By Danielle Graceffa, Senior Director, Legal Services
Real estate development has always been a risky proposition, fraught with numerous challenges that must always be carefully balanced against the promise of reward.
Throw in the possibility of rehabbing historic properties and that risk-reward scenario is certainly amplified. The city of Detroit, where we have our Midwestern office, is a perfect example.
Founded in the 1700s, the city has witnessed various transformations, with Henry Ford setting the stage for Detroit to become the booming manufacturing center that it is best known as. During that time, the population swelled from around 200,000 residents to well over 1.5 million.
2016 was marked by change—both for the U.S. and for Capital Impact. Our country witnessed a transition in leadership and with it words and actions that have divided our country. Part of this division included the voices of many who felt the American Dream had passed them by.
On Sunday, January 22, the Capital Impact family lost a dear friend and colleague, Brad Frost. He will be remembered as an individual of integrity, thoughtfulness, sharp wit, and dedication. Brad wore his passion for Detroit on his sleeve and was an unceasing supporter, critic and advocate for the city and all its residents.
2015 was a year of optimism for post-bankruptcy Detroit.
We saw significant investments pour in, including the first projects due to the $100 million pledge from JP Morgan Chase. Combined with the $30 million Woodward Corridor Investment Fund, new and rehabbed buildings are getting developed at a fast clip. Thousands of new streetlights are on. Blight is being tackled at a faster pace than ever before. Detroit’s comeback story is replacing the apocalyptic headlines of recent memory.
However, as a longtime Detroit resident and community development professional, I believe our city is at a significant crossroads.
Take Midtown, the bellwether of Detroit’s momentum-rising story. Since 2000, Midtown has been able to attract over $1 billion in new investment, and it has secured well over 50 new businesses since 2010. It achieves 97-99 percent occupancy rates of its redeveloped housing stock annually. With that resurgence, the area has also seen some predictable – and strategically intended — increases in its higher-income and upwardly mobile populations.
The fundamental question remains: Will redevelopment in Detroit lead to equitable growth? Will Midtown’s lower-income and working-class residents who have lived there for decades continue to be a significant part of Detroit’s rich culture, history, and vibrancy?
Ensuring Growth Across the Income Spectrum
Full-blown gentrification (i.e. the rise of higher-income households that effectively displace low-income households from a particular neighborhood) may seem far off given the economic fundamentals in Detroit – Midtown, for example, still has a poverty rate of over 40 percent, and over 60 percent of its households earn less than $25,000 per year. Nonetheless, the gentrification debate is gripping our city and threatens its progress. While I’m the first to acknowledge that current redevelopment efforts, while exciting and necessary to grow Detroit once again, aren’t inclusive enough, I think this debate is premature at best, and harmful to our city’s future prosperity.
I argue instead that in Midtown and across Detroit, we need to focus on inclusive growth.
Inclusive growth in Detroit’s development priorities must start with strategic investments into higher-density centers that connect residents to genuine pathways to economic mobility. Such efforts require specific equity and inclusion metrics, and demand that Detroit become a city where newcomers and current residents alike – across the entire income spectrum — possess equal access to good homes, safe and vibrant districts, good jobs and quality educational supports.
On the surface, these prescriptions may seem obvious. Yet realizing that vision will be complicated and fraught, as few policies in Detroit address growth strategies that also focus on equity and inclusion in specific ways. They are further complicated by the unique characteristics, strengths and trajectories of Detroit’s diverse neighborhoods.
Strategies for Growth
As part of Capital Impact Partners’ work in Detroit, which I direct, my colleague Elizabeth Luther and I have explored what an “inclusive growth” strategy might look like for the city as it promotes development and wrestles with its inclusion imperative for all residents.
In our report, Towards Inclusive Growth in Detroit: Density & Income Mix Strategies for Detroit’s Mixed-Use Corridors, we’ve laid out a framework that addresses scenarios for cultivating mixed-income neighborhoods where a diverse set of residents can live, work and grow together.
Among the keys steps, we believe the city must:
Collect more market data, including a review of the available and required real estate capital sources;
Craft scenarios that maximize land use and development policies the city of Detroit will support and enforce;
Secure commitment from community development financial institutions (CDFI) and philanthropic partners to develop patient, long-term financing tools that will support mixed-use and single-family housing, while preserving affordable housing.
The report also maps out a path that groups can follow to successfully invest in ways that drive inclusive growth. This includes:
Driving investments to achieve strategic density targets in Detroit’s mixed-use corridor areas;
Collaborating with other CDFIs and the city of Detroit to make sure money is being invested strategically;
Using the regional income mix as a general guide for developing neighborhoods;
Ensuring there’s enough high-quality housing for low-income households so that current residents aren’t forced out of their neighborhoods;
Collaborating with workforce initiatives to help individuals and households rise from poverty;
Developing policies and development practices explicitly aimed at reducing concentrated poverty in Detroit.
We plan to conduct more research into the best ways to support healthy, mixed-income neighborhoods and we welcome — even require — input and cooperation among residents, community-based organizations, philanthropists and governments at the local, state and federal level.
Moving Toward Growth
Fortunately, other examples exist of how to properly invest in projects that create inclusive growth. At Capital Impact Partners, a national CDFI, we have developed our mission-driven lending approach over the course of nearly a decade of investing in Detroit. Through these lending efforts, we’ve deployed over $100 million in financing for projects to increase access to critical services across the city for things like education, healthy food, health care, housing, and dignified aging options.
As a result, Capital Impact is responsible for over 10 percent of the redeveloped or new housing stock in the greater downtown area since 2010. We’ve taken care to ensure that this housing is accessible to the low-income and working-class residents of the city.
2015 was an especially exciting year for Capital Impact Partners and our work in Detroit. Regis Houze, our first project through the Woodward Corridor Investment Fund, brought 58 workforce housing units and several retail spaces to New Center, providing transit-friendly housing to hospital staff, government employees, and students in a neighborhood where occupancy rates usually hover at 98%.
We financed the purchase and renovation of the H.R. Apartments in Detroit’s Midtown district. The building had been vacant for seven years, and will be rehabilitated and renovated into 28 new workforce housing units and two small retail spaces.
We celebrated the opening of Rainier Court, a rehabilitated apartment building in Midtown that brought 36 workforce-housing units back into the neighborhood.
This work by Capital Impact and other CDFIs has delivered investments into Detroit when many others were unwilling to take that risk. This financing has bridged the gap for the financial, philanthropic, and governmental sectors to unlock investment potential in the city’s greater downtown and beyond.
Success won’t happen overnight. The process will require long-term commitments from the city to set policies and provide services that retain current residents and ensure Detroit is an attractive place to invest. While ongoing commitments from philanthropy and businesses will provide seed money and create jobs, there’s also a deeper need for teamwork and unity to guarantee that Detroit’s mixed-income development creates benefits for current and future residents of the city. We hope Detroit may ultimately prove to be a model city for inclusive and equitable economic development, but as we grow we must ensure that our approach to inclusive growth strategies is actionable and measurable instead of mere sloganeering. The prescriptions might be the same in other cities, but the results matter most.
For many of us, a weekend trip to the grocery store or farmers market to buy fresh produce is such a regular part of our routine that it hardly merits a second thought. But for many others, access to fresh produce may be an hour-long bus ride away. A balanced diet is necessary for health and wellness, but not everyone has access to good nutrition. More than 23 million Americans live in areas where fresh food isn’t easily accessible, and many are residents of inner city communities.
At Capital Impact Partners, we believe everyone deserves access to healthy food. As a Community Development Financial Institution (CDFI), we work to ensure that fair financing is not a roadblock for business owners who wish to strengthen their communities by building supermarkets, mobile markets and distribution centers as well as expanding existing stores — like Imperial Fresh Market in Detroit.
Walk inside the city’s Northwest neighborhood grocery store, and you’ll be greeted by a wide variety of colorful fruits and vegetables in overflowing bins near the door. And as you maneuver through the aisles, you’ll find locally-sourced products as well as a large fresh meat section and a deli with food that is prepared daily. I had the recent pleasure of experiencing this firsthand when I joined Detroit Mayor Mike Duggan and members of the Shina family to speak at the Imperial Market’s grand re-opening ceremony. In 2015, the store underwent a renovation that doubled its size and quadrupled its fresh produce offerings. Capital Impact Partners is proud to have helped secure the $6.2 million investment for the project.
Imperial Fresh Market is exactly the type of project Capital Impact looks for. As a mission-driven lender, these types of deals are more than just a transaction – they are a personal commitment to the borrower, to the neighborhood, and to its residents. When we were considering this project I came by the store many times. Sam Shina (the co-owner) and Justin Shina (the manager) were there. They knew their customers, and they treated them with respect. By seeing their constant presence in the store and getting to know their family’s dedication, we knew we could invest in them and this neighborhood.
Choosing Partners Who Are Committed to Their Neighborhoods
The Shinas are five brothers who immigrated to the United States from Iraq more than 30 years ago. They currently operate 14 grocery stores throughout the Metro Detroit area, including Imperial Fresh Market, which was their first location purchased in 1994. Imperial Fresh Market is the only full-service grocery store in the area. Approximately 70 percent of its customers, most of whom are African American, use the Supplemental Nutrition Assistance Program (formerly known as the Food Stamp program). To date, Capital Impact has financed 70 small-business owners like the Shinas. Adding a supermarket or other healthy food retailer in these neighborhoods not only creates more access to fresh food for more than a million people; it spurs economic development. Imperial Fresh Market is adding 35 new jobs for local residents, bringing the total number of employees at the supermarket to 70.
“Our team is dedicated to the city of Detroit,” Imperial Fresh Market Co-owner Sam Shina said to the dozens of customers and supporters who turned out for the grand opening. “We are proud to be part of the rebirth of Detroit by offering a better shopping experience for the community. At the end of the day, this isn’t my store; it belongs to the residents of the neighborhood. They deserve it, and we’re thankful for the help of Capital Impact.”
We look to partner with people like the Shinas who genuinely want to help the residents of their neighborhoods. It’s our goal to increase access to critical services, such as healthy food, for people who need them the most. We know that by investing in the Shinas and in this neighborhood, we’re investing in people who have been in Detroit for a long time and who will continue to be in Detroit in the future.
NMTCs & Private Sector Support
It takes a lot of people to make a project of this size happen, and as the lead loan officer for this project, I’m pleased my team was able to harness the power of several partners to complete this deal.
A key part of this deal was our ability to use $5.5 million in New Markets Tax Credit (NMTC) allocations. NMTCs are a vital program of the U.S. Treasury Department’s CDFI Fund that helps CDFIs like Capital Impact leverage private investment through the use of tax incentives. This program helps bring much needed capital from the private sector to support our efforts to finance projects in low-income communities.
In addition to facilitating the NMTC transaction, Capital Impact provided the Shinas with a direct loan and worked with the Detroit Economic Growth Corporation’s Green Grocer Project, which helped coordinate technical assistance and financing. JPMorgan Chase, Invest Detroit, and the W. K. Kellogg Foundation also contributed to financing the store.
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