, Maureen. “Retail in Underserved Communities." Urban Land Institute. 2014.
11. “Boise at a Crossroads: Planning for Unprecedented Population Growth in a Formerly Affordable City.” Urban Land Institute. 2022.
12. “DOE Awards $32 Million to Accelerate Next-Generation Building Upgrades." Energy.gov
13. Amazon Affordable Housing Initiative Announcement. Executive Office of the Mayor of the District of Columbia. 2022.
14. Heather Burpee Interview with Molly McCabe, Hayden Tanner. 2022.
15. Small Change, “Walbrook Junction: Building Black Wealth Through Community-Owned Shopping Centers.”

Impact investing is becoming an increasingly common practice within many conventional banking and financing entities. The U.S. Impact Investing Alliance's long-term vision is to place measurable social, economic, and environmental impact alongside financial return and risk at the center of every investment decision.1 They seek to identify and overcome structural barriers, such as lack of access to capital, bias, and imperfect information, that prevent more capital from flowing to underserved communities.2 Similarly, donor-advised funds (DAFs) provide program-related investments from foundations.2 Case studies demonstrate that investment in underserved communities can grow local economies, provide substantial social and economic benefits to current residents, and provide economic returns to investors within the communities being served. Following are snapshot examples of successful investments:

• Ceniarth, a family office, worked with a group of peers to mobilize over $14 million in zero-interest loans from philanthropies for the Rural Community Assistance Corporation, a rural community development financial institution, allowing the group to deploy Paycheck Protection Program loans to rural businesses and nonprofits that initially were unable to access the program.1
• “Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders, and Great Communities,” published in 2021 by the Urban Land Institute provides case studies and interviews with developers focused on small-scale development aimed at fostering community economic resilience in 15 U.S. cities.3 It identifies barriers to small-scale development, including “jurisdictional and capital inertia that impedes bringing [small-scale development] to scale” and offers approaches for entrepreneurial developers and community leaders to remove these obstacles.
• Major corporations have invested in the $175 million Black Economic Development Fund run by Local Initiatives Support Corporation, a national community development financial institution. The fund is designed to provide deposits and other financing to Black-led lenders and businesses.1
• Groups like ImpactAssets and CapShift are working to creatively and efficiently leverage donor-advised fund capital to support community development and racial equity.1
• Uniquely structured participatory efforts may serve as a model for the future of community investing as the field continues to expand. The Boston Ujima Fund, launched in 2018, is democratically managed and empowers residents, businesses, and other stakeholders to invest in building the wealth of their own community.1
• SmallChange.co facilitates “micro investing” opportunities such as Wallbrook Junction, which offered Black entrepreneurs and community residents opportunities to co-own a neighborhood shopping center in Baltimore, Maryland. SmallChange aims to provide strategic, scalable investments to build Black wealth and provide a competitive return on capital.4 These investments provide market-rate returns to small investors while increasing economic opportunities for residents in underserved communities.

References:

1. “Impact in Place: Emerging Sources of Community Investment Capital and Strategies to Direct It at Scale.” The U.S. Impact Investing Alliance commissioned by Federal Reserve Bank of New York. 2021.
2. “Impact in Place: Flowing Donor Advised Fund Capital to Communities: Innovative Strategies from Impact Assets and CapShift.” The U.S. Impact Investing Alliance commissioned by the Federal Reserve Bank of New York. 2021.
3. Heid, Jim. Building Small: A Toolkit for Real Estate Entrepreneurs, Civic Leaders, and Great Communities. Urban Land Institute. 2021.
4. Small Change, “Walbrook Junction: Building Black Wealth Through Community-Owned Shopping Centers.”