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Case Studies

Here, we examine two case studies that illustrate how the investment vehicles work with the community partners to develop investments with social returns. We also highlight the benefits accrued to the community partners.

The Urban Strategy America Fund

The USA Fund is an example of a for-profit fund manager model that takes a triple bottom line approach, seeking financial, social, and environmental returns on investments. The USA Fund was founded in 2004 by the New Boston Fund, a middle-market equity real estate investment fund started in 1993. With $170 million under management, the USA Fund participates in projects as direct investments or joint ventures on a scale of $10 million to $70 million or more in New England and the Mid-Atlantic. In addition to its real estate investment expertise, the USA Fund brings development expertise via the New Boston Developers group. The USA Fund counts among its institutional investors national banks, foundations, insurance companies, and public pension funds.

The USA Fund's Financial Engineering Model

The USA Fund provides preconstruction dollars as well as risk-adjusted equity to its community investment partnerships. The fund's financial expertise and ability to supply capital also provides credibility with the public sector, which is important for securing approvals and public and/or subsidy financing. In a typical deal, the USA Fund is responsible for obtaining third-party debt financing of up to 75 percent of project cost. Joint venture partners (developers and/or community partners) may provide up to 20 percent of project equity through cash, third-party predevelopment expenses, or contribution of land. In return, local partners receive a development fee commensurate with development expertise as well as profit participation after equity investors receive a preferred 12 percent rate of return.

Olmstead Green

Olmstead Green is a joint effort between the USA Fund and its not-for-profit community partner, Lena Park CDC.[1] Olmstead Green is being built on the former site of the Boston State Hospital, land that had been undeveloped for twenty-five years. In 2001, Lena Park CDC decided to reenter real estate development and hired Kirk Sykes, an architect, to help them think through a detailed strategy for the Boston State Hospital site. Together with Sykes, they interviewed twenty-nine developers and decided to go with New Boston Real Estate because of its proven track record working with community-based organizations on One Brigham Circle, a mixed-use real estate project in the Mission Hill section of Boston. Sykes subsequently was hired at New Boston, and the company formalized its triple bottom line strategy by creating the USA Fund. Olmstead Green was the fund's first investment. The project broke ground in May 2006. E. Lorraine Baugh, executive director of Lena Park CDC, explains, “Neither of the partners could have done the deal without the other.” The USA Fund brought the equity and know-how of a large real estate fund and development firm. According to Sykes, Lena Park CDC brought knowledge of the local needs and the “hearts and minds of the community.”

Olmstead Green will create 287 workforce housing condominiums and 153 affordable rental units. Four hundred jobs in construction and four hundred permanent positions will be created. The design is energy efficient and includes green public spaces. Lena Park CDC will also develop eighty-three units of senior housing, a 123-bed skilled nursing care facility, an urban farm, a Heritage House mental health center, a job training center, a fitness facility, and a community center, which will house Lena Park's newly renovated offices.

The Lena Park CDC has made its foray back into real estate development with its participation in Olmstead Green. This has helped the CDC strengthen its organizational capacity and is expected to provide a revenue stream that will cross-subsidize Lena Park's health and human service activities. The project will also help cement Lena Park's role in the community. According to Baugh, the experience also taught the CDC how to "partner with the private sector without getting swallowed up.”

Parcel 24

Parcel 24 is a joint initiative of the USA Fund and the Asian CDC.[2] The land that Parcel 24 will sit on had been taken from 300 Chinatown residents in 1962 by the City of Boston as part of the Massachusetts Turnpike extension project. In 2000, the Asian CDC led a comprehensive organizing, community planning, and legislative effort to have the site returned to the community as part of the completion of the Central Artery/Tunnel Project commonly known as the “Big Dig.” According to the Asian CDC's executive director, Jeremy Liu, the group was able to capture the social value of the land by getting encumbrances placed on the site that ensured it would be used for affordable housing and open spaces. As a result, the Asian CDC found itself in the position of looking for a partner that could help unlock the financial value of the land, given the encumbrances. The Asian CDC brought the deal to New Boston Real Estate/USA Fund and was impressed with the fund's willingness to have an ongoing conversation about how to balance the risk of the project with the need to ensure community benefits. The USA Fund and the Asian CDC formed Parcel 24, LLC, and won the designation for the project from the Massachusetts Turnpike Authority in April 2006. Parcel 24 is scheduled to break ground in 2009.

Parcel 24 will create 324 residential units, including 70 affordable rentals and approximately 85 affordable and 169 market-rate condominiums. The mixed-use design will feature 165 parking spaces, an urban park, and 11,000 square feet of retail and community space. The project will also create approximately 700 construction jobs and up to 40 permanent jobs in retail, community organizations, and property management. This development will be a “green construction" with a FEED project certification.[3]

Liu indicates that what the Asian CDC learned about developing large-scale projects through its partnership with the USA Fund has helped the CDC “emerge out of an era where projects happen to us” and become more forward-looking. The Asian CDC has experienced several key growth milestones over the past few years, many of which were made possible through its participation in Parcel 24. Some of these milestones include a larger staff and a more diverse representation of expertise reflected by board members; a first ever for the organization: a five-year strategic plan that includes an operating pro forma; a budget of over $1,000,000 in 2007-2008 compared with $200,000 in 1997-1998; and real estate pipeline prospects in three municipalities outside the City of Boston.

Coastal Enterprises, Inc.

Our second case study illustrates the ownership model. CEI, founded in 1977, provides financing and support in the development of small businesses, natural resources industries, community facilities, and affordable housing. CEI takes a triple bottom line approach (seeking financial, social, and environmental returns) and works in rural areas in Maine, northern New England, and upstate New York. CEI operates as both a community partner and an investment vehicle through three for-profit subsidiary companies: CEI Capital Management, LLC (CCML); CEI Ventures, Inc.; and CEI Community Ventures, Inc. We focus our discussion on CCML because of the ways in which its business model relies on relationships with community partners.

CEI Capital Management (CCML)

CCML is the entity set up to manage CEI's $129 million NMTC allocation, operating in eligible low-income, primarily rural, areas in New England and New York. CCML identifies investment opportunities in these areas through its network of community partners. In recent years it has extended this network and is now looking to do NMTC deals in rural areas across America. Charlie Spies, managing director of CCML, explains that the NMTC is a critical instrument for this type of investing. He says, “The NMTC provides the missing piece, which is equity, in these types of investments. While we might have had a state guarantee in the past, the NMTC has proven to be essential for these deals.” Institutional investment in CCML deals has come from national and local banks, foundations, and private investment companies.

CEI's New Market Tax Credit Model

CCML plays an important role in the community development finance industry through its capacity to structure NMTC investments in rural areas. Health centers in rural communities face big hurdles in recruiting and retaining physicians. Tight quarters had hampered Mid-State's ability to add services and operate efficiently. The facility had to move to attract good doctors and grow, but it could not afford a conventionally financed building. Mid-State CEO, Sharon Beaty, turned to Capital Regional Development Council (CRDC), a statewide not-for-profit economic developer, for help. CRDC understood the health center needed a below-market lease to stay viable and brought the opportunity to CCML. CCML and CRDC crafted an investment using NMTCs whereby CRDC constructed a new building that they lease to Mid-State at an affordable rate. Investors in the new building include CRDC, a consortium of three community banks, the New Hampshire Community Development Finance Authority, and others. Mid-State's 19,000-square-foot state-of-the-art health center opened in 2007. With the new clinic space, Mid-State will be able to integrate behavioral health services such as counseling with telemedicine – the use of technology to facilitate consultation between two medical specialists in different locations. The clinic also plans to have on-site daycare for children of staff as well as children of community members. According to Beaty, “Our job is to protect access to primary care. This building is exciting for our community." CROC's participation with CCML in the Mid-State Health Center has influenced its strategic planning. CRDC is looking to do additional NMTC investments with CCML as well as other organizations. CRDC is also talking to the parent company, CEI, about partnering on other initiatives, such as on the delivery of SBA 504 loans.

The Role of the Investment Vehicle

This section uses examples from our cases to illustrate three central roles that investment vehicles play in community-based investing: sourcing deals, financial engineering, and developing a niche industry.

Sourcing Deals

Investment vehicles engage in two types of deal flow strategies (Flynn et al. forthcoming). Top-down strategies leverage relationships with mayors and other govern ment officials and executives of banks, real estate firms, and insurance companies. Bottom-up strategies look for specific deals and development opportunities, often before they are on the market. Sources included developers, real estate professionals, and community partners. In our cases studies, the investment vehicles work closely with community partners to source deals. CCML's business model is explicit about community partners taking a lead role in sourcing deals; the partnership agreement between CEI and the community partner establishes a fee structure to be paid for successful deals brought to CCML. Notwithstanding, CCML equips the community partners to source deals by providing presentation materials and participating with them on investment road shows. For both the USA Fund and CCML, once the deal comes to the investment vehicle, the vehicle is responsible for undertaking a due diligence review process, structuring the transaction, monitoring development, and creating an exit strategy.

Financial Engineering

The capital structure of an investment fund is developed through complex financial engineering. The structure can involve a debt component that helps bring the deal to scale. This is an important factor in understanding how the investment vehicle provides scale that leads to a transformation of neighborhoods and significant investment in growth companies. A successful real estate development includes a well-structured capital source. This is outlined in a pro forma detailing the sources and uses of funds. Funding sources include a combination of equity and often a bank loan for construction financing and other third-party debt financing. Equity is leveraged with mortgage financing to generate substantial capital in new developments. The role of subsidies is another component in the capital structure of private equity funds. While the second and third generations of funds have moved away from a reliance on public subsidies, they can still continue to play a role. Examples of financial engineering by the investment vehicles were presented in the previous section. As mentioned, the USA Fund and CCML are responsible for obtaining the bulk of third-party financing, while joint venture partners may provide some of the remainder of the financing. CCML uses the NMTCs as incentives for investors. Both investment vehicles work with community partners to secure other types of subsidy financing.

Developing a Niche Industry

Investment vehicles engaged in community-based investing are attentive to their participation in an emerging, niche industry. The investment vehicle works to increase demand for and supply of community investments by educating potential investors, community partners, and other stakeholders about how these investments work and typical returns to these investments. Investment vehicles also actively recruit resources to strengthen the industry, such as technical assistance providers to work with entrepreneurs and researchers who help catalog the financial and social returns for investors and communities. The investment vehicles we examined have worked to overcome market prejudices in a number of ways. New Boston Real Estate Fund had developed proof of concept in a traditional investment fund before moving to triple bottom line investments with the USA Fund. As mentioned, CCMF works closely with its community partners to educate potential investors and growing businesses about the NMTC.

The Role of the Community Partner

This section uses examples from our cases to illustrate two central roles that community partners play in community-based investing: sourcing deals and ensuring community benefits.

Sourcing Deals

Community partners work with investment vehicles to identify investment opportunities. Community partners are aware of local needs and draw on this knowledge to pursue resources and partners that help address these needs. The community partner may also recruit smaller, local investors and/or invest themselves in the projects. Rural Opportunities Enterprise Center, Inc. (ROECI), a community development and human services not-for-profit based in Rochester, New York, has worked with CCML since 2005 to identify eligible NMTC opportunities in upstate New York. ROECI markets NMTC and does the preliminary screening of investment opportunities for financial viability. In 2005, ROECI brought the Brooks Landing project to CEI, an opportunity to revitalize a section of city waterfront in Rochester. Using $10 million in NMTC allocations, CEI and ROECI leveraged an additional $10 million in public and private funds, helping create an extended-stay hotel linked to Strong Memorial Hospital and the University of Rochester, commercial and office space, a public boardwalk, and boat-docking facilities.

Ensuring Community Benefits

Community partners ensure that the community investment has social returns for local residents, a responsibility that aligns well with a community partner's mission to promote local development. The community partner is more closely linked to the community than the investment vehicle and more likely to be held accountable for delivering these benefits. The community partner has in-depth knowledge of local needs and leverages its “tools" to gamer resources for the investment. Its social and political tools may provide the “credibility pass" needed for the project to get approval, and, as mentioned, the financial tools may help overcome market barriers or create greater social returns than would otherwise be the case. The Nature Conservancy, a global conservancy organization with strong ties to the state of Maine, is a good example of how a community partner can employ financial tools for community benefit. The Conservancy worked with CCML to create a financing scheme using $32 million in NMTCs that allowed the Great Northern Paper Company in Millinocket, Maine, to preserve and/or reactivate 620 jobs. The Conservancy used its industry expertise to craft sustainability covenants into the loan agreement, resulting in Great Northern transferring 41,000 acres of land to the Conservancy and placing a conservation easement on an additional 200,000 acres of land.

In addition to the social metrics normally tracked, we found that the community partners participating in these deals also received direct benefits to their organizations. First, community partners participating in these large-scale projects strengthened their organizational capacity. A simple example is how the fees earned by CCML for assembling NMTC deals are used to cross-subsidize CEI's other activities. Second, we found the community partners were looking to engage in more complex project and products after participating in deals with the investment vehicle. As such, these partnerships had helped to foster innovation in the community partners. For example, after working with CCML to develop “River Valley,” a food co-op in Northampton, Massachusetts, the Western Mass Enterprise Fund (WMEF) began looking at other ways to offer equity-like products to customers. They then decided to roll out royalty options, products that combine debt with an equity-like feature, namely, a right to a percentage of the company's future sales. Third, community partners increased their collaborative efforts after working with investment vehicles. Across the board, the community partners examined in this study said that after partnering with investment vehicles, they had a greater appreciation for the value that large collaborative efforts could have for their communities and their organizations.


There are opportunities to attract larger amounts of institutional capital to the emerging domestic markets while promoting the mechanisms that help ensure these investments have a meaningful impact on underserved communities. This study shows that the partnership between the investment vehicle and community partner acts to unlock value for institutional investors and communities alike. The investment vehicle and the community partner form a symbiotic relationship that allows for scale to effectively transform neighborhoods and yield financial returns to the institutional investor. Without the investment vehicle, large pools of capital would not be placed in the economic development area.

Investment vehicles and community partners work to overcome market barriers in a number of ways. One of the most important ways investment vehicles do this is by pooling assets and investors. Another important way investment vehicles and community partners overcome market barriers is by leveraging public incentives. Just as the LIHTC program opened the door to significant amounts of institutional capital for affordable housing, the NMTC program is attracting hundreds of millions of dollars to investments in businesses and mixed-use real estate. Additional research on the costs and benefits of these programs could help assess the value of the incentives for attracting institutional capital as an engine for economic development and poverty alleviation.

Lessons learned from early adopters among institutional investors demonstrate that these investments yield both high financial and social returns. The amount of capital committed by institutional investors is growing. Nonetheless, challenges remain. Deal flow remains a problem, and the relative complexity of these investments makes it difficult for some investors to classify them. The ability of investment vehicles to partner with community organizations is essential for generating more deals and successfully placing institutional capital in the underserved areas. We argue that the community partner toolkit that includes the financial, social and political, and material tools is the leverage that not-for-profit community partners bring to community-based investing. Opportunities remain for investment and community intermediaries to find new avenues for funneling institutional dollars into community investments such that these investments will provide robust benefits for investors and communities alike.

  • [1] Lena Park CDC is a health and human services organization with a thirty-five-year history of serving low-income families in the Dorchester, Mattapan, and Roxbury areas of Boston.
  • [2] The Asian CDC, established in 1987, develops affordable housing and promotes economic development and financial education in the Chinatown area of Boston.
  • [3] The Leadership in Energy and Environmental Design (LEED) is a nationally accepted benchmark for the design, construction, and operation of successful green buildings.
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