Momentus Capital hosted a roundtable discussion highlighting efforts to increase access to capital and wealth building in underestimated communities and small businesses through Community Development Financial Institutions (CDFIs).
The discussion included a variety of government officials, community lenders, public-private coalition leaders, and small business owners. Participants included:
Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus
Wally Adeyemo, Deputy Secretary, United States Department of the Treasury
Leah Fremouw, President, Virginia CDFI Coalition
Chris Weaver, Executive Director, Economic Opportunity Coalition
Ellis Carr, President and Chief Executive Officer, Capital Impact Partners and CDC Small Business Finance (part of the Momentus Capital branded family of organizations)
Caroline Nowery, Chief External Affairs Officer, Locus
Sharita Denise Walker, Executive Director, Let’s Be a Kid Childcare Center
Juanterria S Brown, Owner, Kidz with Goals
Below you will find excerpts from that discussion which have been amended for clarity and brevity.
Opening Remarks
Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus:
Thank you all. I want to start by thanking Ellis Carr for hosting us here at Momentus Capital. He and I have crossed paths many times over the years. It’s great to be in your digs. Thank you all for joining us today on this CDFI Roundtable. This is a really significant event.
But CDFIs, as my friends at Locus know, go back. It was a passion to me when it was called Virginia Community Capital in 2005 when we started. I have always felt this sector, while small, is a critical part of our financial system.
And frankly, we needed to do so much more during COVID. We got $12 billion even under Trump, $3 billion in grants, $9 billion in tier-one capital. We are trying to see how we can continue to broaden this.
We’ve got a CDFI caucus that is bipartisan, co-led by Senator Mike Crapo of Idaho, 13-13, 13 D’s, 13 R’s. We’ve got legislation up that would create a digital tax credit for patient capital. We’ve got a plan to try to start a secondary market, which I think will be critically important. Ellis is probably going to address that. We are trying, as well, to do as many creative things as possible.
In the aftermath of the murder of George Floyd, corporate America made a lot of big promises. $300 billion. Unfortunately, they have not fulfilled 97-98% of that; about $5 billion has been paid out. So Chris [Weaver, Executive Director, Economic Opportunity Coalition], who worked for Wally [Adeyemo, Deputy Secretary, United States Department of the Treasury] – I managed to steal him for a year, came over as we were doing a lot of this stuff with CDFIs. His work through the Economic Opportunity Coalition [EOC] is an attempt to try to go to some of the large corporate America companies and others and say, “This could be a way that you could meet your promises in an easier manner, a one-stop shop, and a lot with patient capital.” And Wally will talk about what they’ve done, but also a series of other initiatives on how we make sure that workforce contracting and other issues, including what corporations could do to make sure that who they do business with looks more like the individuals in this room, than just folks looking like me.
And I think the work of the EOC has a great, great opportunity. But a lot of this would not have happened if the Deputy Treasury Secretary would not have embraced this. Wally has done a great, great job, and anything that’s been happening in not just the CDFI space, but in terms of trying to push an agenda that is more inclusive beyond just capital access issues, is all due to him. So I will stop and turn it over to my friend, Deputy Secretary of Treasury Wally Adeyemo.
Wally Adeyemo, Deputy Secretary, United States Department of the Treasury:
Ellis, thank you so much for hosting us. You’ve been such a great partner to us in all of this.
But I do need to tell those of you who live here in Virginia that you are very lucky to have Mark Warner as your senator. He’s both a leader in your state, clearly, but also a leader in the country. And frankly, he was the first senator to seek me out when I was nominated, and he took me to dinner with my predecessor. And he started, at that point, talking about the importance of investing in communities that have been left out and left behind, and told me that he wanted to partner on this work. And frankly, lots of people throughout my career have said, “I care deeply about these communities. I want to do work on it.” And then a few months later, they don’t come back.
But that is not Mark Warner.
Within days he was following up with me asking, “What are we going to do here?” And he has not only been a partner who talks, but he walks the walk, in terms of building this coalition that includes Republicans and Democrats who are supportive of CDFIs. And in a city where you often don’t see bipartisanship, you are seeing bipartisanship in this space. Because what we’re doing is investing in communities throughout the country, rural and urban, where not only finance hasn’t gotten to, because traditional banks don’t serve, but frankly opportunity hasn’t gotten to.
And what we’re doing with the Economic Opportunity Coalition is taking that bipartisan spirit, and we’re calling on corporate America to partner with us and make sure that resources get to those communities. We’re doing it through CDFIs. And I would say that CDFIs punch well above their weight class, frankly, in terms of their ability to help businesses in our country, to help housing in our country, in places where we don’t have enough of it.
And today, one of the things that excites me most about what’s happening in America is that we’ve seen the creation of 18 million small businesses over the last three years, which is a record. We’ve seen a doubling of small businesses owned by Black Americans, a 40% increase in small businesses owned by Latino Americans.
But the challenge these businesses have when I talk to them, and I sit down with them on a regular basis, is they need two things. They need access to capital: they need someone to believe in them enough to give them money. And two, they need access to customers: they need people to buy what they’re selling. And ultimately a CDFI or minority-owned depository institution is far more likely to give a loan to that local small business, to that woman who’s decided that she’s going to go out by herself with this business idea, to this person of color who has a new business, than any large institution. Because they know this person, they know their story, they know their community, they understand their business better.
And we’ve been able to make sure that these CDFIs were able to do that because of the work that Senator Warner did to make sure that they got a historic amount of capital at the end of the last administration, that we’ve deployed. But as the financial institutions of this room know, it’s great to have capital, but if you don’t have deposits, you can’t unlock it. And that’s what we’ve been focused on now, getting the private sector to actually provide deposits.
And we’re happy to announce that of the billion dollars of deposits that we’ve gotten through the EOC, $850 million have been deposited in the hands of these CDFIs, and they’re now getting out the door to those small businesses. We’re in the process of raising another $2 billion working with the EOC, so that these CDFIs and minority-owned depository institutions can do even more.
But in addition to making sure that we’re working on the capital, we’re also focused now on the customer side. And the best customer a small, medium-sized business can get is a large corporation. And that’s why we’re calling on large companies who are part of this coalition that are committing to making sure that small businesses in these underrepresented communities are part of their supply chain, so that they have the types of customers that are going to last for a long time.
Because ultimately I think the thing that we know about Senator Warner is, he is committed to this work. He was committed to it when he was governor, helping to create one of the CDFIs that are in the room today. But he’s been committed to it as a champion for this cause in the Senate, and there’s no better champion who speaks about the importance of them investing in it. So I’m going to kick it off with the first question to you, Ellis, to talk a little bit about the work you do here at Momentus Capital, and to tell everyone in the room about it.
Roundtable Question & Answer Session Excerpts
Momentus Capital Overview
Ellis Carr, President and CEO of CDC Small Business Finance and Capital Impact Partners (part of the Momentus Capital branded family of organizations):
Welcome everyone, and thank you Senator Warner and Deputy Secretary Adeyemo. I appreciate all the work that you all have done. Thank you all for allowing us the opportunity to host this important conversation.
For those of you who don’t know, my name is Ellis Carr. I’m president and CEO of CDC Small Business Finance and Capital Impact Partners. We are part of the Momentus Capital branded family of organizations that also includes Ventures Lending Technologies and Momentus Securities.
Momentus Capital is a family of companies that came together in 2021 to support more holistic community and economic development across the country, focusing on how do we help drive inclusive and equitable communities. And since that time in 2021 that we came together, we’ve invested about $2 billion across the country, and nearly $200 million in the Washington, D.C. region alone. Part of coming together with CDC Small Business Finance in 2021, we were really excited because it built on the history and track record and the trust from Capital Impact Partners, but we also could bring a small business lending component to this region.
Senator Mark Warner:
How did that get funded, was that SSBCI [State Small Business Credit Initiative] funds?
Ellis Carr:
So these were two 40-year-old nonprofits that came together to really take charge of the moment, and to really capture some of the opportunities that Deputy Secretary Adeyemo just talked about in terms of small business start-ups.
Part of what we were hearing in the beginning with Capital Impact Partners, because we focused on community development efforts, was access to healthcare, housing, education, and healthy food. But what we heard from folks was, “We need jobs and we want opportunity. We want the opportunity to build wealth and entrepreneurship. Go.” So leveraging our trust across the country, and particularly in this area, and then bringing the small business component has been invaluable.
So just in terms of our work and how we support small businesses in this particular environment, we think about three forms of capital that we provide.
The first is knowledge capital, and that’s really about how do we get people capital-ready? So we provide programs – capacity building programs and one-on-one business advising – so we can really meet the needs of the entrepreneurs in which we’re working with. So that could be an entrepreneur that has a great dream and needs some help actually getting the business plan done, or needs some help actually getting and filling out financial spreads so that they can actually present that package to a CDFI like the ones in this room.
The second area that we focus on is around creating social capital. And both of you alluded to this. We all know that it’s not necessarily about who you know, it’s about who knows you, and making sure that we can create opportunities and access to networks of committed individuals who are committed to the success of those entrepreneurs. We have Lauren Counts, who runs our national programs in the room, who really has leadership over a number of programs, from diverse real estate developers and connecting them to mentors and a network of individuals who are committed professionals who are invested in their success, to a public-private partnership called Nourish DC that we’re working with food entrepreneurs in the D.C. area, and connecting them to opportunities. So we make sure that we provide them with access to those social networks that can really help and support them.
And lastly, we focus on financial capital, which we’re here today talking about in large part. And that’s really providing loans and investments in a continuum of capital, to meet entrepreneurs where they are depending on their cycle.
And to give you all some perspective of the types of capital that we provide, I’ll give you two examples of two local businesses that we supported most recently.
One was a small business, a woman-owned small business, where we provided a $45,000 SBA Community Advantage loan to really start her business. And that business is to create and manufacture waterproof baby carriers. And she’s a registered nurse, she’s a doula, and a mother. And so through her lived experience, she created a product that she now is selling. I’m happy to report that that is just one of the types of businesses that we provide financing for.
As I mentioned, we’re a SBA Community Advantage lender. We’re the largest in the country, and 50% of our production in the SBA Community Advantage program are for start-ups. Our average loan size is under $200,000. So we’re doing a lot of loans to get to the $80 million production target that we have for this year.
Secondarily, we’ve created, because we recognize that debt is not always the answer, we created an impact investing group in 2022. Through that business line, we provided a blended capital stack to two veterans who have corporate experience, to acquire a government contracting business that’s currently operating, that they want to take to the next level.
We provided $16 million in debt financing and $5 million of preferred equity, which actually self-liquidates, to give them the capital they need to grow and expand. So as we’re talking about the work in the Economic Opportunity Coalition, and around getting to supplier diversity and giving the businesses the fuel, the literal fuel they need to succeed, we’re trying to provide a range of tools to be successful in that pursuit.
I’ll just end by saying again, thank you all for the work that you’re doing, because without the work from you, Senator Warner, and from the CDFI Fund and Treasury, we wouldn’t have that continual capital to continue to evolve our product suite to really meet the need of the market. And we’re trying to go in long to really take advantage of the growing opportunity for small businesses in this country.
Deputy Treasury Secretary Wally Adeyemo:
And I think the thing that you just did, which I think is really important is, we talk about these big numbers of billion dollars here, a billion dollars there, but it is always about the story of the entrepreneur. And that nurse wouldn’t be able to launch your product without you. Those two veterans who have a dream needed that help to do it.
Economic Opportunity Coalition Overview
Senator Mark Warner:
The Economic Opportunity Coalition was built out of this notion: could we get companies and organizations to do what they said they want to do, in a way that was simple. Chris, why don’t you talk about EOC, what our goals are, what the value of getting this patient capital is .
Chris Weaver, Executive Director, Economic Opportunity Coalition:
Thank you, Senator Warner. I also wanted to start by thanking both the Senator and the Deputy Secretary. That the Senator has been leading the charge and getting the EOC stood up.
For those who don’t know me, I’m Chris Weaver. I’m the Executive Director of the Economic Opportunity Coalition. We are, as the Senator said, a public-private partnership. We have 30 corporate members. We are designed to capture some lessons that were learned during the pandemic. We were created in the wake of the murder of George Floyd, in the pandemic. And that Paycheck Protection Program experience, I think, brought a lot of people around to CDFIs to understand the role that they play in our communities.
There was $15 billion set aside for CDFIs. The CDFIs went to $35 billion. Far out, it punched above their weight. And the goal of the EOC is to sort of take that magic of thinking about the public sector, private sector, and social sector all working together. That something magical happens, and we’re trying to take that and turn that into something sustainable and long-term through this coalition, working closely with the administration and our private sector partners.
Our first initiative was on the tail of the Emergency Capital Investment Program (ECIP) dollars that went out. And so for them, I think it’s a good thing to say that for the first time in history if you talk to CDFIs, they won’t say that equity is their number one challenge. But they have a liquidity challenge now. And that’s a challenge, but that’s a good thing. It’s something that we can work with and work on. We have been out with our partners, and talking to new partners about making deposits in CDFIs. As the deputy secretary said, last year, we reached a billion dollars in deposits, and have set a goal for another $2 billion this year. One of the things that I really wanted to flag that’s so important about that is that we’ve started having a conversation beyond the regular entities that are motivated by the Community Reinvestment Act. And that’s really important if we’re going to scale this work to reach more institutions.
If you add up the top 15 companies in terms of cash holdings, you quickly get to over a trillion dollars in cash. So there’s a lot of opportunity out there for us to introduce folks to this work, which is what we’ve been doing. And I’m proud to say that in the first billion dollars in commitments that we have, almost 40% of that has come from non-banks, which is a really positive term that we want to keep trying to build upon.
And then lastly, I want to highlight the importance of bipartisan support to change the narrative around CDFIs, where it’s not like an “us versus them” conversation, that this is something that’s important to the overall economy. And that messaging getting out there and seeing Senators Warner and Crapo standing together on this as we go around the country talking to people, that’s really important.
And I’ll end by just talking about two other things that the EOC has been up to. One was mentioned earlier around our supply chain work. Making sure as new investments are being made in this country, in the new economy, that small and disadvantaged businesses are part of the supply chains of those companies. So we’ve been asking our members to make the same pledge that the federal government has made, as a 15% diverse spend. And we’ve also asked them to think much deeper about more than just low-margin supply chain businesses. Historically, we think about janitorial services and construction. Let’s take it there. We’ve asked our partners to provide technical assistance to try to diversify up and down their supply chain, to bring more of the high-margin sectors into their supply chain work.
And then lastly, our newest initiative that we’ve been working on with JPMorgan Chase is that there are 3 million businesses in the country owned by baby boomers. And we recognize that there are just not enough minority businesses in the country, or even businesses from underserved communities that have a single employee. And so we have been working with them with their succession planning, to integrate into that training for entrepreneurs that can be equipped to acquire those businesses. And so in short, the EOC is more businesses, more capital, or more customers. That’s what we’re focused on, and I really appreciate the opportunity to be here to talk with everyone about this.
The Impact of Secondary Markets
Deputy Treasury Secretary Wally Adeyemo:
I do want to get back to this question of a secondary market, which you’ve been a big advocate for. And Ellis, just to get from you a sense as to, if we were to have something like this, how would it impact your business?
Ellis Carr:
Yeah, great question. I think earlier, you mentioned that small businesses needed two things, capital and customers. That is actually the same thing that CDFIs need, amongst other things.
Deputy Treasury Secretary Wally Adeyemo:
Very small businesses.
Ellis Carr:
Yeah, no doubt about it. No doubt about it. And I think, so given all the discussion we had today, and the opportunities that exist in the market around supporting small businesses, we’ve actually been pretty aggressive in setting our kind of ambitious goals between now and 2030. So specifically, we said we wanted to quadruple our production from now to 2030. A lot of that is that growth is really focused on small businesses. We believe we can get there from a production perspective, but what we need is two things.
One is capital. Our balance sheet right now is $800 million. We currently produce around $600 million in annual originations. We want to be at $2.4 billion. That can’t all be on our balance sheet and that all won’t be SBA loans either. We need to be flexible and develop new products to do that. The CDFI Fund is helpful, and through grants from the Financial Assistance Award program, we are able to create new products.
But we need constant liquidity. It needs to be two things. One, we need to expand that investor base. And I think a secondary market can do that. And what it also needs to do is that the market needs to have products where customer investors can easily invest. And so what we’ve created is a mission-driven broker-dealer and investment bank to begin to do that work. That organization is called Momentus Securities. And just earlier this year, as an example, to take it from the theoretical to the practical and concrete, they recently became an SBA Pooler. They are exclusively focusing right now on SBA Community Advantage lenders, who are funding the small mom-and-pop businesses. And what we’ve noticed is that we have investors in the market who specifically want to invest in that specific security that’s being created. And as a mission-driven organization, we’re passing those proceeds back to the originating CDFIs and CDCs, which is actually making that business proposition more profitable.
Senator Mark Warner:
Tell me the profile of the entity that wants to invest in the product of mom-and-pop businesses?
Ellis Carr:
We’re talking corporations. Because again, it’s a guaranteed security that is being sold in the market. So it’s very akin to a treasury, mortgage-backed security, etcetera. There’s an explicit guarantee for the loan, the securities that are being sold. So it’s almost a risk-free investment, and you’re also getting the social impact. We can actually fund loans across the CDFI spectrum here, and create a security for that corporation to invest in and put in their treasury. So that’s what we’re trying to do.
Senator Mark Warner:
Because these are riskier, you have to have some additional layer of capital in there. So where are you getting that?
Ellis Carr:
Right now, it’s SBA-backed loans. However, we’ve also begun to develop alternative products to the SBA Community Advantage program, because we’ve noticed that additional products are required. So we’ve created an alternative SBA 504 program, which effectively is a commercial real estate-secured small business loan, for someone who needs a loan who may not be eligible for the SBA 504 program. That currently is on our balance sheet today, but we’re working to actually develop a security to do that.
To answer your question specifically, we have philanthropic organizations who are willing to help bring down the misperception between real and perceived risk, between the actual investments that CDFIs are making. In the future, we need other participants to be able to play that role going forward. So I think to your question, both; that could be potentially a public sector play, or that could also be a private market play, as most folks understand how good the loan performance is for the CDFIs who are in this room and operate across the country.
So in short, what I think a secondary market can do is, it allows CDFIs to recycle the capital and get to scale. Because oftentimes we spend a lot of energy and effort trying to raise capital in very inefficient ways. And in some cases, we get beholden to basically the person who’s providing us the capital. And we have to provide those onerous systems to you because we’re an intermediary ourselves.
And so getting to a place where we can actually have a number of folks playing different roles in that secondary market, who are willing to take different risk profiles, creates an opportunity for us to scale beyond anything that I think we can even have contemplated.
Contact us today to start a conversation about how Capital Impact Partners and Momentus Capital can support your community or small business.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to navigate complex relationships, craft solid real estate development projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
Solid real estate development projections are a key to success, providing a roadmap for project feasibility and financial viability. In this installment, we’ll explore the critical aspects of creating pro forma models and building capital stacks, essential for navigating the complexities of the development process.
Creating Pro Formas: A Vital Tool for Success
A pro forma model is a financial projection tool that forecasts the potential financial outcomes of a real estate development project. It serves as a crucial guide for developers, investors, and lenders, offering insights into project feasibility and potential returns on investment. To create a robust pro forma model, developers must consider a range of factors, including land acquisition costs, construction expenses, operating expenses, and projected rental income.
Key Considerations in Pro Forma Development
Developers must carefully balance short-term and long-term real estate development projections in their pro forma models, taking into account factors such as vacancy rates, management costs, taxes, and rent projections based on cost per square foot. Challenges may arise during the creation and updating of pro forma models, requiring developers to adapt and address uncertainties effectively. Pre-development phase costs, including environmental reports and market studies, are crucial considerations that must be prioritized in pro forma development.
“One of the critical elements that need to be in your pro forma are projections into the future, which are costs and rent, and more importantly, how long it’s going to take.” – Christopher Agorsor, Principal at Agorsor Equities
Agorsor: Solid real estate development projections are a key to success, providing a roadmap for project feasibility and financial viability.
Lessons Learned and Tips for Success
Throughout the development process, developers must remain vigilant and adaptable, learning from their experiences and refining their strategies for future projects. Transparency and open communication with lenders are essential for building strong relationships and securing project financing. By attending industry events, networking, and staying informed about market conditions, developers can streamline their capital stacks and secure financing tailored to their project’s needs.
Building Capital Stacks: Navigating Project Financing
A capital stack represents the various sources of funding, including debt and equity, that finance a real estate development project. Developers must carefully structure their capital stacks to ensure project feasibility and mitigate risk.
By mastering the art of pro forma development and capital stack structuring, developers can navigate the complexities of the development process with confidence and achieve their goals. Training and resources provided through our programmatic services will help give you the confidence needed to build solid projections.
Whether you are an experienced charter school operator refining your approach or an enterprising newcomer ready to break ground in the charter school education sector, there is always more to discover and master to advance your institution and widen your impact. This series is crafted to deliver crucial insights and practical advice to drive your charter school projects and overall mission forward.
At the Momentus Capital branded family of organizations, which includes Capital Impact Partners, CDC Small Business Finance, and Momentus Securities, we are dedicated to expanding capital and opportunities for underestimated communities, including those innovating in charter school education.
Charter schools stand at the forefront of educational innovation, offering tailored learning experiences that meet the diverse needs of students. However, the journey from conceptualization to realization is complex, necessitating a deep understanding of community needs, financial intricacies, and the importance of a cohesive real estate development team. Inspired by the guidance provided in Capital Impact Partners’ report “The Answer Key: How to Plan, Develop, and Finance Your Charter School Facility (PDF),” this blog series distills critical insights and strategic advice, tailored to the unique challenges faced by charter school operators:
A Thorough Concept: Discover the importance of crafting a comprehensive and compelling concept that aligns with community needs and educational goals;
Meeting Lenders’ Expectations: Navigate the financial landscape with confidence, learning what charter school lenders look for and how to effectively present your vision;
Assembling a Solid Real Estate Development Team: Understand the crucial role of assembling a skilled team to turn your educational vision into reality, from architects to legal advisors.
In the first installment of this series, we unravel the complexities of developing a thorough charter school concept for your charter school that not only resonates with your community’s educational aspirations, but also stands the test of sustainability and growth.
Identifying Community Needs
A successful charter school concept begins with an understanding of the community it aims to serve. Our report (PDF) highlights the importance of conducting thorough market analysis and feasibility studies. These studies ensure that your school not only meets a genuine educational need, but also positions itself for sustainability and growth within the community. Ask yourself: What local educational gaps exist, and how can my school address them?
Demonstrating that your project is guided by knowledgeable and skilled professionals can significantly enhance your credibility with potential lenders
A successful charter school concept begins with an understanding of the community it aims to serve
Conducting a Feasibility Study
Once you have identified a potential niche, the next step is evaluating the feasibility of your concept (PDF). This means looking at potential enrollment numbers, assessing the financial landscape, and understanding zoning and regulatory requirements. Your school’s concept should be both ambitious and grounded in what is achievable given your resources and community context.
Community Engagement
Your charter school concept should also involve early and ongoing engagement with the community. This approach ensures that your school remains closely aligned with the needs and aspirations of the students and families it will serve. Building a dialogue with community members can provide invaluable insights that refine your charter school concept and strengthen your school’s local support network.
The aim is to create a school that not only fills an educational gap but also becomes an integral part of the community’s fabric.
Moving Forward
Crafting a thorough and community-driven charter school concept is just the beginning. It sets the stage for everything that follows in the journey of developing a charter school that truly makes a difference. With a charter school concept that’s informed by community needs, feasibility, and engagement, you are laying a strong foundation for your charter school. The aim is to create a school that not only fills an educational gap but also becomes an integral part of the community’s fabric.
At Capital Impact Partners, we specialize in offering flexible and affordable financing to a broad spectrum of community development projects that yield significant social impact. From community health centers to affordable housing, we extend our support to educational projects that elevate communities and promote sustainable growth. Additionally, we provide extensive support and resources tailored to the unique needs of charter schools, helping to ensure equitable access to quality charter school education for all students, regardless of socioeconomic status, race, or ethnicity.
Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.
At Capital Impact Partners, in particular, we offer flexible and affordable financing to a diverse array of community development projects that deliver tangible social impact. From community health centers to affordable housing developments, we are committed to empowering projects that uplift communities and foster sustainable growth. We also offer programmatic services that equip you with the resources, support, and networking opportunities you need to succeed in the real estate development world.
In the competitive realm of real estate development, success hinges not only on vision and execution but also on the ability to ensure real estate development relationship building, craft solid projections, and attract investors. These pillars serve as the bedrock upon which thriving projects are built, distinguishing between mere ventures and enduring successes.
Real estate development relationship building is the cornerstone of success in the field, spanning two critical areas: building a stellar development team, and engaging local stakeholders and the community. Let’s delve into each of these aspects to understand their significance and how they contribute to project success.
Building a Stellar Development Team
Real estate development relationship building starts with building a great team. A successful development project begins with assembling a stellar team that shares your vision and values. From project managers to architects, each team member plays a vital role in bringing your vision to life. As a new developer, being actively involved in the team-building process is essential. Seek out experienced professionals who align with the specific needs of your project, whether it’s historic preservation or meeting energy requirements. By asking for references and recommendations and ensuring each team member is comfortable and capable in their role, you can build a cohesive team poised for success.
Slamin: Engaging with local stakeholders and the community is fundamental to the success of real estate developers.
Engaging Local Stakeholders and Community
Engaging with local stakeholders and the community is not just a box to check—it’s a fundamental aspect of successful real estate development. From the early stages of planning to project completion, involving the community in the decision-making process is essential for building trust and goodwill. Define ‘community’ in the context of your project and understand the unique dynamics at play. Be deliberate in your outreach efforts, ensuring that community input informs every stage of the project lifecycle. While challenges may arise, proactive engagement and genuine listening can help overcome obstacles and foster meaningful connections.
As you embark on your journey as a real estate developer, remember that success is built on relationships. Whether it’s with your development team, lenders, or the local community, cultivating strong connections is essential to bringing your vision to life.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this third installment, we turn our attention to construction loans, the financial cornerstone that transforms plans into reality and buildings into vibrant community assets.
What is a Construction Loan?
A construction loan is a short-term loan that propels your development project from the drawing board to a physical structure. It provides the necessary funding to cover the costs associated with building, renovating, or expanding community assets. Construction loans may also cover the costs of buying land, drafting plans, taking out permits and paying for labor and materials. Construction loans typically have higher interest rates than other types of loans because lenders are taking on more risk by financing the construction of a new property.
Turning Blueprints Into Bricks
At the heart of any community development project lies the construction phase. This is where ideas take shape, and communities begin to witness tangible progress. Construction loans provide the essential capital for hiring contractors, purchasing materials, and overseeing the entire construction process. They also empower developers to maintain high standards of quality by financing skilled labor, sustainable materials, and adherence to safety standards. Moreover, construction loans cover costs at various stages of construction, from groundbreaking to final touches, keeping the project on track and minimizing delays so communities can start benefiting sooner.
How are Construction Loans Used in Community Development?
Construction loans enable developers to borrow money to purchase materials and pay for labor necessary to build or rehabilitate a real estate project. Unlike traditional loans, construction loans are tailored to the unique financial needs and timelines of development projects, ensuring that funds are available precisely when they’re needed the most. Because construction loans generally are intended to cover the building process, they’re typically issued for a period of 12 to 18 months. Community developers can use construction loans towards projects such as building or rehabilitating spaces into affordable housing. Capital Impact Partners has closed on a loan to finance the construction of a 37-unit apartment building for veterans and their families living with very low incomes and experiencing homelessness. Once completed, the six-story, 28,0000-square-foot apartment building in the Brightwood Park neighborhood of D.C. will play an important role in building the resilience of the local community.
Construction loans can be used towards the rehabilitation or construction of charter schools as well. Capital Impact Partners has closed on a construction loan to fund the renovation of a 25,000-square-foot former Kaplan College into the Betty M. Condra School for Education (Condra School) in Lubbock, Texas. When complete, the renovations will allow the Condra School to increase its capacity by 88 percent to 375 students, with larger classrooms and more play spaces to benefit students with attention-deficit/hyperactivity disorder (ADHD).
Flexible, Short-term Financing for Long-term Impact
In the case of a construction loan, disbursement happens in phases. This means that the lender pays the developer in installments, called “draws,” instead of transferring a lump sum. This is to ensure that the developer is using the loan funds for the intended purpose. Each installment coincides with an important phase of the project, such as pouring the foundation, framing, and finishing work.
One benefit of construction loans is that developers would only pay interest on installments that have been drawn, versus paying interest on the entire loan amount. Another benefit is that construction loans offer more flexibility in terms of loan terms, compared to traditional loans. Developers can make loan terms around the needs of their projects.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.
In this second installment, we explain what real estate acquisition loans are, and how developers and community leaders can utilize them to bring their community-centered projects to life.
What is a Real Estate Acquisition Loan?
A real estate acquisition loan is a type of loan that is used to purchase real estate. This type of loan is often used by community developers to acquire existing property or development land that they plan to preserve or redevelop for affordable housing, commercial development, or other community-benefit purposes.
How are Real Estate Acquisition Loans Used in Community Development?
Real estate acquisition loans can be used to purchase a variety of properties, including:
Vacant land for the development of new affordable housing, commercial space, or other community facilities
Existing buildings that will be renovated or converted into community facilities
Distressed properties that need to be rehabilitated or redeveloped to revitalize a neighborhood or community
Vacant land for the development of new affordable housing, commercial space, or other community facilities
Capital Impact Partners has closed on a real estate acquisition loan to Medici Road to purchase a vacant plot in Washington D.C.’s Ward 7. Medici Road plans to develop the land into a 17,000-square-feet building with 12 condo units for sale at prices affordable to D.C. residents earning 80 percent of the Area Median Income – a path to intergenerational wealth building, and a way for long-time residents to stay local in a gentrifying neighborhood.
Existing buildings that will be renovated or converted into community facilities
The Betty M. Condra School for Education Innovation in Lubbock, Texas, was acquired with a real estate acquisition loan issued by Capital Impact Partners. The acquisition of this two-story building increases the school’s capacity by 70 percent.
Distressed properties that need to be rehabilitated or redeveloped to revitalize a neighborhood or community
An illustrative example is that of Skyland Apartments in Washington, D.C. ‘s Ward 8, which was acquired by Enterprise Community Development (ECD), a leading nonprofit affordable housing development firm in the Mid-Atlantic region. With an acquisition loan issued by Capital Impact Partners, ECD’s development of Skyland Apartments preserves 224 affordable residential units and eight commercial units. The residential units are occupied by families earning at or below 60 percent of the local Area Median Income.
Access to Capital, Flexibility, and Partnership Building
Real estate acquisition loans can provide a number of benefits for community development projects. They can provide community developers with the financial resources they need to purchase land or properties that they might not be able to afford otherwise. The flexibility of being able to purchase any property allows community developers to tailor their projects to the specific needs of the communities they serve.
Real estate acquisition loans can also help community developers to build partnerships with other organizations, such as lenders, investors, and government agencies. These partnerships can provide additional resources and support for community development projects.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
Launching and growing a food business requires significant upfront investment – but obtaining the funds to get one off the ground is a challenge for many start-up founders. This is especially true for diverse entrepreneurs, who face systemic challenges in accessing business funding, including grants and loans.
That’s where the Nourish DC Collaborative comes in. Since 2021, it has deployed $935,000 in grant funding over two rounds to 22 diverse-owned businesses (15 of which are also woman-owned). In addition to these grants — which are rarely an option in the food industry — Nourish DC has offered $15 million in loan financing and $625,000 in funding to help partners increase their technical assistance and lending capacity.
Funding That Fuels Communities
Nourish DC grants are available to D.C. businesses ranging from grocery stores to urban farms, food processors, and restaurants that increase access to healthy food and create high-quality jobs in the community. All current grantees are located in Supermarket Tax Incentive Areas (neighborhoods with poor access to groceries and fresh food), primarily in the District’s Wards 5, 7, and 8.
The grants can be a lifeline for founders in the early stages of starting a business who may not qualify for loans.
“Many of our grantees are receiving their first grants, which gives them the confidence and validation to grow their businesses,” says Alison Powers, director of Economic Opportunities for Capital Impact Partners.
Since community members are better placed to understand their neighbors’ needs than funders, Nourish DC grants are responsive and inclusive, allowing recipients to direct the funds in the ways that will most benefit their businesses and communities.
Grantee Story: Turning a Family Food Tradition Into a Business
When D.C. native Patrice Cunningham lost her job as chef and manager of a Korean BBQ restaurant in the District at the start of the COVID-19 pandemic, she saw a moment of opportunity.
Cunningham held an MBA and had long dreamed of starting a business that celebrated the foods from her blended Korean and African-American heritage. In the summer of 2020, she landed on a plan: selling fresh kimchi using her mother’s recipe. With the U.S. market for kimchi — a traditional Korean dish made of salted and fermented cabbage and other vegetables — valued at $70 million, Cunningham knew that her idea had potential. But securing funding for her new business, which she named Tae-Gu Kimchi for her mother’s hometown in South Korea, wasn’t so easy.
Facing Financial Headwinds
From the start, Cunningham hoped to create a national brand and see Tae-Gu Kimchi on grocery shelves across the country in stores like Whole Foods and Trader Joe’s. But when she lost her job, Cunningham only had $500 in her bank account. To cover start-up costs, including licensing fees, supplies, packaging, and commercial kitchen space, she accepted a loan from a friend and maxed out her credit cards. Her mother pitched in to buy ingredients and help her make the kimchi.
Cunningham’s initial weekly sales at farmers markets were enough to cover ingredients for the next week’s batch of kimchi — but her reliance on revenue meant she couldn’t scale up or work toward her goal of getting her product onto store shelves.
The obstacles Cunningham faced weren’t unique. In addition to difficulty accessing credit, diverse-owned businesses nationwide hold fewer cash reserves and report lower first-year profits, factors which can curtail a business’ ability to grow and even to survive long-term.
But when Cunningham was awarded a $45,000 Nourish DC grant in early 2023, Tae-Gu Kimchi’s trajectory changed quickly.
“It was like winning the golden ticket,” Cunningham said. “It was pivotal because I was ‘bootstrapping’ at that point. I had all these costs, and I had run out of packaging.”
Preparing For Scale
With Nourish DC grant funding in hand, Cunningham went from selling kimchi at four farmer’s markets per week to 15. She purchased a truck, additional tents and tables, more packaging (featuring a brand redesign), and commercial refrigeration space. She also immersed herself in courses and programs about everything from packaging to pitching her product to grocery stores.
Since Cunningham’s mother had always made kimchi from memory, one key challenge was scaling her recipe. Cunningham carefully documented her process and the exact mix of ingredients that made the kimchi stand out. “That taste is something you can never forget,” she says.
Tae-Gu Kimchi’s growth has allowed Cunningham to build a sales team of nine employees and a kitchen team of three in addition to herself, expanding the Nourish DC grant’s impact.
Growing Within the D.C. Community
When small businesses succeed, they create a rising tide that lifts those around them. Nourish DC grant recipients don’t just provide their communities with additional food options, but also with job opportunities and chances for neighbors to get to know one another.
In the last year, Tae-Gu Kimchi’s growth has allowed Cunningham to build a sales team of nine employees and a kitchen team of three in addition to herself, expanding the Nourish DC grant’s impact. She also used to grant funding to dramatically scale up her farmers’ market business, going from four markets per week to 15 and hiring a company to set up and manage these. This gave her more time to pursue grocery sales channels, manage online sales, and develop content for social media.
With Nourish DC grant funding in hand, Cunningham went from selling kimchi at four farmers’ markets per week to 15.
Cunningham has deep appreciation for Nourish DC and the support she received. “They understand that DC is a big food scene right now and so many people are starting food businesses,” she says. “They give businesses the opportunity to make it.”
The Nourish DC grant had the desired impact. As of 2023, Cunningham’s various sales channels — farmers’ markets, grocery stores (her products are sold at two Dawson’s Markets in the DC area), and online sales — are consistently producing revenue of $15,000 to $20,000 per month, with a few months spiking upwards of $30,000. Local customers also can pick up the kimchi at her Ward 5 location or have it delivered.
Now, Cunningham is looking for the capital to fuel her next round of growth, which will include building her own kimchi kitchen/production facility, identifying a co-packing partner, and making inroads into retail channels. “I’m going to take this as far as I can,” she says.
In this series about community development lending, we aim to shed light on the diverse types of loans we offer at Capital Impact Partners, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan. In this first installment, we delve into the essence of predevelopment loans, exploring what they are and how developers and community leaders can utilize them to bring their community-centered projects to life.
What is a Predevelopment Loan?
A predevelopment loan serves as a critical lifeline during the earliest stages of a development project. It specifically targets the upfront costs associated with project planning and preparation, enabling developers to refine their visions and align them with the needs and aspirations of the communities they aim to serve. This loan bridges the gap between concept and execution, ensuring a solid foundation for success.
Exploring Site Selection and Due Diligence
Choosing the right location is paramount in community development projects. Predevelopment loans allow developers to explore potential sites, conduct due diligence, and assess the feasibility of their projects; this phase involves considerable research and assessment. From evaluating zoning regulations and environmental factors to assessing community demographics and market demand, developers can make informed decisions that contribute to the long-term success of their initiatives.
Capital Impact has financed a predevelopment loan to Chestnut Neighborhood Revitalization Corporation (CNRC) to assess the feasibility of constructing The Ivory, a five-story, mixed-used, mixed-income development in the Chestnut neighborhood of Austin, Texas. The Ivory’s construction is expected to preserve the history, legacy, and culture of Chestnut, once a flourishing artistic, cultural, and commercial hub for the African-American community.
Engaging Stakeholders and Building Partnerships
Predevelopment loans not only provide the financial means for planning but also facilitate collaboration and partnership building. Developers can leverage these loans to engage with stakeholders, including community members, local organizations, and government agencies. Through consultations, workshops, and community meetings, developers can gather valuable input, build consensus, and establish partnerships that enhance the overall project design and increase its positive impact.
An illustrative example is Russell Woods, a 102-unit assisted living senior housing development located in Detroit. Capital Impact has financed a predevelopment loan to Icon Heritage Partners to ensure that collaboration with the City of Detroit was established so that the renovation of the property fit within the city’s Strategic Neighborhood Plan.
Navigating Regulatory Requirements and Permitting
Complying with regulatory requirements and obtaining necessary permits can be complex and time-consuming. Predevelopment loans enable developers to navigate these processes efficiently by allocating funds for legal and consulting services, permit fees, and other regulatory expenses. This support streamlines the development timeline and minimizes potential obstacles, ensuring smoother project progression.
Mitigating Risks and Demonstrating Viability
Developing a successful community-centered project involves potential risks. Predevelopment loans mitigate these risks by providing financial resources to overcome obstacles encountered during the planning phase. By demonstrating project viability and commitment, developers enhance their credibility when seeking additional financing from lenders or investors for subsequent project stages.
TBV Courtyard, a 12-unit affordable multifamily development in the South Annex neighborhood of Richmond, California, is a great example of how additional project financing comes more easily when project viability is demonstrated. TBV Courtyard represents phase two of a larger development plan to provide a total of 105 units of affordable housing to the neighborhood. Given that phase one’s predevelopment studies proved viable, the process to receive financing for phase two was seamless.
Check out our mission-driven lending page for more information about our products to find out which might work best for you.
Stay tuned for the next installment in our blog series, where we explore real estate acquisition loans, another type of loan that moves community development projects forward.
For anyone seeking to access lending for community development projects, understanding the different types of loans can be confusing.
At Capital Impact Partners, our commitment to fostering positive social impact drives us to support mission-aligned real estate developers and community development leaders with a range of flexible and affordable financing solutions.
Our community development lending offerings include predevelopment loans, real estate acquisition loans, construction loans, working capital loans, refinance loans, New Market Tax Credit (NMTC) leverage loans, and NMTC Qualified Low-Income Community Investment (QLICI) loans.
Our loan products are designed to help our borrowers achieve their goals and revitalize disinvested and underestimated communities, whether that constitutes developing or preserving affordable housing, creating jobs through a small business, or building the resilience of communities through access to health care, healthy food, and education.
In this series of blogs, we aim to shed light on the diverse types of loans we offer and explore their significance within the context of Capital Impact’s mission-driven financing, in the hope that it will provide clarity to help borrowers make informed decisions about applying for community development loans.
We walk through the different types of loans we use to support developers and community leaders in bringing their community-centered projects to life:
As a mission-driven developer, organization, or business looking into community development projects, you may be coming across language that might sound confusing and be challenging to understand. What is a CDFI? What is NMTC? What is LTV?
At Capital Impact Partners specifically, we offer flexible and affordable financing to a broad range of community development projects that deliver social impact, including community health centers, public charter schools, small businesses, cooperatives, healthy food retailers, affordable housing developments, and dignified aging facilities.
This glossary aims to demystify terms to help you navigate through our lending and programmatic services and offerings. Below you will find definitions of terms divided into the following thematic sections:
Community Development Financial Institutions (CDFIs)
Community Development Financial Institutions (CDFIs) are mission-driven private sector financial institutions that focus on serving people living with low incomes and people who have historically been locked out of the financial system. Their work entails providing lending for small businesses and community projects, affordable housing, and essential community services in the United States.
As a CDFI, Capital Impact Partners has delivered community facility financing, capacity-building programs, and impact investing opportunities to champion key issues of equity and social and economic justice since 1982.
Community Development
Community development activities tackle underestimated populations that do not have equitable access to affordable housing, health care, healthy food, and education, nor connections to capital, entrepreneurship, and quality jobs, to help them become stronger and more resilient.
At Capital Impact Partners, and together with the Momentus Capital branded family of organizations, we offer a continuum of capital products and services to transform how capital and investments flow into underestimated communities and drive community-led solutions that support economic mobility and wealth creation.
Lending Process
Capital Stack
Debt coverage ratio (DCR) is a measurement of a firm’s available cash flow to pay current debt obligations. While a DCR of 1.25 is the minimum requirement for most lenders, a higher number — such as 2 — shows lenders you are financially stable and can repay your debts. A higher DCR can also mean a potentially lower interest rate as lenders see you as less of a risk for defaulting on your loan.
Loan Term
The term of a loan is the period of time a borrower has to repay the loan. This choice affects their monthly principal and interest payment, their interest rate, and how much interest they will pay over the life of the loan.
A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.
Underwriting
Underwriting is the process of your lender verifying your income, assets, debt, credit, and property details to issue final approval on your loan application.
Loan Types
Predevelopment Loan
A predevelopment loan serves as a critical lifeline during the earliest stages of a development project. It specifically targets the upfront costs associated with project planning and preparation, enabling developers to refine their visions and align them with the needs and aspirations of the communities they aim to serve. This loan bridges the gap between concept and execution, ensuring a solid foundation for success.
Real Estate Acquisition Loan
A real estate acquisition loan is a type of loan that is used to purchase real estate. This type of loan is often used by community developers to acquire existing property or development land that they plan to preserve or redevelop for affordable housing, commercial development, or other community-benefit purposes.
Construction Loan
A construction loan is a short-term loan that propels your development project from the drawing board to a physical structure. It provides the necessary funding to cover the costs associated with building, renovating, or expanding community assets. Construction loans may also cover the costs of buying land, drafting plans, taking out permits and paying for labor and materials. Construction loans typically have higher interest rates than other types of loans because lenders are taking on more risk by financing the construction of a new property.
Business Acquisition Loan
A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives.
Loan Refinancing
A refinance refers to the process of revising and replacing the terms of an existing credit agreement. Borrowers usually choose to refinance a loan seeking to make favorable changes to their interest rate, payment schedules, or other terms outlined in their contract. If approved, the borrower gets a new contract that takes the place of the original agreement.
New Market Tax Credit (NMTC) Qualified Low-Income Community Investment (QLICI) Loan
The capital that a community development entity provides to a qualifying project is known as a Qualified Low-Income Community Investment (QLICI) and it is a seven-year, interest-only loan.
Health Care
Integrated Care
Integrated care is a unique approach to health care that is characterized by close collaboration and communication between multiple doctors and healthcare professionals. In other words, it is a type of healthcare where all of your doctors work together to solve issues with your physical, mental, and behavioral health. At Capital Impact, we support the Integrated Care model because it improves the quality of care, promotes better health and lower costs while creating thousands of jobs, spurring economic development.
PACE (Program of All-inclusive Care for the Elderly)
Area Median Income is the income for the median household in a given region. If you were to line up each household from poorest to wealthiest, the household in the very middle would be considered the median.
Tenant Opportunity to Purchase Act (TOPA)
TOPA, or “Tenant Opportunity to Purchase Act”, is a type of anti-displacement housing policy that gives tenants options to have secure housing when the property they rent goes up for sale, while also preserving affordable housing.
Cooperatives
Food Co-ops
A food co-op is a grocery store that is totally independent and owned by the community members who shop there. An illustrative example is ChiFresh Kitchen, a food co-op owned by justice-involved Chicagoans. ChiFresh won a Co-op Innovation Award and was not only able to continue its expansion, but also pivot to provide freshly cooked and culturally appropriate foods to those impacted by COVID-19.
Housing Co-ops
A housing co-op provides an alternative to the traditional methods of acquiring a primary residence. It is a type of residential housing option that is actually a corporation whereby the owners do not own their units outright. Instead, each resident is a shareholder in the corporation based in part on the relative size of the unit that they live in. Capital Impact Partners has helped ROC USA, a nonprofit that helps residents form cooperative corporations to purchase their manufactured home communities from private owners and manage their neighborhoods in perpetuity. They have gone on to become a powerhouse in this area, helping thousands of residents become homeowners and community stewards.
Worker Co-ops
Worker cooperatives are values-driven businesses that are owned and operated by their employees. Capital Impact has made a $1 million preferred equity investment in Obran Cooperative, a unique company that operates a number of worker-owned healthcare companies.
Worker Co-op Conversions
Worker co-op conversions – or employee ownership conversions – occur when businesses transition from a traditional ownership structure to employee ownership. Essentially, the business owner sells the business to the employees. These conversions (PDF) can drive company productivity while rewarding the people who are contributing to the company’s success, as well as helping to preserve the company’s mission and values.
In 2021, Capital Impact Partners financed the worker co-op conversion of Ward Lumber. This new cooperative is another example of the power of worker co-op conversion to maintain and increase wealth and stability within communities.
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