Corporate America has traditionally been content to sit out of conversations about hot-button issues. But as the Movement for Black Lives gained steam in communities large and small last year in the wake of the murder of George Floyd, a Black Minneapolis man killed by the officer who was arresting him, many companies found it difficult to ignore the pressure from employees and the public to take a stand. For some companies, that took the shape of symbolism such as making Juneteenth a paid holiday for employees or, in the case of NASCAR, banning Confederate flags from events. Many other companies pledged millions of dollars in support of racial justice initiatives and investments in Black-owned businesses.
Given the deep racial inequalities in both rental housing and homeownership in the United States and housing’s link to the country’s racial wealth gap, it is of little surprise that the affordable housing and community development world has recently received substantial investment and philanthropy from big companies looking to support racial justice.
In December 2020, Netflix pledged a $25 million loan to community development intermediary Enterprise Community Partners’ new Equitable Path Forward initiative to fight racial inequities in housing. The initiative has also been seeded with a $5 million loan from Northern Trust financial services company and a $1 million loan from Siemens manufacturing company. Netflix also loaned $25 million to Project 10X, the racial equity initiative of LISC, the country’s other major community development intermediary. LISC also received $25 million each in loans from Square and Costco. LISC and Enterprise both operate community development financial institutions.
In November of last year, Twitter pledged to invest $100 million and give a $1 million grant to Opportunity Finance Network’s (OFN) Finance Justice Fund, which aims to direct $1 billion in CDFI funding to underserved communities. Starbucks also announced $100 million in investments in CDFIs. Last year, MacKenzie Scott donated $5.9 billion to nearly 500 nonprofits and charities, including 27 CDFIs in OFN’s member network, as part of her pledge to give away the majority of her tens of billions in Amazon wealth.
The new corporate interest in community development comes on the heels of big tech’s 2019 commitments to invest significant sums into affordable housing, including a $2.5 billion pledge from Apple, $1 billion pledges from Facebook and Google, and a $500 million pledge from Microsoft.
CDFIs are, understandably, thrilled with the hundreds of millions of dollars in investments coming their way that they can funnel to affordable housing developers, small businesses, and other community development projects. They say that because these corporations are not concerned with having their investments match up with specific assessment areas to fulfill their obligations under the Community Reinvestment Act (CRA)—as the large banks and financial institutions that have traditionally invested in affordable housing are—the new funding should stretch further and have a broader geographic reach. And though few people are criticizing corporations for making multimillion-dollar affordable housing and community development loans, some in the affordable housing world say there’s a lot more that companies could do with how they structure the loans, the size of the gifts they make, and where they direct their money to really move the needle on the housing crisis.
Putting Money to Work
Enterprise Community Loan Fund President Lori Chatman says the way the pandemic and racial justice protests have highlighted societal inequities have spurred companies to act. “It has brought us to a place where more folks who have the ability to have influence and make a change are opting to do so. . . . I want to seize the moment and show them all the benefits we can have for a bigger impact on society.”
The Equitable Path Forward initiative seeks to make that impact by raising $350 million in investment that can be leveraged for an additional $3.1 billion in loans, equity, and grants. The funding will be used to seed affordable housing projects by Black developers and other developers of color. Enterprise also plans to invest in local leadership programs and provide advisory services.
In January, Enterprise made its first investment through the initiative with a $1 million loan to Aqueo Fund to fund apprenticeships for “BIPOC and other historically marginalized housing providers,” who will work on rowhouse acquisition and rehabilitation in Philadelphia, Baltimore, Richmond, Virginia, and Albany, New York, for below-market rate sales. Enterprise expects the program to generate 50 affordable homes over three years.
Similarly, OFN is seeking to raise $1 billion in corporate investments and grants for its Finance Justice Fund, which seeks to provide loans to “rural, urban, and Native communities experiencing disproportionately high rates of poverty and disinvestment.” To do that, OFN is providing 5- to-10-year loans with fixed 2 to 3 percent interest rates.
Corporate Flexibility Can Stretch Funds Further
In some ways, these new corporate investors are simply expanding the number of affordable housing loans traditionally provided by banks through CRA—the 1977 federal law that ensures that banks provide financial support to all borrowers in their service area, especially low- and moderate-income borrowers.
And more money is a very good thing for the community development industry, says Beth Lipson, OFN’s chief financial officer.
“The CDFI industry was at a point where we were looking for new sources of capital because the growth of capital needs is beyond what’s available from those traditional sources,” she explains. “If you look at balance sheet of some of these corporations, they have billions in cash. We were able to get $170 million of investment from Google and $100 million in investment from Twitter. That is a scale that is important for the industry.”
A 2017 report by Urban Institute gives a sense of that scale. The authors found that between 2011 and 2015, CDFIs across the U.S. lent $34.3 billion or roughly $6.8 billion each year.
Beyond simply expanding the pool of funding, there are ways that corporate investment might go further than traditional financing. One is that the corporate investments are less geographically restricted. Banks making CRA loans are doing so within their service areas. The Urban Institute report found that 27 percent of U.S. counties received no CDFI lending in the five-year period they looked at, and many counties received very small investment.
“This is go-anywhere money,” says Chatman. “Often times, particularly when we’re talking about our traditional bank partners, that CRA alignment … created a dynamic of places with CRA markets and flyover states. With Netflix money I can go anywhere and that’s important when you’re a national player like Enterprise.”
Amir Kirkwood, OFN’s chief investment and network officer, says the terms of the loans from new corporate investors tend to be better than traditional investments CDFIs receive. “For one, the financing is longer term. You can get financing out to the 10-year range. And the pricing is really designed to keep the end financing to the CDFI customers affordable. We really pushed to keep financing under 3 percent where we can when we borrow from corporate partners.”
Frank Woodruff, executive director of the National Alliance of Community Economic Development Associations, is hoping the new tech and corporate interest in community development might garner support for the projects that receive that funding, whether in the form of more corporate or bank investment, national intermediaries and community development networks, or media attention.
“I think there’s a sexiness factor,” says Woodruff. “It’s frankly not very sexy to say, ‘Hey, a bank supports our program.’ But Netflix supporting a program has a sexiness to it.”
Housing Advocates Want More
Though the terms of the corporate loans are better, in some cases, than those of traditional bank loans, some affordable housing advocates think the corporations could be doing far more to move the needle on affordable housing development.
To start, Amie Fishman, executive director of the Non-Profit Housing Association of Northern California, thinks the corporations should be increasing their investment.
“Some of the contributions are fairly substantial, particularly in the Bay Area,” she says. “But not when you compare it to their profits and the benefits they’ve gotten from being in our communities. So we welcome the investment and encourage it. . . . But if you really look at the scale of what it takes to actually ensure everyone has safe affordable housing, it’s going to take massive investment.”
Fishman likens the need for investment in the affordable housing world to the capital that tech startups need to succeed. “Startups don’t have to go get nickel and dimed for grants from every source and do a bake sale to create these new digital systems the world is using. The whole nonprofit community development, affordable housing, community organizing sector has so much expertise. We need the venture capital investment to get those solutions to scale.”
Matt Schwartz, president of the California Housing Partnership, thinks the companies should be using their flexibility to offer better terms.
“The tech money going into CDFIs is lowering interest rates somewhat and it is making the loan terms a little more flexible,” he says. “But it is not substantially moving any needle toward dramatically increasing production or preservation of the affordable housing supply. … The impact of lower-interest rates is pretty minimal—maybe on the scale of a few hundreds of thousands of dollars of interest savings per project.”
Schwartz continues, “I hope they’re going to move away from this hard and fast requirement to repay all principal [and] interest on an amortized monthly basis. If they can move past that to defer payment of at least principal to the end of a 20-year term, then they’re starting to add significant value.”
Similarly, Fishman wants to see 18- to 20-year loans that provide long-term gap financing for very low- and extremely low-income housing projects. She says that would help limit the number of projects that get stalled in the pipeline because of cost increases over the lifetime of the project.
The advocates also want to see companies making major investments in the Low Income Housing Tax Credit (LIHTC) market, the federal program that gives investors a tax break in exchange for funding affordable housing projects. The value of the credits has diminished in recent years, first because of former president Donald Trump’s tax breaks for corporations, and then because of the financial fallout of the pandemic. Schwartz says a substantial investment would go a long way toward raising LIHTC’s value again, meaning affordable housing developers would get more money per credit sold to go toward projects.
Beyond making more investments with more generous terms, Fishman says, major corporations could have significant impact lending their support to housing policy issues at the local, state, and federal levels. “These companies have a big voice. We need them to come in and invest in solutions and expertise in our communities.”
Are New Partners Long-Term Partners?
Though the new corporate investments are just starting to hit the ground, some advocates are already thinking to the future and hoping Netflix, Google, Square, and all the others become long-term affordable housing investors. “I hope they stick around beyond the point we reach herd immunity,” says Woodruff.
Deborah Kasemeyer is director of community development and investments at Northern Trust, which has invested CRA funds in Enterprise for many years. She thinks the new interest in affordable housing and community development sparked by last year’s uprisings could lead to a much broader understanding that housing is a safe investment.
“It really is about demonstrating the risk return,” she says. “I think people have the perspective that these investments are super risky, but affordable housing is actually [one] of the safest investments to make.”
It helps that municipal bond interest rates are currently quite low, meaning companies have a particularly low-risk entry point into housing and community development investment.
“If you’re a company investing your balance sheet, you can invest in affordable housing right now and give up no return at all,” Kasemeyer explains. “Maybe they have a bond portfolio with a 2 percent return. You can invest in a CDFI and get that same 2 percent return, but you’re also making an impact in the community. It’s actually a good time because companies can get into it without risking any return on it. Then hopefully even if rates go up, they’ll still see the value of investing this way.”
Editor’s Note: An earlier version of this article incorrectly quoted Matt Schwartz in his comments about the potential interest savings per project. The article has been updated.