As a mission-driven developer, organization, or business looking into community development projects, you may be coming across language that might sound confusing and be challenging to understand. What is a CDFI? What is NMTC? What is LTV?
At Capital Impact Partners specifically, we offer flexible and affordable financing to a broad range of community development projects that deliver social impact, including community health centers, public charter schools, small businesses, cooperatives, healthy food retailers, affordable housing developments, and dignified aging facilities.
This glossary aims to demystify terms to help you navigate through our lending and programmatic services and offerings. Below you will find definitions of terms divided into the following thematic sections:
Community Development Financial Institutions (CDFIs)
Community Development Financial Institutions (CDFIs) are mission-driven private sector financial institutions that focus on serving people living with low incomes and people who have historically been locked out of the financial system. Their work entails providing lending for small businesses and community projects, affordable housing, and essential community services in the United States.
As a CDFI, Capital Impact Partners has delivered community facility financing, capacity-building programs, and impact investing opportunities to champion key issues of equity and social and economic justice since 1982.
Community Development
Community development activities tackle underestimated populations that do not have equitable access to affordable housing, health care, healthy food, and education, nor connections to capital, entrepreneurship, and quality jobs, to help them become stronger and more resilient.
At Capital Impact Partners, and together with the Momentus Capital branded family of organizations, we offer a continuum of capital products and services to transform how capital and investments flow into underestimated communities and drive community-led solutions that support economic mobility and wealth creation.
Lending Process
Capital Stack
Debt coverage ratio (DCR) is a measurement of a firm’s available cash flow to pay current debt obligations. While a DCR of 1.25 is the minimum requirement for most lenders, a higher number — such as 2 — shows lenders you are financially stable and can repay your debts. A higher DCR can also mean a potentially lower interest rate as lenders see you as less of a risk for defaulting on your loan.
Loan Term
The term of a loan is the period of time a borrower has to repay the loan. This choice affects their monthly principal and interest payment, their interest rate, and how much interest they will pay over the life of the loan.
A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up.
Underwriting
Underwriting is the process of your lender verifying your income, assets, debt, credit, and property details to issue final approval on your loan application.
Loan Types
Predevelopment Loan
A predevelopment loan serves as a critical lifeline during the earliest stages of a development project. It specifically targets the upfront costs associated with project planning and preparation, enabling developers to refine their visions and align them with the needs and aspirations of the communities they aim to serve. This loan bridges the gap between concept and execution, ensuring a solid foundation for success.
Real Estate Acquisition Loan
A real estate acquisition loan is a type of loan that is used to purchase real estate. This type of loan is often used by community developers to acquire existing property or development land that they plan to preserve or redevelop for affordable housing, commercial development, or other community-benefit purposes.
Construction Loan
A construction loan is a short-term loan that propels your development project from the drawing board to a physical structure. It provides the necessary funding to cover the costs associated with building, renovating, or expanding community assets. Construction loans may also cover the costs of buying land, drafting plans, taking out permits and paying for labor and materials. Construction loans typically have higher interest rates than other types of loans because lenders are taking on more risk by financing the construction of a new property.
Business Acquisition Loan
A business acquisition loan is a financial instrument designed to provide funding for individuals or businesses to purchase an existing business. These loans are often sought by entrepreneurs looking to expand their business portfolio, individuals seeking to become business owners, or existing business owners interested in diversifying their operations by acquiring complementary businesses. In the case of community developers, the specific goal would be to further community development initiatives.
Loan Refinancing
A refinance refers to the process of revising and replacing the terms of an existing credit agreement. Borrowers usually choose to refinance a loan seeking to make favorable changes to their interest rate, payment schedules, or other terms outlined in their contract. If approved, the borrower gets a new contract that takes the place of the original agreement.
New Market Tax Credit (NMTC) Qualified Low-Income Community Investment (QLICI) Loan
The capital that a community development entity provides to a qualifying project is known as a Qualified Low-Income Community Investment (QLICI) and it is a seven-year, interest-only loan.
Health Care
Integrated Care
Integrated care is a unique approach to health care that is characterized by close collaboration and communication between multiple doctors and healthcare professionals. In other words, it is a type of healthcare where all of your doctors work together to solve issues with your physical, mental, and behavioral health. At Capital Impact, we support the Integrated Care model because it improves the quality of care, promotes better health and lower costs while creating thousands of jobs, spurring economic development.
PACE (Program of All-inclusive Care for the Elderly)
Area Median Income is the income for the median household in a given region. If you were to line up each household from poorest to wealthiest, the household in the very middle would be considered the median.
Tenant Opportunity to Purchase Act (TOPA)
TOPA, or “Tenant Opportunity to Purchase Act”, is a type of anti-displacement housing policy that gives tenants options to have secure housing when the property they rent goes up for sale, while also preserving affordable housing.
Cooperatives
Food Co-ops
A food co-op is a grocery store that is totally independent and owned by the community members who shop there. An illustrative example is ChiFresh Kitchen, a food co-op owned by justice-involved Chicagoans. ChiFresh won a Co-op Innovation Award and was not only able to continue its expansion, but also pivot to provide freshly cooked and culturally appropriate foods to those impacted by COVID-19.
Housing Co-ops
A housing co-op provides an alternative to the traditional methods of acquiring a primary residence. It is a type of residential housing option that is actually a corporation whereby the owners do not own their units outright. Instead, each resident is a shareholder in the corporation based in part on the relative size of the unit that they live in. Capital Impact Partners has helped ROC USA, a nonprofit that helps residents form cooperative corporations to purchase their manufactured home communities from private owners and manage their neighborhoods in perpetuity. They have gone on to become a powerhouse in this area, helping thousands of residents become homeowners and community stewards.
Worker Co-ops
Worker cooperatives are values-driven businesses that are owned and operated by their employees. Capital Impact has made a $1 million preferred equity investment in Obran Cooperative, a unique company that operates a number of worker-owned healthcare companies.
Worker Co-op Conversions
Worker co-op conversions – or employee ownership conversions – occur when businesses transition from a traditional ownership structure to employee ownership. Essentially, the business owner sells the business to the employees. These conversions (PDF) can drive company productivity while rewarding the people who are contributing to the company’s success, as well as helping to preserve the company’s mission and values.
In 2021, Capital Impact Partners financed the worker co-op conversion of Ward Lumber. This new cooperative is another example of the power of worker co-op conversion to maintain and increase wealth and stability within communities.
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.
Contact us today to start a conversation about how Momentus Capital can support your journey to success.
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.
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.
Oakland, Ca. is a vibrant place, a reflection of the multicultural communities within its borders. However, Oakland also experiences poverty, limited social services, and crime, which hold its communities back – particularly communities of color – from achieving their full potential.
Over the past several years, Oakland has seen an influx of residents as the demand for housing in the San Francisco Bay area has driven many people there, on top of the residents who already called the city home.
Fruitvale Transit Village is a vibrant hub within Oakland, providing community development and a neighborhood center based on economic development and transportation.
In the early 2000s, Unity Council, based in Oakland, made a bold gamble: create a transit-oriented development that co-located housing, commercial development, and community space in the city’s Fruitvale neighborhood. Why? To expand access and opportunity through employment and transportation, while also creating ownership and small business opportunities to foster wealth creation.
Realizing that such an undertaking could not be done in a vacuum, the Fruitvale Transit Village brought together community members, stakeholders, government officials, and nonprofit and civic organizations to come up with a plan that would enhance local assets and help the neighborhoods build wealth and power.
The result: neighborhood transformation that centered the needs of the residents by providing easy access to social services, education, retail, and more. It is so popular that it quickly became the fourth busiest stop on the Bay Area’s subway system and a generator of wealth and community assets through local businesses and job creation.
Capital Impact Partners is proud to have partnered with Unity Council to support this community-centered development, as well as specific community partners within the development, such as La Clinica de la Raza. This type of collocation investment fits right in with our focus on holistic, community-centered development that community members value, as well as our commitment to financing for racial equity.
In this Q&A, Unity Council’s Director of Development and Communications Dana Kleinhesselink and Director of Real Estate Development Aubra Levine talk about the community will and economic investment that made this innovative project possible, and why they feel this model is invaluable for other communities and developers across the country.
Q: What is the history of the Fruitvale community in Oakland?
Dana: Fruitvale is really the hub and heart of the Latino community in Oakland. We are the largest Oakland neighborhood with this high concentration of Latinos, from Mexico, Central America, South America. It is a really diverse Latino experience. This community is very heavily immigrant, and that is true for its identity for 50 years or so. So, about 50 percent of the people who live in Fruitvale are Latino. Another 20 percent or so are Asian, and many of those people are immigrants as well, who speak diverse languages, and another 15 percent are African American.
Q: What kind of investment or disinvestment has there been in this neighborhood?
Dana: Fruitvale was a redlined neighborhood. There was a deliberate lack of investment here from the 1950s and 1960s. There were no traditional banks or lending products. Home ownership development was not really a focus here. There was explicit institutional racism that kept a lot of the people of color in generational poverty. And that is systematic, through financial institutions and the school district, as well as city government. Unfortunately, there is crime in the area, which has been the main news story and really has overshadowed the positive things that this community brings.
Q: What was the genesis of Fruitvale Transit Village? How did the transit-oriented part come about?
Dana: In the 1990s, Bay Area Rapid Transit (BART) revealed a plan to create a four-story parking garage right in the middle of what is now the Village. Fruitvale had a bad reputation, there was crime and poverty, and the idea was to make a seamless transition for riders from their vehicle to BART, without interacting with the community. Our neighbors and our founder saw that as really problematic and they started countering the narrative, because our community is a BART rider as well. Our community deserves to have a seamless experience from their home to BART.
So, the community started organizing to say, “okay, why don’t we find a better way, and let’s bring BART in as a partner.” And that is what we did. Now we have a strong relationship, and I think Fruitvale is the fourth busiest station in the system. The amount of revenue generated by riders there, and the amount of revenue generated in the community because BART is so accessible, is really unquantifiable.
Q: What community needs does this development address?
Dana: Unity Council was looking for ways to stabilize the Fruitvale neighborhood by owning and controlling real estate. We had done a few real estate development projects already. And the idea – to quote our founder, Arabella Martinez – was, “In order to have wealth in this neighborhood, the community must own and control the assets.” We conducted broad outreach over a long period of time to make sure that what we were proposing was actually consistent with community needs.
We were committed to lifting up local businesses instead of installing a whole bunch of big box stores and national chains; we made sure that community services were a key feature. The Village includes a high school, a library, a health clinic, an early childhood development center, and a senior center. Most of the commercial square footage in the Village is actually community serving. It was never really intended to be a cash cow. It was intended to be a place for the community. Additionally, we know that community ownership leads to stability or can prevent displacement. Unity Council wanted to bring community members to the table and create ways for the community to engage in economic growth through ownership.
In order to have wealth in this neighborhood, the community must own and control the assets.
Arabella Martinez, Unity Council founder
Q: This project provides multiple services in a central location. Why is that valuable?
Dana: It’s incredibly important to have a hub of services, and we’ve actually incorporated this into our five-year strategic plan, under a strategy we call “Neighborhood Hub Approach.” In the growing body of research regarding the social determinants of health, there is wide recognition that a broad range of social, economic, and environmental factors shape individual and community health outcomes. The Unity Council defines a “healthy neighborhood hub” as a place where people live healthy lives, feel safe, have a sense of belonging, are able to – and want to – stay in their neighborhood, and where they can access supportive services.
The cluster of services accomplishes two practical functions:
it draws in a wide range of people to visit for a diversity of reasons.
There are reasons for children under five, commuters, low-income seniors, and high school students to all come to the Transit Village, which provides a solid consumer base for the community organizations and businesses located there. It provides a sense of vibrancy all day and evening long. People come to shop and eat at the restaurants, but they may also be coming to go to their local health care provider or visit a resident that lives in an apartment on-site; and
co-locating services lowers the barriers to access to those services for people most in need.
Many of the programs and services at the Fruitvale Transit Village are targeted to low-income immigrant families. It is almost a “one-stop shop” approach for many of these families who may receive child development services from the Head Start facility, health care from La Clinica de la Raza, and legal support from Centro Legal de la Raza, all in one location.
Q: Why Fruitvale? What made this location/community right for this development?
Dana: Fruitvale has a rich history of political activism and organizing and really doing for ourselves what others will not do for us. This community tries to find ways to build capacity within our own people, which has created so many opportunities today. The Fruitvale Transit Village is just an incredible economic engine.
We see many small business owners using community lending products like Kiva loans and nontraditional financial products that help because they have been excluded from traditional financial products. We see a lot of cooperative businesses here as well. We have found that the Fruitvale Transit Village, by being this anchor development, and with Unity Council working with so many partners locally, has really helped to curb displacement in this area.
UCLA launched its Latino Policy & Politics Initiative, and they conducted a 10-year longitudinal study on Fruitvale Transit Village’s effectiveness, in terms of improving educational outcomes, increasing financial wealth for families in the neighborhood, and small business development. It showed that the racial and ethnic makeup in the neighborhood, as well as the age diversity, has really stayed the same over 10 years, while rates of home ownership, rates of small business ownership, and rates of educational attainment have all increased.
Q: Fruitvale Village is unique, being a mixed-use, transit-oriented development. Did you experience any difficulty in finding a lender for this project?
Aubra: We did have a bit of difficulty in finding a lender. The feedback that we received was really in that it comprises commercial uses, residential uses, and community facilities. A lot of the lenders that we reached out to were really interested in supporting our mission, but did not understand how to underwrite those three things together. They could not quite wrap their heads around the mixed-use components.
We are very mission-aligned with Community Development Financial Institutions, and we have developed relationships with larger banks as well. There is a lot of support for the work that we do.
It was really wonderful to work with Capital Impact Partners because you got it right away. Capital Impact is local, and understood the project in a very literal way, having stood there. It was really wonderful to be able to find that in a lender.
It was really wonderful to work with Capital Impact Partners because you got it right away. Capital Impact is local, and understood the project in a very literal way, having stood there. It was really wonderful to be able to find that in a lender.
Aubra
Q: What tools did Capital Impact provide that made the process work?
Aubra: Capital Impact Partners, from the start, was willing to be collaborative. The commitment to making it work, to saying yes, to finding the “where there’s a will, there’s a way” mentality was crucial to making the transaction happen. The team that we engaged with on a day-to-day basis was really well organized and on top of the underwriting. They made the process feel seamless, especially as they were coordinating with the co-lender on this refinance, LISC.
Additionally, through the Bond Guarantee Program, Capital Impact was able to provide more competitive terms than other lenders that we reached out to.
Combining transit orientation with vital social services like health care, education, and affordable housing creates Unity Council’s vision of a “healthy neighborhood hub.”
Aubra: Our mission as an organization is to build social equity. It is to reduce poverty and disrupt cycles of poverty that are generational. What we know is that to attack poverty head on, you cannot do it in a piecemeal manner. You cannot just look at education or home ownership or workforce development or career development. You really need to work holistically and weave them together and provide a safety net that is truly integrated.
That multifaceted, easily-accessible, integrated approach to promoting social equity is probably the most labor intensive way to do it, but I think it is the most effective, our neighborhood hub approach.
Equally, it was important that this community was already an existing transit hub. I do not think the Transit Village would have worked as well if we just decided to form a hub around a random bus stop.
Q: What would your advice be to other organizations looking to build similar projects in their community?
Aubra: I think that Unity Council paved the way and made it a little bit easier for community organizations, for funders, to learn from our path and see that this is possible in their community, there is return on this investment, and that is the right thing to do. I definitely think it is possible, and I recommend it.
Dana: Have a bold vision, be collaborative, work with the right partners, and engage community stakeholders for their input to make sure it is consistent with community needs.
Contact us today to start a conversation about how Momentus Capital can support your journey to success.
By Ellis Carr, President and CEO of Capital Impact Partners and CDC Small Business Finance
Last year I opened up my Annual Report letter with a reference to COVID-19. While we were still grasping the seriousness of the situation, we could never have realized the extent to which the pandemic would dominate almost every facet of our lives. Now, as vaccines continue to roll out and many begin to “return to normal”, what we feared then has become reality. Communities of color will be grappling with the long-term impacts for months, if not years to come.
This blog also appears on the Nonprofit Finance Fund website. You can read it here.
Community Development Financial Institutions (CDFIs) were founded as part of the civil rights movement, to make access to capital more equitable for communities living with low incomes, often communities of color. However, despite the work of this part of the financial services industry, disinvested communities still suffer from unequitable capital access and thereby fewer opportunities for wealth building and shared prosperity. New models are needed to re-envision how transformation of community development can work for disinvested communities and develop local solutions to persistent issues.
At Capital Impact Partners, we condemn the recent and ongoing acts of violence against our Asian-American and Pacific Islander (AAPI) community, and are fervently opposed to any language or thoughts that justify or lend themselves to such terrible acts.
In February, our President and CEO Ellis Carr sat down with the Greater Washington Partnership’s CEO J.B. Holston for a conversation about economic power and inclusive growth in disinvested communities, and the role that Community Development Financial Institutions (CDFIs) play in transforming communities nationwide into places of opportunity, including in the Washington Metro area.
CDFIs have long operated hand-in-hand with our neighbors, living and working in close proximity to the communities in which we invest; community investment is at the center of our work. Working shoulder-to-shoulder with communities, we help foster the future they see for themselves, using inherent community assets to build an equitable and prosperous future. That community-centric approach helps us create tools and solutions that both work for communities and foster transformative change.
Ellis Carr is now the president and CEO of Capital Impact Partners and CDC Small Business Finance. Kurt Chilcott, formerly president and CEO of CDC Small Business Finance, has transitioned to Board Chair of the combined organization. We invite you to learn more about our new enterprise at www.investedincommunities.org
With a mission to empower equitable community growth, CDC Small Business Finance and Capital Impact Partners recently launched three place-based pilot programs as part of our new alliance. The pilots are in Detroit, Los Angeles, and Washington, D.C. Metropolitan (D.M.V). Cross-organizational teams have been engaging with these communities to identify the unique issues of each city.
As part of the alliance’s focus on Detroit, CDC Small Business Finance’s CEO, Kurt Chilcott, and Capital Impact Partners CEO, Ellis Carr recently wrote an op-ed about their holistic approach to community and economic development that was published in The Detroit News.
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