Black and yellow graphic that reads: Success Tips for Real Estate Developers: Relationship Building

Success Tips for Real Estate Developers: Relationship Building

Whether you’re a seasoned real estate developer fine-tuning your strategies or an aspiring newcomer eager to make your mark in the industry, there is always more to know and learn to help grow your business and scale your impact. This series is designed to provide invaluable insights and actionable advice to propel your development projects and your business forward.

At the Momentus Capital branded family of organizations, we harness the collective expertise of Capital Impact Partners, CDC Small Business Finance, Ventures Lending Technologies, and Momentus Securities to expand capital and opportunities for underestimated communities.

Black and yellow graphic that reads: Community Development Lending Explained: Construction Loans.

Community Development Lending, Explained: Construction Loans

In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan.

In this third installment, we turn our attention to construction loans, the financial cornerstone that transforms plans into reality and buildings into vibrant community assets.

Black and yellow graphic that reads: Community Development Lending Explained: Real Estate Acquisition Loans

Community Development Lending, Explained: Real Estate Acquisition Loans

In this series about community development lending, we aim to shed light on the diverse types of loans we offer, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan. 

In this second installment, we explain what real estate acquisition loans are, and how developers and community leaders can utilize them to bring their community-centered projects to life. 

What is a Real Estate Acquisition Loan?

A real estate acquisition loan is a type of loan that is used to purchase real estate. This type of loan is often used by community developers to acquire existing property or development land that they plan to preserve or redevelop for affordable housing, commercial development, or other community-benefit purposes.

How are Real Estate Acquisition Loans Used in Community Development?

Real estate acquisition loans can be used to purchase a variety of properties, including:

  • Vacant land for the development of new affordable housing, commercial space, or other community facilities
  • Existing buildings that will be renovated or converted into community facilities
  • Distressed properties that need to be rehabilitated or redeveloped to revitalize a neighborhood or community

Vacant land for the development of new affordable housing, commercial space, or other community facilities

Capital Impact Partners has closed on a real estate acquisition loan to Medici Road to purchase a vacant plot in Washington D.C.’s Ward 7. Medici Road plans to develop the land into a 17,000-square-feet building with 12 condo units for sale at prices affordable to D.C. residents earning 80 percent of the Area Median Income – a path to intergenerational wealth building, and a way for long-time residents to stay local in a gentrifying neighborhood.

Existing buildings that will be renovated or converted into community facilities

The Betty M. Condra School for Education Innovation in Lubbock, Texas, was acquired with a real estate acquisition loan issued by Capital Impact Partners. The acquisition of this two-story building increases the school’s capacity by 70 percent.

Distressed properties that need to be rehabilitated or redeveloped to revitalize a neighborhood or community

An illustrative example is that of Skyland Apartments in  Washington, D.C. ‘s Ward 8, which was acquired by Enterprise Community Development (ECD), a leading nonprofit affordable housing development firm in the Mid-Atlantic region. With an acquisition loan issued by Capital Impact Partners, ECD’s development of Skyland Apartments preserves 224 affordable residential units and eight commercial units. The residential units are occupied by families earning at or below 60 percent of the local Area Median Income.

Access to Capital, Flexibility, and Partnership Building

Real estate acquisition loans can provide a number of benefits for community development projects. They can provide community developers with the financial resources they need to purchase land or properties  that they might not be able to afford otherwise. The flexibility of being able to purchase any property allows community developers to tailor their projects to the specific needs of the communities they serve. 

Real estate acquisition loans can also help community developers to build partnerships with other organizations, such as lenders, investors, and government agencies. These partnerships can provide additional resources and support for community development projects.

Check out our mission-driven lending page for more information about our products to find out which might work best for you.

Black and yellow graphic that reads: Community Development Lending, Explained: Predevelopment Loans

Community Development Lending, Explained: Predevelopment Loans

In this series about community development lending, we aim to shed light on the diverse types of loans we offer at Capital Impact Partners, in the hope that it will provide the clarity our borrowers need to make an informed decision about applying for a community development loan. In this first installment, we delve into the essence of predevelopment loans, exploring what they are and how developers and community leaders can utilize them to bring their community-centered projects to life. 

Black and yellow graphic with the text "Community Development Lending, Explained: Predevelopment Loans"

What is a Predevelopment Loan?

A predevelopment loan serves as a critical lifeline during the earliest stages of a development project.  It specifically targets the upfront costs associated with project planning and preparation, enabling developers to refine their visions and align them with the needs and aspirations of the communities they aim to serve. This loan bridges the gap between concept and execution, ensuring a solid foundation for success.

Exploring Site Selection and Due Diligence

Choosing the right location is paramount in community development projects. Predevelopment loans allow developers to explore potential sites, conduct due diligence, and assess the feasibility of their projects; this phase involves considerable research and assessment. From evaluating zoning regulations and environmental factors to assessing community demographics and market demand, developers can make informed decisions that contribute to the long-term success of their initiatives.

Capital Impact has financed a predevelopment loan to Chestnut Neighborhood Revitalization Corporation (CNRC) to assess the feasibility of constructing The Ivory, a five-story, mixed-used, mixed-income development in the Chestnut neighborhood of Austin, Texas. The Ivory’s construction is expected to preserve the history, legacy, and culture of Chestnut, once a flourishing artistic, cultural, and commercial hub for the African-American community.  

Engaging Stakeholders and Building Partnerships

Predevelopment loans not only provide the financial means for planning but also facilitate collaboration and partnership building. Developers can leverage these loans to engage with stakeholders, including community members, local organizations, and government agencies. Through consultations, workshops, and community meetings, developers can gather valuable input, build consensus, and establish partnerships that enhance the overall project design and increase its positive impact.

An illustrative example is Russell Woods, a 102-unit assisted living senior housing development located in Detroit. Capital Impact has financed a predevelopment loan to Icon Heritage Partners to ensure that collaboration with the City of Detroit was established so that the renovation of the property fit within the city’s Strategic Neighborhood Plan. 

Navigating Regulatory Requirements and Permitting

Complying with regulatory requirements and obtaining necessary permits can be complex and time-consuming. Predevelopment loans enable developers to navigate these processes efficiently by allocating funds for legal and consulting services, permit fees, and other regulatory expenses. This support streamlines the development timeline and minimizes potential obstacles, ensuring smoother project progression.

Mitigating Risks and Demonstrating Viability

Developing a successful community-centered project involves potential risks. Predevelopment loans mitigate these risks by providing financial resources to overcome obstacles encountered during the planning phase. By demonstrating project viability and commitment, developers enhance their credibility when seeking additional financing from lenders or investors for subsequent project stages.

TBV Courtyard, a 12-unit affordable multifamily development in the South Annex neighborhood of Richmond, California, is a great example of how additional project financing comes more easily when project viability is demonstrated. TBV Courtyard represents phase two of a larger development plan to provide a total of 105 units of affordable housing to the neighborhood. Given that phase one’s predevelopment studies proved viable, the process to receive financing for phase two was seamless.

Check out our mission-driven lending page for more information about our products to find out which might work best for you.

Stay tuned for the next installment in our blog series, where we explore real estate acquisition loans, another type of loan that moves community development projects forward.

Black and yellow graphic that reads: Community Development Lending, Explained

Community Development Lending, Explained

For anyone seeking to access lending for community development projects, understanding the different types of loans can be confusing.

At Capital Impact Partners, our commitment to fostering positive social impact drives us to support mission-aligned real estate developers and community development leaders with a range of flexible and affordable financing solutions.

Our community development lending offerings include predevelopment loans, real estate acquisition loans, construction loans, working capital loans, refinance loans, New Market Tax Credit (NMTC) leverage loans, and NMTC Qualified Low-Income Community Investment (QLICI) loans.

Our loan products are designed to help our borrowers achieve their goals and revitalize disinvested and underestimated communities, whether that constitutes developing or preserving affordable housing, creating jobs through a small business, or building the resilience of communities through access to health care, healthy food, and education.

In this series of blogs, we aim to shed light on the diverse types of loans we offer and explore their significance within the context of Capital Impact’s mission-driven financing, in the hope that it will provide clarity to help borrowers make informed decisions about applying for community development loans.

Black and yellow graphic with the title community development lending, explained

We walk through the different types of loans we use to support developers and community leaders in bringing their community-centered projects to life:

Real estate developer in conversation with lender

The Top 10 Questions To Ask Your Community Development Real Estate Lender Before Starting Your Development Project

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.  

7. What are some typical terms for underwriting? 

Capital Impact typically provides 1-10 year loans for $1-10 million that fund construction of facilities. The loan is typically interest only during construction and can amortize longer than the maturity, resulting in a balloon payment at maturity. 

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.

Sue Mosey of Midtown Detroit, Inc. with Ne’Gyle Beaman of Bleu Bowtique

Philanthropy for Outsized Impact: The Power of Program-Related Investments

This blog also appears on the Engage R + D blog. You can find it here.

How can foundation dollars be more powerful in a time of crisis? As COVID-19 continues to disproportionately impact communities that have long experienced economic disinvestment, many are asking how to leverage philanthropic funding differently for more immediate impact and greater social good. One solution comes in the form of impact investing, which includes a range of financial tools for both individuals and institutions seeking to do greater good with their dollars. While impact investing is not new, it is a powerful tool that many foundations seek to better understand and that remains relatively underused in philanthropy. [1],[2]

Grants vs. PRIs: What’s the Difference?

Grants are most foundations’ bread and butter. They support a foundation’s charitable mission and are limited to 501(c)3 tax-exempt organizations. Grants do not require repayment.

PRIs are an IRS designation that allow private foundations to make charitable, mission-aligned investments. These investments typically take the form of low-cost financing and loans, which require repayment within a specified time. While many require a return or accrue interest, they are not expected to produce market-rate returns.

How To Use Historic Tax Credits To Promote Community Development

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.

Young male stands in front of abandoned building.

COIN: Building economic clout to fight neighborhood poverty

By Ellis Carr, President and CEO and Scott Sporte, Chief Lending Officer

Note: This Op-Ed originally appeared in the publication Capital Weekly.

According to the U.S. Census Bureau’s report The Supplemental Poverty Measure: 2015, nearly eight million people in California were living in poverty in 2015. The report indicated that the state’s poverty rate was 20.6 percent—well above the national rate of 15.1 percent—and surpassed the rates of every other state in the nation.

Capital Impact Earns ‘AA’ S&P Global Rating. What that means for you.

By Ellis Carr, President and CEO

I am excited to kick off 2017 with the news that Capital Impact Partners has earned a ‘AA’ issuer credit rating with a stable outlook from S&P Global!

S&P Global’s analysis recognized our strong asset quality and liquidityminimal risk profile, and consistent growth in loans and assets. I invite you to read more detail in our press release and S&P’s full analysis report.