Equity Funds – Double Bottom Line Investments
It is also very difficult to attract private equity capital for commercial revitalization projects. Therefore, many cities and local agencies have also been proactive in creating double bottom line equity funds. Consultants such as Belden Daniels with Economic Innovation International have worked with agencies across the country to set up double bottom line equity funds, often capitalized with bank or insurance funds or investments from public pension funds.
The funds provide a financial return to the investors and social return to the communities that are revitalized as a result of an injection in capital. When launching a new fund, it is important to establish investment criteria that insures that the funds are targeted to the communities with the greatest need, while also being flexible enough to ensure strong deal flow. In addition to sourcing deals, the fund managers should be willing to work with developers, the agency, and the community to help overcome barriers to development that may exist in the commercial districts.
New Markets Tax Credits – Quasi-Equity
The New Markets Tax Credit (NMTC) Program was established as part of the federal Community Renewal Tax Relief Act of 2000. The program is administered by the Community Development Financial Institutions Fund within the Department of Treasury (CDFI Fund). Fifteen billion dollars in tax allocation was set aside to award to for-profit community development entities (CDEs). These CDEs in turn offer the credits to taxable investors (usually banks) in exchange for stock or a capital interest in the CDEs. The investors take a credit against their federal taxes for 39 percent of the cost of the investment over a seven-year period. The invested funds are then reinvested into low-income communities, typically in the form of below-market real estate or small business loans or equity investments. The full $15 million in allocation will be awarded to CDEs in 2007. In 2006, Congress approved a one-year extension of the program with an additional $3.5 billion in allocation. Bills have also been introduced in Congress to extend the program through 2013. Funds are available for a wide range of projects in most every city and state. A number of allocation recipients also have national services areas. A full list of recipients is available on the CDFI Fund Web site: cdfifund.gov/awardees. They can be searched by region or product type. Another alternative is to call the CRA (Community Reinvestment Act) department of local banks and ask if they invest in NMTC projects. Most of the large banks do, and they may be able to source a CDE that invests in the type of project being considered.