Since our inception, we have served sectors, industries, and borrowers not served by the traditional financial system.
Like many CDFIs, Capital Impact provides more flexibility than traditional lenders in some key areas like loan-to-value limits and financial covenants that borrowers must meet.
However, our credit guidelines — the policies that guide our loan structures and lending decisions — are built on the traditional approach to credit that has deep roots in a financial system that intentionally excluded some people for much of its history. Often, our lending team seeks one or several “exceptions” to our credit guidelines to accommodate the diverse needs of our borrowers.
Creating flexible financing is both a mindset and an approach. To do so, we need input from our clients and communities to rethink and reshape our products and requirements. When done correctly, this approach gears us away from the extractive patterns of traditional financing and closer to confirming that when people are given the opportunity to succeed, their communities, local residents, and our country thrive.
We have spent the last several years providing capacity building and support to community-rooted developers across the country. Having seen in our own lending that these developers were not well represented and hearing the barriers that they face in scaling up to work on more and larger projects, we determined that we needed to take bigger steps to address the need.
How We Are Doing Things Differently
In that light, we spent the better part of 2022 reviewing and revising our lending requirements and processes to be more equitable, to better support community-rooted developers and borrowers from all walks of life in having access to the capital and opportunities they deserve.
As a part of the Momentus Capital branded family of companies, it also became important for Capital Impact to revise and improve efficiencies in lending approval processes to account for a combined strategy.
Because one of the most important parts of transformation is transparency, we want to share the recent updates to our credit guidelines with our communities, partners, and other stakeholders.
EDI program graduates benefit from training and access to capital.
An Overview of Our New Credit Guidelines
Equity Commitment
Developer Experience
Staying true to our vision, we want to be able to support community-centric developers who might not have had the opportunity to build and sustain a track record in the markets where they are active.
Old guideline: requirement of three completed and operating projects
New guideline: one completed project and have been in operation for 3+ years
We are committed to looking at the borrower as a whole, taking into account their background including education, work history, participation in the EDI program or other capacity building initiatives, as well as any relevant experience with joint venture partners and consultants.
Developer Equity
We wanted to lighten the load on a borrower to bring a certain amount of cash to each project.
Old guideline: 25 percent equity requirement for predevelopment costs in cases where there is real estate collateral
New guideline: 10 percent equity requirement for predevelopment costs
This change benefits borrowers by allowing them to preserve their funds and use them toward working capital, growing/expanding their business, hiring staff, etc.
Guarantee Requirements
Given that most of the borrowers we work with have limited resources, we have eliminated the requirement of a strong guarantor possessing liquid assets and cash flows.
We still expect people who own 20+ percent of a business and are actively engaged in the business to issue guarantees, but we now look at guarantees as an assurance of the borrower’s commitment to the project rather than as a source of repayment.
Small Multifamily Project Guidelines
We are mindful that not every developer has the expertise and capacity to pursue larger-scope projects with more than 20 units. This, however, should not impede them from having the opportunity to start smaller projects that may be a better fit for their current experience level.
Old guideline: stringent requirements on projects under 20 residential units; did not allow developments with less than 10 units
New guideline: Eliminated requirements on projects under 20 residential units and now allow developments with fewer than 10 units
Smaller unit projects often have higher credit risk because a single vacant unit could jeopardize the project’s ability to make loan payments. However, smaller projects are an important stepping stone for many developers trying to build their portfolios, and we can mitigate the risk with other things like operating reserves and technical assistance.
That being said, we do have minimum loan sizes (now $500,000), but this does not have to impede borrowers from coming to us, as we are actively building a partner network to which we can refer clients in need for smaller loan sizes.
Streamlining Lending Approval Processes
As a mission-driven organization, it became all the more important for us to improve efficiencies in lending approval processes so as to be able to serve entrepreneurs and their communities seamlessly.
To that end, we have worked on the follow updates:
Eliminated credit committee approval to be able to issue term sheets to borrowers;
Reduced the size of our credit committee and streamlined approvals for lower-dollar loans;
Moved away from issuing commitment letters upon loan approval, and switched to issuing approval letters that are less of a legal document and more of a summary of terms. The reasoning behind this is that we want to avoid putting borrowers in a position where they have to make legal decisions prior to engaging legal counsel, and we also want to streamline our process to close loans more quickly.
Pivoting to Achieve Financial Equity for Our Communities
The changes above are only a starting point. We are committed to adapting to the needs of our borrowers by adding new products and continuing to evolve our credit guidelines in a way that meets the needs of our borrowers. In addition, we are building out a more robust network of technical assistance for our borrowers that ultimately reduces credit risk to both the borrower and the lender. One great example of that is our EDI program. Through EDI, we aim to provide capacity building in the form of training, mentorship, access to technical assistance, and predevelopment grants (where/when available) to community-centric developers, so as to enable them to succeed in projects appropriate to their levels of expertise.
We are continuing to think through how we can fold equity into our credit guidelines to transform how capital and investments flow into communities. We are excited to share more about our journey as we grow and evolve to serve communities.
As a real estate developer looking to deliver social impact, the process of finding and engaging with a lender can be hard. Once your mind is set on starting a community development real estate project, who do you turn to? Where do you find them? What is the process like?
As part of the Momentus Capital family of mission-driven lenders, Capital Impact Partners – a certified Community Development Financial Institution (CDFI) – provides flexible and affordable loans of $650,000+ ($350,000 under special circumstances) to finance key community pillars, including health centers, education facilities, food retailers, affordable housing, small businesses, and cooperatives.
We are a national lender, capable of providing loans across the country, but we also have a place-based focus in specific regions, including California, Michigan and northwest Ohio, the New York Tri-State Area, the Southeast, Texas, and the Washington metropolitan area.
We know you have got questions about the community development real estate process. To help get your process started, we offer some answers here about working with a CDFI lender.
1. When in the development process should I start working with a CDFI lender?
It is never too early to start gathering information from lenders, but you’d ideally want to get started when you are about six months from starting construction.
By then, you would have a good estimate for the timing of obtaining permits and starting construction.
CDFIs such as Capital Impact Partners will work hand in hand with real estate developers looking to deliver social impact
2. What types of reserves will a CDFI lender require?
Lenders will have contingencies on your project that may go above and beyond what you have budgeted; usually 7.5-15% of hard costs expenses and 5% of soft cost expenses.
If you are capitalizing interest during construction, which is recommended when there are no operations ongoing during construction, that will need to be included in the overall project budget.
Once construction is completed, there may be lease up reserves, debt service reserves, and/or facility maintenance reserves.
3. Where does the capital that CDFIs lend come from?
CDFIs serve as capital aggregators that attract capital from the market, banks, government sources, and foundations.
4. Will a CDFI lender hold the loans or will they sell them?
CDFIs do both. At Capital Impact, if they are sold, we ensure that there is no impact on the Borrower’s experience or relationship.
5. What influences CDFI lenders’ rates?
Primarily it is the Treasury rates, unless the CDFI has a sector/geographic fund that is independent of Treasuries.
6. Who approves the loan and how does the loan committee work?
CDFIs have groups that review deals. Capital Impact has an internal credit committee that reviews deals on a weekly basis.
Some CDFIs or specific loan products require external review and approval. Underwriting packages must be submitted at least a week in advance to receive approval the following week.
The committee cares about the financial strength of the transaction, the deal fitting into our established credit guidelines, and the impact of the transaction on the community.
8. Who will be my main contact for loan closing and will it change afterwards?
You may first interact with a business development officer or someone with a similar position, who will be the initial point of contact until a term sheet is signed.
Then you’ll speak with a loan officer who will underwrite your transaction until it is approved.
Once approved, a legal and closing team will drive the process, but the loan officer will remain involved to ensure the loan is closed according to what was agreed to with the borrower and as outlined in their underwriting.
9. As a non-legal person, how do I review a loan agreement?
Consider seeking legal counsel to review a loan document. But generally, check that the interest rate, fees, and dates match your understanding. Check the reporting and financial covenants to ensure you can meet them.
10. What should I do if I think I am going to default on my loan?
Tell your lender as quickly as possible. CDFIs are lenders with a mission to provide fair, responsible financing, and they will work closely with you when things are tough. Another very important element to take into consideration when looking to establish a relationship with a community development real estate lender is that lender’s value system. You have the right and responsibility to vet the lender to make sure that their values, goals, and philosophies align with yours. It is a two way street and any conversation about funding should be as much about the entrepreneur evaluating the funder as the funder evaluating the entrepreneur.
On Her Own ‘Merritt’: Developer Among 39 Chosen For $40 Million Wells Fargo Grant
2022
Gina Merritt — the developer and founder of Northern Real Estate Urban Ventures — was one of the 39 developers participating in the Growing Housing Developers (GHD) program, an initiative co-led by Capital Impact Partners. “This is a humongous opportunity for me,” said Merritt. “The program is also going to create real estate products, and other balance sheet products that will help support developers like myself, who have been able to work in the industry, and manage projects, but don’t have the friends and family money that our white counterparts have.”
Momentus Capital’s Chief of External Affairs, Robert Villarreal, recently testified in front of the Senate Committee on Small Business and Entrepreneurship about improving access to capital in disinvested communities through the Small Business Administration (SBA) Community Advantage (CA) loan program.
The Community Advantage pilot program was launched in 2011 to expand the points of access that small business owners had for getting loans from mission-driven financial institutions. These lenders intentionally support underestimated community members, businesses, and organizations – with an emphasis on assisting people of color, women-owned businesses, and startups.
2022 is a special year for us at Capital Impact Partners as it marks our 40th anniversary. Four decades of leaning into helping people build communities of opportunity and developing pathways to success.
And while this is an exciting time for us as we embark on a new strategy under Momentus Capital, it is equally important to remember our roots as a champion for the cooperative movement.
Co-ops represent a cultural shift away from blind profit toward shared social benefit. It is a model that challenges the status quo and offers workers, especially workers of color, an alternative to extractive systems.
These principles not only shaped our work in the very beginning, but continue to anchor our strategy as we grow and evolve and develop new business lines and affiliate organizations. They even underpin our newest vision statement to help create an economic system that respects and uplifts all peoples’ right to achieve the dreams they have for themselves, their communities, and generations to come.
Our Co-op Beginning
While we are now a national organization of nearly 300 staff members across our family of organizations, Capital Impact’s beginnings were quite humble.
One our our first pamphlets…many names ago.One our our first pamphlets…many names ago.
In 1978, Congress rightly saw the need to better support the cooperative movement. That led to the passage of the National Consumer Cooperative Bank Act and the creation of the National Cooperative Bank.
Four years later, a tiny division known as the Office of Self-Help Development and Technical Assistance was launched to provide more focused work on bringing co-ops to underestimated communities and contribute to the economic development for people living with low-to-moderate incomes.
Over time, this effort grew and went through several different names before becoming Capital Impact Partners – the nonprofit Community Development Financial Institution we are today.
To date, Capital Impact has lent nearly $315 million in support of food, worker, and housing cooperatives, and has provided $725,000 in grants for co-op development.
More important than the numbers is the incredible journey of discovery to imbue our work with a co-op lens and shape the impact we can have with communities. It is a journey that has cemented our role as a mission-driven organization dedicated to fostering health, wealth, and justice for underestimated communities.
Expanding to Support Community Development
As our cooperative work expanded across the country, so did our support for community development more broadly. We saw that, for communities to be healthy and thrive, they needed a spectrum of vital social services, from health care to education to affordable housing.
Farmers workers in California often have very little access to health care, so OLE Health takes health care into the fields.
Some of my favorite stories are about projects we’ve financed over the years that have had great impact on their respective communities. Like OLE Health, a health care provider in Northern California that recognized roadblocks to patient care and created programs to meet patients where they are. And Montessori for All, a free public charter school in Austin, Texas dedicated to “diverse-by-design” education, with a mission of achieving equitable academic outcomes for students across socioeconomic levels.
California farmworkers receive health care at a makeshift clinic created by OLE Health.
It was also a time where we expanded our approach to not just think as a lender, but how we could amplify community development through other organizations.
That led to Capital Impact joining with several leading nonprofit organizations to help form ROC USA Capital, a nonprofit that helps residents form cooperative corporations to purchase their manufactured home communities from private owners and manage their neighborhoods in perpetuity. The true power of what this means can be seen in Takesa Village, a community that we helped to finance so they could become stewards of their land.
ROC USA has championed the dignity inherent in all forms of housing, particularly manufactured housing, and build the power of manufactured home communities to control their own destinies
ROC USA, a longtime partner of Capital Impact Partners, helps residents of manufactured home communities, like Takesa Village, to purchase their community and operate it cooperatively, which has preserved affordable housing options across the country.
Evolution Toward Holistic, Place-Based Investment
Over the years, not only has our scope of work developed — but so did our footprint. We saw an opportunity to support Detroit communities in a holistic manner that would advance economic prosperity and social justice for longtime residents, an opportunity that led to a concerted place-based strategy.
In the early 2000s, when the Great Recession sent the Motor City reeling, we were asked by the Kresge Foundation to be part of the Living Cities Integration Initiative. This effort was designed to support the city’s revival by joining with other organizations to invest in a “place-based” strategy designed to foster holistic ecosystem change.
It proved to be a seminal moment for our organization. This strategy allowed us to draw and define on a map the different parts of the city where we knew our work would be most effective. It taught us the importance of what it meant to stand shoulder-to-shoulder with a community, understand the barriers it faced, and work with community members to implement their solutions.
This type of engagement at the local level provided a real understanding of what was going on in the neighborhoods that we serve.
Some great examples of developments we invested in Detroit and Michigan include The Auburn and Casamira — which brought affordable housing options and mixed-use space to local communities — and Imperial Fresh Market, a grocery store that serves its community in northwest Detroit with fresh, healthy food daily.
Imperial Fresh Market has supported its Detroit community with access to healthy food and quality jobs since the Shina brothers opened more than 20 years ago.
We found this approach so impactful that we applied this place-based strategy to our approach in other parts of the country, including northern and southern California, Michigan and northwest Ohio, Texas, the New York Tri-State area, and the Washington metropolitan area.
Equity is the Beginning of Wealth & Health
Our work on the ground in Detroit also revealed another opportunity we had overlooked. While we were making good strides in our lending, we were missing entire swaths of the population who simply never had the opportunity to launch the kinds of projects we supported.
Opportunity has been historically driven by access to quality education to build quality jobs that build generational wealth. For residents of underestimated communities, access to the financing, training/education, and networks that would help them open businesses or engage in real estate development to build local wealth and health have been systematically denied.
That realization led to the creation of our EDI program – a program that provides training, mentorship, and access to capital for developers of color – which has since expanded beyond Detroit to the Washington metropolitan area; the San Francisco Bay Area; and Dallas, TX, and has served more than 200 developers.
Through our EDI program, developers across the country get a foothold into the real estate development industry, with training, mentorship, and access to capital.
In leading this investment in developers of color, we listened to their needs around access to capital. Listening to the financing gaps they experienced led to us creating the Diversity in Development Loan Fund in Detroit and the Washington metro area, which will soon be expanded nationally.
Our work in listening to community members to develop products and services to support their needs has not gone unnoticed. Fast Company recently recognized Capital Impact’s work in their 2022 list of the Most Creative People in Business.
It was this understanding of the need to listen to communities and ensure that our strategy addressed systemic issues and barriers that led to another seminal program.
In 2015, we created and have continued to manage our Co-op Innovation Award to amplify innovative co-op business models in communities living with low incomes and/or communities of color. Since that time, we have supported 17 co-ops nationwide and disbursed $685,000 in grants, which helped our awardees leverage more than $9.1 million in additional funding from foundations, investors, and government.
Cooperatives are powerful tools for economic stability and wealth building. Our Co-op Innovation Award has given seed funding to innovative co-ops fostering self-determination nationwide.
Cooperatives have so much power to create economic stability and self-determination for residents of underestimated communities, and the power becomes greater when it can be scaled. Another conversation that we have been taking part in is around the potential of employee co-op conversions to foster a deeper level of economic mobility and stability. These conversions happen when a business owner sells the business directly to their employees, rather than into the market. With Baby Boomers retiring, many healthy businesses have no one to inherit the business and no buyers; as a result, these businesses are closing in record numbers, and that trend was only exacerbated by the COVID-19 pandemic.
In 2018, we published “Co-op Conversions At Scale,” a market research report to assess the growth potential of employee ownership (worker co-op) conversions in several markets, and convened CDFIs, small banks, and credit unions to learn about opportunities for scaling and financing co-op conversions.
In 2021, we turned that research into action and financed the employee ownership conversion of Ward Lumber, a 130-year-old business in New York, allowing more than 40 employees to become worker-owners.
What we learned is that true transformation comes from deep investments in local ecosystems to change the systemic and historical issues that have kept communities from building generational wealth that would help them thrive.
New Horizons for Addressing Systemic Disinvestment
Today, we continue the throughline of our work, which centers on building prosperous communities through economic, social, and racial justice. We are challenging ourselves to think bigger and more creatively about how to work hand-in-hand with community members to foster equitable and inclusive opportunities for wealth building.
In July of 2021, Capital Impact Partners, CDC Small Business Finance, and Ventures Lending Technologies came together to create the Momentus Capital family of organizations. This milestone was achieved through two years of work to come together as a new enterprise.
Momentus Capital is a first-of-its-kind financial organization that brings together leading companies rooted in social mission. Momentus Capital offers a continuum of financial, knowledge, and social capital to help local leaders build inclusive and equitable communities and create generational wealth. Together, we are now able to leverage our 80+ years of experience to offer our borrowers and partners an even more comprehensive set of solutions – including lending and impact investments, training and access to networks, and innovative technology – while also being more innovative and nimble than we could when operating separately.
Most recently, we began looking at the opportunity to offer more than just loans and grants, but also actual equity investments in companies run by diverse entrepreneurs and/or serving communities of color. Much like in other areas we focus on, Black communities are drastically underserved by the venture capital community. We decided this was another place we could make a difference by offering. To address this issue, we launched our impact investments program, which combines venture debt, revenue/profit-sharing agreements, and preferred equity investments to aid growth-stage businesses led by diverse entrepreneurs and employee-owners.
While we invest in a broad range of companies, it is critical that cooperatives be represented.
One of our very first investments was in Obran Health, a unique company that operates worker-owned healthcare companies. When Obran Health sought to acquire Physicians Choice Home Health, a home health care provider in Los Angeles, we provided a $1 million preferred equity investment. This allowed Obran to avoid the traditional route of syndicated loans and debt which would have hampered their long-term growth.
Innovating Systems for Thriving Communities
The opportunity for community impact is immense. Healthy communities are built by their residents. Small business owners, developers, and other local leaders are the engines of job creation and economic activity in communities across the country. When these leaders have the opportunity to succeed, their communities, local residents, and our country – thrive.
And while we are looking forward to catalyzing profound community transformation through Momentus Capital, we recognize that we are here because of the 40 years of expertise we have built with our colleagues and partners. We will always remember our roots in the cooperative movement and will continue investments to expand that community. From loans and grants to seminal research and equity investments, our work through Momentus Capital opens up a whole new area where we can uplift co-ops and support their work.
I am so proud of where Capital Impact Partners has come in the course of the last 40 years, and I cannot wait to see how Momentus Capital will innovate holistic approaches to get resources into the hands of more local leaders, entrepreneurs, and their communities.
As we continue to celebrate this milestone year, watch our 40th anniversary video series. The series includes rich reflections from the very people who have helped make us who we are, like Terry Simonette, my predecessor and Capital Impact’s longest-serving CEO; Paul Bradley, president of ROC USA; alumni of our Equitable Development Initiative; and so many more.
Watch our 40th anniversary video series!
I invite you to subscribe to our YouTube channel to hear these stories and experiences first-hand. We’ll continue to reflect on, recognize, and celebrate our 40 years in the months to come. I look forward to our continued work together to foster communities of opportunity because we are stronger together, and together, we are creating new pathways to build inclusive and equitable communities by providing people access to the capital and opportunities they deserve.
While the essence of our mission has remained the same over the years, it’s the people – staff past and present, our partners, the communities we’ve had the privilege of working in, and the countless other stakeholders — who are responsible for our journey and our evolution. It’s you who I find the most inspirational. You are the ones who have helped Capital Impact Partners become who we are today — a national Community Development Finance Institution (CDFI) committed to building a nation of communities built on a foundation of equity, inclusiveness, and cooperation.
I’m proud to celebrate and share this milestone with all of you.
Abner Mason came up with the idea for SameSky Health in 2013 with a dream of creating a company that is on a mission to advance health equity. From its inception, SameSky Health has been focused on engaging and helping Americans who are marginalized or under-resourced.
To advance that mission, Mr. Mason worked with Momentus Capital, a family of mission-driven organizations that includes Capital Impact Partners, CDC Small Business Finance, and Momentus Securities. Through our impact investing program, SameSky Health received a $5 million venture debt bridge loan to support the growth of the company. We talked to Abner about how this investment is helping SameSky Health in its efforts to address a significant market challenge to help disinvested communities get guidance and navigate a complex health care system.
Q: What do you feel you have achieved the most since starting the company?
Abner: I’m very passionate about the mission of SameSky Health, to create cultural connections for a healthier, more equitable world. I feel fortunate to have built a company where people who are just as passionate as I am about our mission have joined the organization. We’ve built a team of incredibly talented people who are focused on creating a solution that enables equitable health care.
Health equity is at the center of everything SameSky Health does. We have established ourselves as a leading health equity company. We are focused on raising the bar in America for health equity and how we should treat the people we are trying to help navigate our complex health care system.
We have built a leading, scalable health equity technology platform, unlike no other, that enables health plans and other health care stakeholders to comply with new health equity-related requirements that they will have to comply with now and in the future.
Q: The need for funding means that you’ve achieved a certain amount of growth. What challenges/barriers have you faced in terms of attaining funding for SameSky Health?
Abner: One of the major challenges I have run into over the course of my career is trying to raise money as a founder of color. I am optimistic about the future, as I have seen great progress being made from investors in startups supporting new businesses founded by people of color, which has more than doubled since 2020.
Another challenge I have faced in the past is gaining support from investors to raise funds for a solution that addresses low-income, underserved communities, particularly those people who are enrolled in Medicaid. Up until recently, venture capitalists did not understand the Medicaid market or the extraordinary need for advancing health equity. I am very optimistic about the traction in investment and innovation in this space over the past two years to help address health disparities.
Q: Momentus Capital, however, is able to offer something that hopefully can make an impact with a lower risk. Any thoughts on that relationship so far?
Momentus Capital is essential for a company like SameSky Health. The company played a crucial role in helping SameSky Health secure bridge funding as we progress to raise our Series C funding, which is the next step. We are deeply grateful for their flexibility and support of SameSky Health.
Momentus Capital is essential for a company like SamSky Health. [They] played a crucial role in helping us secure bridge funding.
– Abner Mason, Founder & CEO SameSky Health
Q: Why did you choose Momentus Capital versus another investor? What was the difference maker for you?
Abner: It was clear to us that Momentus Capital values working with partners to impact change in the health care system and drive health equity. This aligns well with our values and mission. Their approach allowed us to easily structure a deal that was fair to everyone given our alignment around advancing health equity. Momentus Capital stands out from others for their flexibility in working with our team and their ability to quickly move toward a transaction to help us continue scaling and driving equity in health care.
Q: How do you think SameSky Health improves the lives of people in the community through health care, and how does proper investment into funding drive these positive aspects?
Abner: SameSky Health has built an innovative solution that combines technology and human touch to deliver a culturally tailored, personalized experience to members of health plans. If the health care industry continues to try to address challenges the same way they always have, we’ll never achieve better outcomes. Innovation and investment in health care IT innovations are so important. Investors need to support startups that are building solutions that will meet the needs of low-income, underserved communities. Investors need to be more proactive in seeking opportunities to work with companies such as SameSky Health.
Healthy communities are built by their residents. Small business owners, local real estate developers, and other local leaders are the engines of job creation and economic activity in communities across the country. When these leaders have the opportunity to succeed, their communities, their residents — and our country — thrive.
Unfortunately, leaders in communities all across the country are missing a key ingredient to success: access to the capital. For too long, many communities have been denied the types of capital and support they need to realize the dreams they have for themselves, their families, and their neighborhoods.
In 2019, Capital Impact Partners and CDC Small Business Finance began an incredible journey with an ambitious — some might say audacious – goal: to devise new, transformative ways to meet the capital needs in communities across the country. We asked ourselves a question: How does the financial sector — including mission-driven financing organizations in our sector — need to change to really support communities? What can we do differently to help our communities really thrive?
A decade ago, Detroit was on the verge of a landmark municipal bankruptcy. Emergency response times were among the slowest in the nation. Blight abounded in nearly every neighborhood. In the prior decade, Detroit had lost one-quarter of its population — more than 244,000 residents.
Amid the chaos, seeds of a resurgence were beginning to sprout in the city, and Capital Impact Partners entered the market in 2011. 2021 marks the 10th anniversary of Capital Impact creating a place-based presence in the city. It was a seminal moment in our organization’s history, resulting in key shifts to our strategy and how we thought about investing in communities. During our time working with Detroit residents, we learned that community transformation takes a holistic, integrated approach, a place-based strategy that allows investors to go deep in order to build communities.
In the last 10 years, we have worked to support Detroit’s revitalization: we have used our lending expertise to build density on main corridors and increase growth, and have targeted programs to build the capacity of community members to build neighborhood assets and opportunities for wealth building for long-term Detroit residents.
We followed up with some of the people who made our 10 years of investment in Detroit possible. What follows is an oral history of Capital Impact Partners’ journey in Detroit, in the words of our staff and partners.
*The interviews have been edited for clarity and length.
Interviewees include:
Scott Sporte, former Chief Lending Officer with Capital Impact Partners
Melinda Clemons, VP & Detroit Market Leader, Enterprise Community Partners, Inc.
Elizabeth Luther, Director of the Detroit Program, Capital Impact Partners
Aaron Seybert, Managing Director of the Social Investment Practice at The Kresge Foundation
Ian Wiesner, Director of Business Development at Capital Impact Partners
Edward Carrington, Detroit developer and graduate of Capital Impact Partners’ Equity Development Initiative
*The interviews have been edited for clarity and length.
The Beginning (2011-2013)
Developers like Joel Landy had a vision for a revitalized Detroit, one that benefitted all city residents.
Capital Impact Partners entered the Detroit market in 2011 at the invitation of the Kresge Foundation and the Living Cities Foundation, who were gathering partners to focus on Detroit’s redevelopment. The first project Capital Impact participated in was the Woodward Corridor Reinvestment Fund, a $30 million fund to finance real estate development in Downtown and Midtown. Investors in the fund included MetLife, Inc.; PNC Bank; Prudential; Calvert Foundation; Living Cities; and the Max M. & Marjorie S. Fisher Foundation.
Scott Sporte: The process that brought us to Detroit was a long and deliberate one. It began with a phone call from the Kresge Foundation inviting us to be a part of the Living Cities Integration Initiative, along with Midtown Detroit, the vanguard community development corporation in the North End, and a couple of other partners. The Integration Initiative sought to drive reinvestment along the Woodward Corridor and generate benefits for area residents. And we just began by touring the area and seeing what made the most sense and the ways that we could use our capital to help advance development in Detroit over time.
Ian Wiesner: Capital Impact Partners had done a little bit of lending in Detroit, prior to 2010, but we didn’t have a local presence. We were recruited to come to Detroit by our local partners, the Kresge Foundation and Living Cities Foundation. We were invited because of our track record as a national lender able to deliver capital to grow communities. In the beginning, we were really following a strategy that was laid out by local partners. We weren’t necessarily bringing our own perspective. And then over time, as we grew our own presence and developed our own perspective and strategy, our lending shifted to align more with Capital Impact’s goals and strategies.
Melinda Clemons: There was a real need for capital in Detroit, and one of those needs was for real estate capital. Even if a developer could cobble together financing to get a construction project completed, they didn’t have the resources for permanent loans, so they could hold their projects long-term. And it wasn’t unique. At the time, there were a lot of organizations that had that challenge.
Scott Sporte: We just began by touring the area and seeing what made the most sense and the ways that we could use our capital to help advance development in Detroit over time. We were a national organization, and at the time, we hadn’t really focused on individual places. So to move into a place and commit to a particular city, especially at a time when Detroit was having difficult times coming out of the last recession, took a lot of conversation and a lot of thinking about how we wanted to position ourselves.
Scott Sporte: To move into Detroit and then commit ourselves to an area that we could actually draw a line around and define on a map and say, we are going to work here, that required a different kind of thinking, a different engagement at the local level and a real understanding of what was going on in the neighborhoods that we were trying to serve.
Aaron Seybert: I’d known of Capital Impact for a long time as a national CDFI lender, a very sophisticated lending outfit. I got a lot more familiar with their adaptability by working closely with them in Detroit, and I saw the way that they were able to really be that linkage between traditional financial services and the community development space. They were able to accelerate capital in the market in a way that we at the Kresge Foundation really hoped would happen. But I think the biggest impression is the people that they have had in this Detroit office and the quality of individuals that have been committed to the work here.
Michael Rhodes: In Detroit, following the bankruptcy, JPMorgan Chase worked to create a model — a data-driven strategy based on months of on-the-ground conversations and planning — for tackling big economic challenges, believing that the private sector can be an agent for the public good. We saw collaboration between government, business, community, and nonprofit leaders integrating with our philanthropic and business expertise. Capital Impact Partners represented one of those key foundational relationships.
Building the Program: Impact & Vision (2014-2020)
The Auburn, one of Capital Impact Partners’ first deals in Detroit, provided vital housing and neighborhood vitality.
As Capital Impact got its feet wet in Detroit, it began to better understand community needs and what it would take to fulfill those needs through place-based investments. At an enterprise level, Capital Impact began developing a place-based strategy that targets capital and commitment across multiple sectors simultaneously in one geography.
With this strategy, Capital Impact aims to innovate how capital flows into communities to foster economic empowerment and community power holistically. During this period, Capital Impact completed its first major Detroit project, The Auburn, a mixed-use development in Detroit’s Midtown area, and partnered to launch a coalition of Community Development Financial Institutions in the city. It also partnered with JPMorgan Chase to launch the Detroit Neighborhoods Fund, a $30 million fund focused on developing multifamily residential properties, mixed-use real estate, and grocery stores in Detroit neighborhoods.
Scott Sporte: We started out as the lender in the Integration Initiative. About two years as a lender in the Integration Initiative, we became the sponsors and added Brad Frost, who was the key staff person working on the program. He helped lead our efforts on the ground to build a strategy around both lending and community engagement in Detroit…So we went from being sort of an outsider doing transactions and gradually moved into a place where we had become fully invested and fully present in the city.
Melinda Clemons: As community development organizations, we need to serve the communities in which we work because we have control over the process and wee can ensure that resources are properly delivered. Once we got knee-deep in the work, it was clear that there was so much more we needed to do. And commercial real estate was a fairly new market segment for Capital Impact, but because of the need, they really doubled down and they did more lending than they had anticipated in that field, which really helped spur economic growth in the city.
Ian Wiesner: The Capital Magnet Fund, which was a grant from the CDFI Fund, was really our first foray into affordable housing in Detroit. Prior to that, we really hadn’t done income-restricted, affordable housing. We were really doing more mixed-income, multi-family development. That was a really important tool because we knew that we needed to be focused on greater affordability. The Capital Magnet Fund helped us do that. To date, we have used it to create more than 850 units of housing around Wayne County, including more than 250 units of housing for families earning 50 percent of the Area Median Income or below.
Aaron Seybert: Capital Impact is really focused on serving communities — it is not only about buildings. It is about the people who are living there, who are the developers doing the work, who are their client base, and what sort of lasting imprint are they leaving on the city from a capacity perspective? Who are the people that they are empowering with their tools? And I think that that is quite emblematic of the evolution of Detroit and its revitalization over time. We started out by just saying, we have got to get something done. Anybody want to build a building in Detroit? Anybody want to rehab something? Anybody have any money to invest? And we are now to the point of being very intentional about what the long-term impact of that revitalization is, and who is at the table.
Ian Wiesner: Detroit is a place where about 35 percent of the population lives in poverty. So if we are not creating affordable development, then we are not serving the community. It is absolutely critical that we are making investments and supporting development that is reflective of the community here and that can serve the folks here. And if we are not addressing affordability and making sure that those developments are affordable, we are not doing that.
Michael Rhodes: Capital Impact established a Detroit Neighborhoods Fund as a financing vehicle to support the construction and rehab of multifamily housing and mixed-use projects throughout Detroit. The $30 million Fund was capitalized with $20 million of Chase debt and $10 million in Capital Impact subordinated debt. The Fund capital has been fully deployed and has provided construction and permanent financing for several projects across a number of Detroit neighborhoods. The Fund supported the development of 11 projects leveraging funds from other sources, with total project costs over $100 million.
Elizabeth Luther: We felt good about our role (helping to develop the Woodward Corridor) and the outcomes that were taking place in terms of quality construction projects, quality housing being developed, increased density, and supporting all of the other work taking place in Midtown. But we wanted to understand how longer-term residents, particularly renters living with lower incomes, were or were not benefiting from those interventions. So we took a deep dive into the data. One of our main findings was that residents living in unsubsidized affordable housing were the most at-risk for experiencing displacement. So we engaged in a set of recommendations, some of which we adopted as internal policies, to support longer-term residents, like stipulations such that if we were to look at financing for a project that was already occupied, we would ensure that residents would have the opportunity to return to the project post-construction.
Ian Wiesner: I think there are really two things needed to be a place-based lender. One is being in the community where you are working and knowing that community, knowing its needs. The second part of it is also making sure that you are adjusting your strategy, your products, and your credit guidelines to align with the needs of that community. Detroit was starved of investment for decades, but was able to be resilient despite that. So now, as investment is coming back into the city, it is really important that that investment is feeding and growing the resilient community that was already here and not just washing that out.
Expanding Our Approach to Creating Impact (2016-2020)
The Michigan Good Food Fund provides good food businesses across Michigan with capital and technical assistance to scale.
Since entering the Detroit market, Capital Impact learned a great deal about what it truly takes to foster opportunities and change for communities living with low incomes. It takes a holistic approach, partnerships, and programs paired with capital solutions to address deeper issues of poverty. In this period, we strengthened partnerships and created programs like Stay Midtown, an initiative that helped longtime Detroit residents remain in their homes in Midtown as the city’s recovery led to increased housing costs.
Elizabeth Luther: Capital Impact’s programmatic work has evolved hand-in-hand with our lending work both in Detroit and around the country. At that time, this kind of place-based focus that took advantage of knowledge-sharing across teams and capital tool development was very new for the organization. At the enterprise level, we have evolved our focus to look not just at a sector, but at a place, and to look at programmatic interventions that lead to capital access alongside the development of capital products and lending activities.
Elizabeth Luther: We developed a new, philanthropically subsidized program called Stay Midtown, which was a three-year, rental subsidy program. Stay Midtown was created to support residents earning between 30 and 80 percent of the Area Median Income who had lived in the district for at least two years. Ultimately, the program helped 150 households in Midtown stay in their units over the course of three years.
Ian Wiesner: The Michigan Good Food Fund is a great example of how we collaborate with partners. It is a collaboration between the core partners the Fair Food Network, Michigan State University Center for Regional Food Systems, the W. K. Kellogg Foundation, and Capital Impact Partners, and including other partners, such as Northern Initiatives and the Detroit Development Fund. It is really just a table where we all come together to figure out all the resources that we can individually bring to the table to collectively help increase access to affordable food for families living in poverty in Michigan. We all do different types of lending – small business, grocery – and technical assistance. It is a great example of how Community Development Financial Institutions like ourselves can collaborate to have a greater collective impact than we could individually. And it has really helped Capital Impact learn about the small business community in Michigan.
Immersing Ourselves in Detroit to Understand Challenges (2017-2020)
EDI participants gain mentorship and a network that helps them participate in the transformation of their communities.
By immersing ourselves in Detroit and engaging with local residents, Capital Impact began to understand the challenges ensuring development would benefit all Detroiters. Capital Impact created its EDI program, where emerging real estate developers will receive the tools they need to grow their businesses — including training, technical assistance, mentorship, networking, and potential pathways for financing. It has become a core focus of our work in the city.
Melinda Clemons: When I joined Capital Impact, there was an existing loan portfolio and pipeline. Upon a further look at our Detroit loans, it was clear that there wasn’t a large representation of developers of color, and those loans that were to developers of color were challenged. That was for a number of reasons: lack of resources, lack of knowledge, lack of know-how, and lack of projects on the part of the developers. I raised the alarm internally at Capital Impact, and all hands were on deck, which inevitably led to the creation of the EDI program. I think it really shed light on a problem that we were having in Detroit. It hadn’t been pointed out that there was such a lack of capital for developers of color. And it was one of the first programs that really did that, which was truly innovative at the time. And it also allowed other organizations to see this issue and participate as well.
Elizabeth Luther: The EDI program is focused on supporting emerging real estate developers through training, technical assistance, and capital solutions. It has really two goals, which are supporting neighborhood improvements in Detroit, and then wealth building for real estate developers. We have since replicated it in Washington, D.C., and are now looking to replicate it in at least two other markets around the country over the next one to two years. So it is really exciting to have incubated a program in Detroit that we are now scaling and developing more resources for nationally and shoring up at the enterprise level in order to be able to meet those same goals in other markets, hopefully with even bigger and better outcomes.
Ian Wiesner: Local residents, local leaders, local stakeholders understand what the community needs better than Capital Impact ever will. So it is really critical that we listen to those voices and those informed opinions. Because that is how we are going to be successful. If we ignore that, we are going to end up putting our resources in the wrong places, and that is not going to help the community. By listening to community voices, we are able to better understand where our capital is needed, and that is ultimately going to be what benefits the community most. It is also what is going to make our investments most successful.
Eddie Carrington: When I found out about the EDI program, immediately, I knew I wanted to apply and try to take advantage of this program that basically upskilled local developers to a point where hopefully we feel comfortable developing larger projects outside of the single-family projects that we usually take advantage of. And I came to understand that CDFIs are a little bit different than a typical bank because they are willing to make adjustments and accommodations. And with EDI, Capital Impact is providing solutions that can help us take better advantage of the redevelopment opportunities here in Detroit.
Clifford Brown: I think in addition to creating developers, we are creating people who are more knowledgeable within the real estate space. Almost more importantly, we have taken this population and we have explained to them how real estate development works, how capital works, how wealth works. What it has done is create an environment where, even if somebody goes through the program and decides, “this is not my passion. This is not for me,” they are able to have conversations with developers who are coming to their neighborhood and say, “this is what I want. This is what is acceptable. And this is what’s not.”
Elizabeth Luther: Community development is really about supporting real estate developers who come from the places where they are working and who know how to serve the residents in the areas where they are looking to do development work. Ultimately, the city will benefit from projects that meet the needs of all residents and align with a master vision for thoughtful growth in the city. Building out the kind of professional cohort of thoughtful community-focused real estate developers in the city who are incentivized to do good work here is another benefit. Long-term local ownership of assets in the city and local stewardship of assets in the city will lead to better neighborhood-level outcomes over the years.
Michael Rhodes: A focal point of our investment has been making sure that Detroit’s economic recovery encompassed all neighborhoods. The constant feedback we got from all of our partners had been “what about the neighborhoods?” In our earliest conversations with Mayor Mike Duggan, he shared that, as important as all the economic development activity in downtown and Midtown Detroit was, Detroit would not be whole if we didn’t bring back the neighborhoods. Taking what we heard, we knew that our supportive Detroit Neighborhoods Fund would be an ideal vehicle to help drive development in the neighborhoods. The Coe at West Village, a $4 million mixed-income, mixed-use development that opened in November 2017, is a case in point. That was the first new mixed-use construction project in a neighborhood in more than 30 years.
Melinda Clemons: I think (the EDI program) is going to have an amazing impact each year that it has a new cohort of developers. They not only have a personal asset now, which helps with their own personal economic development, but they also have the asset of knowledge, which they can then transfer to others. We are seeing the field grow bigger and bigger each year as new cohorts come out, which is really amazing and nice to see. I still get calls all the time about the program. Like, can you get me in, or can you talk to someone, or when is the next project coming along? It really has clout in the industry, which, to Capital Impact’s credit, is really a great thing that we can expand nationwide.
Opportunities & Challenges Moving Forward (2021+)
Building the future of Detroit hand-in-hand with city residents through capital solutions and programmatic support is how we create a promising future.
With 10 years of place-based investment in the city, Capital Impact is committed to a promising future for all Detroiters. Even though challenges continue, the resources, capacity, and partnerships Capital Impact has built in the first 10 years of its Detroit journey will form the foundation for success in the next decade and beyond. Wherever that road goes, Capital Impact knows community will be at its center.
Ian Wiesner: There is no shortage of challenges. Poverty is still prevalent. The city needs huge investments in infrastructure and schools and homes. I think most of all, we are trying to increasingly make sure that we are listening to the community, that we are not operating in a bubble, but working with community leaders who can help us identify where the gaps are, where the needs are.The challenge for Capital Impact is to really understand what tools we can bring and what is the most effective way for us to try and address these challenges.
Aaron Seybert: This sector of philanthropic-nonprofit development has a lot of legitimacy in delivering results in the city. We can use that position to really stay focused on delivering projects in development that serve existing residents really, really well. As development gets easier because valuations get higher, there is more money in the market.
None of us love doing the really hard things, but it is our job to do the hard things. The hard things from a decade ago are not so hard anymore. We could migrate into the space that is hard now, which is a lot of neighborhood-based development where scale is smaller. Poverty is more deeply entrenched. We have got a lot of other sorts of social issues that we can’t ignore. It would be easy to stay in the place where we are comfortable, or we can collectively push into that harder space.
Eddie Carrington: I think Detroit can learn a lesson from Chicago. It has a number of hubs that have the density that Detroit is striving for. And that is one thing the city of Detroit’s outer neighborhoods are missing. Density is going to assist with expediting the resources and amenities that the community is asking for because, if there are more people that are able to walk and bike to this amenity that we are putting in the community or to this development that is standing up, that will, in turn, attract the small businesses that the community is asking for.
Clifford Brown: In the city of Detroit, we often talk about rents increasing. And we look at it from a lens of why? And we don’t ever question why construction costs are going up, but more importantly, we do not ask the question about why are incomes not going up? To me, that is a much more relevant and much more pressing question.
Michael Rhodes: when we announced our commitment to Detroit, we were motivated not simply by a city we have been a part of for more than 85 years, but by the spirit and determination we saw in the people of Detroit. When we first began our work in Detroit, there was no shortage of challenges. Our initial strategy really focused on how we could help accelerate development in the city. Having pledged half of our initial $100 million dollars to two CDFIs — including Capital Impact — for community development and witnessing Detroit’s progress, I am optimistic about the future.
Scott Sporte: CDFIs play a very important role in the community and economic development space. They are usually the first organizations to bring capital to an area that has been experiencing poverty. They opened the door to bring private investors in to continue to grow the level of capital investment and project-based investment that is occurring in an area. A CDFI is thinking carefully about the equitable distribution of their capital and the ways that can benefit people who are most in need. Rather than just focusing on what is glitzy and glamorous and eye-popping, it is really doing the things that you need to do day after day after day to really understand and recognize the needs of these communities.
In August, our President and CEO Ellis Carr participated in “Catalyze,” a podcast of the Greater Washington Partnership. “Catalyze” brings together leaders from Baltimore to Richmond who are working to make this the highest growth region in the country. It features leaders from across the Capital Region in conversation about how business is taking a stand to catalyze solutions to close the wealth gap.
Ellis sat down with the Greater Washington Partnership’s CEO J.B. Holston and Peter Scher, Vice Chairman at JPMorgan Chase & Co., for a conversation about how Community Development Financial Institutions (CDFIs) and traditional financial institutions can take learnings from work in other regions and foster growth for communities living with low incomes in the Washington Metro area.
Peter Scher: We have to look at economic growth as a region, we have to collaborate, we have to understand that there are projects that may sit in Virginia that will have enormous benefits for DC and Maryland. This does not have to be a zero sum game. If one jurisdiction can win, we can all win.
Ellis Carr: To me, the most important, the single most critical component is a common vision. The greater DC area has an enormous amount of both CDFIs and MDIs that are really focused on communities living with low incomes across the region.
JB Holston: Welcome to Capital Region Catalyze, a monthly podcast from the Greater Washington Partnership featuring thought leaders who are shaping the future of our region. The podcast focuses on growth from Baltimore to Richmond. I’m J.B. Holston, your host and the CEO of the Partnership. Today, we’re going to talk about financial institutions that are critical to sustainable and equitable growth: CDFIs, and MDIs.
Today, I’m pleased to be joined by Ellis Carr and Peter Scher. I’d love to have each of you introduce yourselves and share a bit about your professional backgrounds and the path that led you here today.
Ellis Carr: I’m Ellis Carr, President and CEO, Capital Impact Partners and CDC Small Business Finance. We provide holistic community and economic development across the country in communities living with low incomes. I’m also an advisor to the Greater Washington Partnership’s Inclusive Growth Advisory Committee.
So, I actually have been at Capital impact for just about nine years. Prior to coming to Capital Impact, I spent a little over a decade and a half in for-profit financial services. And I came to Capital Impact because I wanted to use my time and talents to really help and support other people. And so, a CDFI was a great destination for that. CDFIs are mission-driven financial intermediaries who work in support of the community, really to create economic opportunity. We provide things like financing and technical assistance for affordable housing, community facilities, small businesses, and alike.
JB: Thanks, Ellis. Peter.
Peter Scher: My name is Peter Scher. I’m the Vice Chairman of JPMorgan Chase. I oversee our firm’s corporate responsibility efforts as well as Morgan Health, a new initiative focused on health care. I also chair our business efforts in the Mid-Atlantic region. And most importantly, I’m the chair of the board of the Greater Washington Partnership. I’ve been with JPMorgan about 13 years; most of my career has been in the law and politics, and spent 10 years in government, the federal government here in Washington, D.C. I became the head of corporate responsibility 10 years ago. I have had the privilege of working with people like Ellis, around the country and around the world on issues around economic development and economic growth and addressing some of the big social divides that are facing the country. And one of the things I’m most thrilled about is the opportunity to bring some of the lessons we’ve learned to this D.C. region.
JB: Thanks so much. It’s great to have you both with us today. Peter, you mentioned Detroit, and I gather that’s where you two originally met? Can you share a bit more about your work together there.
Peter: So back in summer, fall of 2013, JPMorgan decided to take a much closer look to see if there was something more we could do to help the revitalization of the city. Our firm had been part of Detroit for 80 years and has watched the ups and downs. And this period was definitely a down — the city was in bankruptcy, gone from 2 million residents to less than 700,000. And what we saw in the fall of 2013, was a new mayor who had just been elected in a write-in campaign on a platform of getting things moving and fixing things and working with a Republican governor and working with the business community and working with community groups to really make a difference. And it’s something that inspired us. And one of the things that we saw, as we evaluated the type of investments we were going to make, was how critical the role of CDFIs were in doing that. And in fact, the initial investment was $100 million, half of that went to two CDFIs — Capital Impact and Invest Detroit — because we felt that was the best way to leverage our resources and also reach the community in the most impactful way. And that’s when Ellis and I started to get to know each other.
JB: And Ellis, was Detroit the first place that Capital Impact Partners was working or was this one of many places?
Ellis: Prior to coming into Detroit, which was about 10 years ago, I think most would know Capital Impact as a national sector-based lender, so really focusing on education and health care, food and housing. And we were invited into Detroit about 10 years ago because we had a number of learnings across the country and we had a proven track record around being able to deliver capital at scale. So, Detroit was actually a first for us into a place-based initiative. And it actually has transformed the way that we do work today. You know, we were invited in by a bunch of local partners; we began to do kind of sporadic deals there. And over time, we really became part of the fabric of Detroit.
Over that 10-year period, we’ve invested about $270 million in Detroit through the efforts of Peter and JPMorgan Chase. It was really critical for us to get a lot of projects off the ground, because, at the time, when you thought about or considered the acquisition costs and you coupled in the rehab cost, they were actually more than the completed value of the project. So you needed time to allow the market to recover. So you had to take a longer term view. And so we needed to have patient capital to really be able to invest in the fabric of Detroit. And so, through the investments that JPMorgan Chase provided with us, we were able to leverage that capital six fold. So it really allowed us to kind of get almost $60 million. Now it’s out of capital out on the street at a time where a number of other large financial institutions actually step back.
JB: Wow, $60 million. That’s impressive. I’d love to know more about the type of business you lent to with that investment.
Ellis: For us, primarily in Detroit, I think the work started really in kind of mixed-use commercial real estate. Detroit has a great housing stock and a lot of land given the population decline. And so, you really had a lot of units that were in disrepair and or vacant that really needed to be revitalized. So, we would work with a lot of local organizations. And we would lend to both real estate developers and other entrepreneurs who were rehabbing these properties, and then bringing in local, small businesses to kind of occupy the retail space at the bottom.
We’re providing a range of affordability within the apartment units. And we also began to get into, for a variety of other things, recognizing that there was a dearth of incapacity across the ecosystem. We had to partner with other organizations to really provide capital to other community-based organizations as well, and also provide seed capital for development entities because there was a dearth of development entities that were really focused on the work that we were doing.
JB: Peter, you co-founded the Partnership, and you’ve been a pioneer on inclusive growth. But what are some of the similarities and some of the differences that we’re looking at in this region compared to the experience in Detroit?
Peter: Well, I think some of the similarities are on the challenges side. Ellis talked about affordable housing. We’ve talked about lack of access to capital, particularly for minority small business owners, skills training, you know, many of the issues that the Greater Washington Partnership is focused on. There are very few cities or regions, literally in the world, you can walk into that don’t have the same set of challenges. I think that the lesson for us — Detroit was a seminal experience for Capital Impact Partners. It was really a seminal experience for JPMorgan and how we approached economic development. And when Ellis mentioned becoming part of the fabric of the community — having that fabric in a cohesive, collaborative, coordinated way — that was the thing, the secret sauce: if you don’t have, it is incredibly difficult to make a difference.
And one of the interesting things when we first got to Detroit, whether I was meeting with the mayor or some of the, you know, city business leaders, everyone had their view. But then everyone said, ‘Go talk to Dave Blaskowitz,’ who was the head of Invest Detroit, one of the local CDFIs there. And the fact that they knew we have a lot of managers here, we got a quarterback who’s on the field, and that kind of collaboration, it was essential to the success and the revitalization of the city. And it gave us an opportunity to really help scale some of the programs and ideas and projects on the ground.
And that was really the premise when Russ Ramsey and Ted Leonsis and I started talking. One of the challenges we have faced historically in this region is three separate jurisdictions going their own way. And we have to look at economic growth as a region, we have to collaborate, we have to understand that there are projects that may sit in Virginia that will have enormous benefits for D.C. and Maryland; this does not have to be a zero sum game. If one jurisdiction can win, we can all win. And so that’s been the key. And frankly, I think it’s been one of the things that’s been so inspiring about the work in this region now, is we see so many companies, education institutions, CDFIs and other organizations, MDIs like Harbor Bank in Baltimore, really coming together and saying, ‘let’s develop a strategy for this region,’ which is really what Detroit did.
JB: Peter, you mentioned that this was kind of the starting point for a lot of JPMorgan Chase initiatives in the category. Could you talk a little bit about how that came to be, what its focus is, and then how it works with folks like Ellis’ Capital Impact Partners.
Peter: So, when we initially went into Detroit with our $100 million investment, to be perfectly honest, I wasn’t thinking a lot about small business. But we, you know, we made some investments in some local incubators. And you know, Ellis was talking about some of the work in the city to rebuild housing stock. Borrowers who lack access to traditional banking solutions wanted to be part of that, but couldn’t. When we first started, I would do quarterly reviews with the mayor. We have all of these small business owners who want to be part of the revitalization, but they can’t get the capital from normal banking channels.
And so we went off and basically said, Well, let’s think about how we can do this. It was hard at this time to do it, it’s still hard in many cases to do this through some of the regulatory constraints that banks have. And so, we said, let’s create a new mechanism to do this. And it started as a $6 million investment with the Detroit Development Fund, which is another CDFI. And in the first two years, we did about 50 loans that had two defaults, which is a pretty good track record. Ultimately, that scale to $25 million in the city, we’ve now made it a national program and expanded it with Capital Impact to D.C., to Chicago, to San Francisco, South Bronx. And just last year, we announced we were going to make it a national program. And it just shows the power: if you can get capital to the people who want to be part of the economy, and if you can get the training and the connections, it could just, it could have an exponential impact on the development of a community.
JB: Ellis, I was struck that Forbes is characterizing the alliance between the organization and CDC Small Business Finance — now one organization — as the most transformative merger you never heard about. So, could you talk a little bit about what that merger was about, what it means to bring these institutions together.
Ellis: As we worked in Detroit, I think we realize the power that we could bring to a place, by bringing the totality of the work that we’ve done across the country, and focus that and align that with a common strategy. When we got to Detroit, a lot of the work that we did was in the housing space, and broadly defined as economic development. Small businesses weren’t something that we were focused on. But as we began to kind of refine our approach, we began to hear more and more about how Detroiters that grew up in the city wanted to be part of the revitalization. But they couldn’t. And one of the ways that was important was that folks wanted organizations like Capital Impact to really invest in them.
And so we began to think about how we could also both invest in the infrastructure in terms of buildings, but also people. That really launched the EDI program, which is really focused on providing technical assistance, training and mentoring, and capital for real estate developers so that folks who were from Detroit, and who live in Detroit could actually begin to participate in the resurgence of that area, and actually drive it themselves. And so that really led us to kind of beginning to think about how we could create opportunity beyond the building and the services that come out of the building.
And so, that led us to CDC Small Business Finance. We began to have conversations with them, and we had the opportunity to really kind of dream about a vision of being able to create not only community development, but community and economic development solutions at scale, centered in place. CDC is the largest mission-driven SBA lender in the country. And thinking about a way to kind of provide the scale and capacity that they provide, coupled with technology, really was something of interest to us, not only for ourselves around how we could drive impact and scale in communities, but how we could also empower others who we’re standing side-by-side with within the community to also access and harness that technology capacity as well.
JB: Let’s talk a little bit about some of the small businesses that are directly benefited by this. And Peter, what motivates you about some of the small businesses? What are some of the stories about some of the small businesses that you see affected by this work?
Peter: What motivates me from a macro level is, if we’re going to solve the economic challenges in our region, small businesses have to play a big part in that, and they’re close to the community. They’re part of the community; they create jobs and employment and opportunity, and this is about opportunity. And so, it’s a huge part of the sector and we actually track how much small business growth drives economic growth in the community. But from a personal perspective, you see the passion and the commitment and the dedication that a lot of people, who haven’t had an opportunity, want to have. And I’ll tell you one example: just here in our region, Pinke Reddick, who is a caterer who I met two or three years ago. And at the time, she had four people working for her, and she now has 26 employees. She got a contract during the inauguration from the D.C. government to provide 10,000 meals. And she also just got a contract from the Department of Defense.
Pinke Reddick: My name is Pinke Reddick, or Chef Pinke. My business is Pinke’s Eats LLC. We’re a food experience company. Our slogan is “Eats that Excites the Eyes.” I grew up spending summers with my grandmother, my granddad in Georgia. We used to go into the garden, pick food up out of the garden, six o’clock in the morning. Me and my grandmother would make breakfast, lunch, and dinner. And I did that for, like, three or four summers. That birthed cooking to me; I was like 12,13, and 14. I would say food is love.
When people are happy, they eat; when people are sad, they eat. Food is love. When somebody makes the food, they’re happy. And you just enjoy it because you can feel the love through the food. And right now, I live in Ward 7 in D.C., and we don’t have many food options at all. I’m 35. I went to school there, I graduated there and bought my first house there, and they’re still McDonald’s, Wendy’s, and the carryout. They are trying to bring some options to Ward 7, but 35 years… That’s what we had over there. And then I worked for a large food chain managing for 10 years. And it was exciting. But I was working 70 hours a week and pay for 50. And I just felt like I could do it for myself.
So I started 2016. And then March of last year, like everybody else, we just completely shut down, nothing going on. So the Coalition for Nonprofit Housing and Economic Development (CNHED) is an organization that’s an anchor partnership, and they’re funded by JPMorgan Chase. So the president there called me a month in, and was like, ‘how are you panning out?’ and I was like, we have absolutely no work, nothing going on. And we started producing meals for local hospitals and nurses. And they basically funded meals for the nurses and emergency staff for about two months to just get the ball rolling, get us back in the door, bring some of my team members back in. And then, when that started, and World Central Kitchen picked up on what we were doing, they reached out and we were able to partner with them as well. And now, we have 26 employees.
Going from, oh, I may not be in business ever again to JPMorgan funding some food opportunities and allowing us to show our capacity to partner with World Central Kitchen, then swinging back around to D.C. government and Department of Defense, being able to secure some contracts. And we’ve survived, we survived. Things are opening back up; we’re booked for the month. We have a food truck now. So we’re just really growing in all areas. I’m most proud of having a profitable, sustainable business. But nobody in my family has ever been bold enough to do that. And everybody was scared. And my mom looks at me every day and she says, I can’t believe you, girl, like, I would have never done that. But just being brave enough to start my own business and be profitable, and hire other people and give them opportunities. I think I’m just so proud of that.
Peter: In this region, there is just an ocean of opportunity; in a sense, direct spend to small businesses that want to grow and want to create employment, and just think of what that can do for this region. As you said, our goal is to make this the most growing region in the country. We think that will attract more investment. If we’re going to do that, small business — particularly small business in lower-income parts of our region — are going to have to be a really critical part of it, and it’s going to be capital, and it’s going to be connections to big contracts, and it’s going to be technical assistance, all of these things. And if we can get the kind of collaboration that we’re seeing through the work of the Inclusive Growth Council, I think we can achieve enormous progress here.
JB: Ellis you’ve been on the front lines of this work for a decade. What’s missing from our region in particular? What are the gaps that we need to fill to deliver on our promise of being the best-in-class in the country in this area?
Ellis: To me, the most important, the single most critical component is a common vision. Because all of the things that we mentioned and we know about this region, and all the assets that it has within it, can’t be fully utilized if we don’t have that broader vision that we’re all buying into. There’s a great representation of CDFIs in this region that are clamoring for some alignment around a common vision. D.C., actually in the greater D.C. area, has an enormous amount of both CDFIs and MDIs that are really focused on communities living with low incomes across the region.
Peter: And I’m glad Ellis brought up MDIs because you know, there are a number of MDIs in the region, throughout the region. You know, one of the important things that we had to recognize is, as a large global bank, we are not going to be as close to the people in these communities. And so, rather than just trying to knock against that wall, we have to reach all the people. And if the best way to do that is through a Capital Impact Partners, or WACIF, or Harbor Bank, that’s what we have to do. And I think this is where the Partnership can make an enormous difference. We need to all sit at the same table.
I mean, if we can increase the pie, there’s plenty to go around. Let’s create the money, let’s get the resources, let’s get the technical assistance. So I think the opportunity right now for all of us, all the big financial institutions, and the CDFIs and the MDIs is to really come together around a common strategy. I think that’s what we should be doing. And I think, so far as you know, we’ve gotten great response from the other financial institutions, and everyone’s checking their parochial interests and the egos at the door. And look, the reality is — Ellis talked about this — it takes a lot of forms of capital to grow these communities. It’s going to take philanthropy; it’s going to take free capital; it’s going to take low-cost, patient capital. And in a lot of these projects, there are opportunities for market capital, and we are all used to working with each other, and different institutions can bring different forms of capital. This is why the table that the Greater Washington Partnership has created is so critical to the success of all this.
JB: That’s great. Thanks, Peter. I, just looking back at the last year, what did you learn about yourself as a leader over the last 12 months, 15 months now since the pandemic started?
Ellis: So I’ve learned several things coming in, as I reflect back on the pandemic. And I think, the first is really around starting with empathy and open mindedness, focusing on mental health and making sure folks are in the right mental space is really important. I think everyone would agree that having a different understanding and respect for flexibility, and being able to be adaptable.
And I think for me, the point that I think I’m constantly thinking about is disruption, thinking new and differently about how we can bring new approaches to the challenges that we’re seeing is going to be really important. So I think, what has really helped me to do is just to really be bold, and really think differently about how we’ve done it in the past, or really kind of reimagine what could be in the future.
Peter: I certainly haven’t fully processed what the last year and a half has meant and I think we’re, you know, we’re just every day just trying to get through the day and survive. I think the two things that I reflect on, one is the strength and resilience of people. I mean, if someone had said, we’re all going to go basically operate our businesses and our work from home for a year and a half, I don’t know that anyone would have said that that’s possible. And the fact that we were able to do that, I think, is a real testament to people’s strength and resilience. At the same time, we’ve seen how vulnerable people are and how fragile humanity is and how fragile life is and forced us all to reflect on how we want to live our lives, and I just can’t imagine. And so, I do think empathy is a great word, and I think we’re going to be processing a lot of this for a long time. And I think we’re still going to face challenges as people now come back to the office and create whatever the new normal is. We have to really be attuned to people’s complete needs, and I think we still have a lot to learn and process.
JB: Ellis, let me return quickly to the challenges facing our region. Is there anything you want to add?
Ellis: Again, when I think about the region, we all know the region is one of the strongest in the country. But while the region is incredibly strong and has an abundance of assets, those assets are not available to everyone. And as we talk about what we’ve learned in Detroit – how we can potentially adapt here – I think there are a lot of lessons that we can carry here. The greater D.C. region is a very different market than Detroit, but I think there is a strong foundation from which we can build off of.
JB: Those statistics are just phenomenal. I’d love to move to the “Ask the Other Guy Anything” part of our podcast, and I’m also curious to know what you’ve learned from each other after working together for so many years. Ellis, I’ll start with you.
Ellis: What have I learned from Peter? That obviously Peter’s day consists of more than 24 hours by seeing him show up on everything. I think the other part really is around the power of relationship and partnership. In particular, I’ve seen Peter work seamlessly throughout Detroit. We’ve bumped into each other in Baltimore, D.C. and the like. And I think that when it relates for us to be successful in executing business anywhere, relationships are key to that. And I see how Peter and JPMorgan Chase are using the power of relationship so that they can provide the resources for those communities to really thrive. And then, the question I would ask Peter would be, what advice would you give me as a CDFI leader?
Peter: Oh, that’s great. Actually, the advice I would give you relates to the question I was going to ask you, which is: if you’ve got all the major banks and financial institutions that were investing in CDFIs — around the country, in the regionx — together in a room, and you were King for the day and say, “This is exactly what I need you to do,” what would you tell them? Because part of what I was going to say my advice is, tell us what we need to do.
I think we’re at a point that we don’t have time for the pleasantries and the formalities and the warm up; we need a plan. So my advice is, don’t be shy about saying to these large partners, “this is what I need JPMorgan to do. This is where I need Goldman, this is where I need CapOne.” But let’s get these guys lined up. This is the plan. And this is the role I need you to play in the plan. And I think as we saw with what you guys did in Detroit, be the quarterback, because I think we’re all looking for that quarterback. And I don’t think you should hesitate to call the plays. Since we’re led by the president of the Washington Football Team, I guess it’s okay to use a football analogy. So my advice would be, call the plays.
JB: Now, what are the plays?
Ellis: I think for me, one of the things that our organization struggles with is being steeped in the community, understanding the community’s needs, and understanding what products and services need to be brought to communities, but not having the right type of resources at enough scale to be able to prove the model. Using Detroit as an example, the funding that JPMorgan Chase provided to Capital Impact that allowed us to create the Detroit Neighborhoods Fund was transformative at that point, because nothing was getting done. So, we prove the model. And what happened, resources rushed into Detroit. We need the same thing here.
And when you think about the after effects of a pandemic, we have to think very differently. So we are thinking about a technology-enabled way of reaching more entrepreneurs of color that don’t use traditional underwriting. And with an organization that is growing, but still needs additional capacity, we need to make some bets. And we need partners to make bets with us. So we can prove the model and create opportunities for others.
Peter: One of the interesting things now with the banks is when we talk, we’ve been thinking a lot about this whole underwriting question, because there are a lot of loans we can’t provide. But we’ve done the underwriting, and how do we create a more vibrant referral network, so we can hand you the underwriting file. You may be in a position to make a loan we couldn’t make. And so, getting a number of the banks together with you and looking at how do we create a technology-enabled referral network? So, from our perspective, when we have to say no to someone, I’d rather be able to say no, I can’t do this, but let me introduce you to my partners at Capital Impact, or my partners at WACIF, or my partners at Harbor Bank, and I’m going to hand them the file, so they don’t have to go do all the legwork to recreate that. And they may be in a position to do that. So I think there’s an enormous opportunity in that space.
Ellis: Absolutely. Completely agree.
JB: Hey, before we go, just Peter, one quick question. You didn’t have a chance to answer, but what have you learned from Ellis?
Peter: I will tell you. Ellis has been a real inspiration, seeing what his career was before he decided to leave big finance. You know, a lot of people don’t get off that track; they stay and they work their way up that ladder. And your decision to really take a very different path than a lot of people in finance take is a tremendous inspiration. And so, I say from a personal standpoint, that’s one of the things I have always just admired so deeply about Ellis.
The other thing that, you know, we’ve touched on is really the proximity of the community. I think the biggest danger in all these conversations and exercises, we can sit in these nice rooms and conference rooms, and I can sit in New York on the 48th floor of some high rise on Wall Street and have these great theories about how to help communities. But it doesn’t mean a thing if you’re not actually talking to the community. And I think what Ellis and his colleagues and so many of the other CDFIs, they stay so proximate, so close to the communities in ways that we can’t, and I think that’s one of the many secret sauces of being able to reach these communities.
JB: Gentlemen, thanks so much for the conversation. It was terrific. Peter, thanks for joining us.
Peter: JB. Great to be with you and Ellis, thank you for your efforts.
JB: Ellis thank you as well.
Ellis: Thanks so much, JB, and great to see you again, Peter.
JB: Thank you for listening to Capital Region Catalyze. Next episode, I’ll be joined by Robbie Moser, CEO of Clark Construction and a board member of the Partnership. In the meantime, check out our interview series called “Fresh Take,” where we talk one-on-one with thought leaders from across the region. For more information on what we do, follow us on Twitter and Instagram, or visit GreaterWashingtonPartnership.com. Thanks for joining us.
On behalf of the entire team at Capital Impact Partners and CDC Small Business Finance, I want to express my deepest sorrow at the passing of Chuck Snyder.
Chuck joined the National Cooperative Bank (NCB) in 1983 before being named as President and CEO in 1992. The organization that came to be known as Capital Impact was originally created as a division of NCB in 1982, which means that Chuck has been a part of our journey since the very beginning.
His passion and tireless efforts to support the cooperative movement were immeasurable. In addition to his own role at NCB, Chuck sat on numerous boards for co-op organizations. This included serving on Capital Impact’s board from 2010 to 2018.
Chuck openly shared his experiences, and the guidance and counsel he provided as a colleague, a board member, and a friend helped strengthen Capital Impact’s own efforts to support cooperatives. We will remember how incredibly supportive he was of our desire to grow the business to help more people through cooperatives and other community development efforts. This included our most recent partnership with NCB around the Co-op Innovation Award, supporting the next generation of cooperative leaders.
That dedication resulted in Chuck receiving the Jerry Voorhis Award, the National Association of Housing Cooperatives’ most prestigious honor. He was then inducted into the Cooperative Hall of Fame and this video serves as a wonderful tribute to his body of work.
This is a considerable loss for those of us in the cooperative and mission-driven lending spaces, but the memory of what he has helped accomplish serves as an inspiration for all of us looking forward.
Chuck also was a strong believer in family and he constantly reminded me to put family first, always. Please join me in offering thoughts and prayers to his wife and two daughters.
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