With limited access to wealth due to the current economic crisis and preexisting systems of inequality, it will be difficult for America’s people of color to recover from the setbacks of COVID-19. Black Americans have been disproportionately affected by the negative health and economic outcomes of the pandemic, and they are already at a disadvantage with regard to the racial wealth gap. The same kind of inequities are occurring for places, as small businesses in majority-Black and Latino or Hispanic neighborhoods have had unequal access to Paycheck Protection Program (PPP) loans, causing their local economies to suffer. These realities will likely bring an unequal economic recovery for people and places without intentional interventions from state and local actors that adamantly pursue structural equity.
Wealth-building presents an opportunity for growth and equity by investing in people and places that have been historically left behind by local economic development strategies, leaving them without adequate capital to participate in and contribute to regional economies. The Community Investment Trust (CIT) is a solution that utilizes a wealth-building approach to invest in people and places by helping residents to grow their wealth in assets, specifically those that are located in their own neighborhoods. CIT’s community ownership model—which was designed for working-class people who make low wages—puts community economic development in the hands of the community by giving residents the opportunity to “buy back the block” in an affordable way.
Initiated by the global humanitarian nongovernmental organization Mercy Corps, the trust is a low-dollar, loss-protected investment opportunity designed for low- to moderate-income individuals. Residents can build equity in a commercial real estate property in their ZIP code (or a nearby ZIP code) by investing between $10 to $100 a month. CIT provides short- and long-term returns for investors through an annual dividend and share price change annually. Not only does the net worth of participating residents rise, but the increased community engagement supports direct investments in place.
Although CIT was born out of a nongovernmental organization (NGO), wealth-building efforts like this can also be built with public sector resources. In fact, state and local governments should consider community wealth-building to be a COVID-19 economic recovery strategy. Our compromised economy demands structural change for everyone to have the opportunity to thrive, especially residents of structurally disadvantaged communities. The alternative is continued exclusion and racism that stunts economic growth.
The Community Investment Trust grew out of Mercy Corps, a Portland, Ore.-based global humanitarian NGO that works to create just, productive, and secure communities. Mercy Corps recognized the need for an inclusive investment option for Portland residents, and began pursuing a solution by first engaging with community members (mostly renters) via surveys and conversations to learn about their financial preferences. After an overwhelming majority of respondents expressed an interest in investing in real estate in their neighborhood, the CIT team was formed and moved forward with designing a real estate investment product that was realistic and appealing for Portland’s low- to moderate-income residents.
To set up the investment trust, the CIT team first built tools to determine whether they would be able to create the kind of community investment trust they imagined. The team made it a priority to get input and feedback from community members. After learning about the desire for an accessible commercial real estate investment opportunity, they were able to identify their end product and move forward with pursuing the project. The CIT team identified their own staffing needs and agreed that they needed to build skills or bring in experts in the following areas: real estate, project finance, legal, economic development, and public relations. Funding was limited in the beginning, so they utilized volunteers and pro-bono professional assistance until they were able to grow more.
Once they identified their internal needs, the team began their search for commercial properties by using real estate expertise to scan the assets in the area with a community mapping tool. With their own property evaluation tool, they assigned scores to commercial properties on the market by assessing them in eight distinct categories: 1) property viability, 2) potential for government support, 3) nearby affordable housing, 4) potential neighborhood partners such as churches, schools, neighborhood associations, etc., 5) flexibility, 6) location, 7) neighborhood profile, including diversity and median income, and 8) any other subjective factors. From this evaluation, the CIT team hoped to find an affordable property that would yield a good return for their target low-income investors and for their potential tenants.
The evaluation tool led the CIT team to discover and purchase Plaza 122, a single-story commercial/retail-zoned office space that is now 95% leased (from 66% leased upon purchase) with mostly minority-owned businesses and organizations, including a Latina-owned hair salon, African Family Holistic Health Organization, and the Somali American Association of Oregon.
During the phase of determining feasibility, the CIT team also recommends utilizing project finance expertise to consider different capitalization options, identify resources for project capitalization, and create a plan for required capitalization. Details on how CIT went about this process during the purchase of Plaza 122 can be found in the “Solution cost and time frame of execution” section.
Starting a community investment trust
To buy Plaza 122, the CIT team developed their own legal structure and organized into separate entities to split different functions. CIT formed two single member LLCs and one Oregon C Corporation. East Portland CIT Corporation (EPCIT) is made up of the community investors who own Plaza 122. It is an Oregon C Corporation, so it has the option to become a private REIT (a transparent tax election with a pass-through tax advantage). EPCIT is led by a board of directors selected by investors (CIT provided training for board members upon their selection). CIT Services LLC is the lead organization run by Mercy Corps staff. It provides services to EPCIT. Plaza 122 Community LLC is the Plaza 122 property owner that is owned by EPCIT.
|Entity||Type||Control and Role|
|Plaza 122 Community Investment LLC||Oregon LLC, single member||
Originally, this was a single member LLC of Mercy
Corps Northwest (MCNW). The LLC was established to
purchase Plaza 122. MCNW subsequently transferred
its single membership in a sale to East Portland CIT
Corporation on 7/31/17.
|East Portland CIT Corporation||Oregon Corporation||Community investors, led by investor-appointed board of directors.|
|CIT Services LLC||Oregon LLC, single member||
This LLC acts as advisor and manager to EPCIT under a services agreement for the activities of
Plaza 122, financial oversight, and community engagement and training.
Source: Community Investment Trust, “Community Investment Trust Case Study,” 2020.
With the legal structure established, members of the community could sign up on the website to become an investor. To invest, interested residents must be 18 years old and live within Portland ZIP codes 97216, 97230, 97233, or 97236. Interested residents must also take a six-hour financial education course called “Moving from Owing to Owning,” which is now hosted on Zoom for three consecutive days (two hours each day). The curriculum was developed by CIT, is coordinated by CIT Services, LLC, and is taught in multiple languages by community leaders. It covers topics such as budgeting, goal-setting, financial investments, and overall financial literacy.
After the course, residents enroll and choose to make an investment of $10, $25, $50, or $100 per month. Over time, the property value appreciates, and the loan owed on the property decreases as investors buy more and more shares in the property. CIT uniquely guarantees investors’ protection from loss through a direct pay letter of credit from a bank so that there is no risk. Investors receive an annual dividend when there is a profit from tenant payments, and investors can liquidate their assets at any given time without a loss in their invested amount.
Building the CIT also required a communications and public relations strategy to market the opportunity. The CIT team had the eyes and ears of Plaza 122’s regular patrons, and they have done things like arts, green-scaping, health events, and distribution of masks with the CIT logo during COVID-19. At the same time, they also realized that word of mouth proved to be more effective than any marketing strategy. Learning about the opportunity from someone familiar in the community led to more trust in the CIT, especially with first-time investors. CIT utilized this strategy by sharing the opportunity with large, influential community groups such as churches, who would then share information with their membership.
Maintaining a community investment trust
Additional tools required to maintain the CIT over time have included a home website where investors can sign up or learn about relevant information, an online investment management portal and customer service provider for investors to track their account information, CIT investor/financial management and project operations efforts, annual monitoring and evaluation to track impact, and a community of practice and learning with other community investment trusts using the CIT model.
Solution cost and time frame of execution
In the very early phases of the CIT, Mercy Corps Northwest (the domestic entity of Mercy Corps) funded the program with their own unrestricted net assets and donations. Once they were readily fundable, the CIT raised capital from a range of sources listed in the table below. To purchase the property, CIT chose to use conventional bank debt; they received real estate loans from Northwest Bank and Beneficial State Bank. The primary lender provided a letter of credit under their structured loan underwriting and covenants; under federal law, this letter of credit was the key in ensuring that community investments in the property are risk-free. It ensured that all investments are liquid and secure from loss. Mercy Corps Northwest and two other impact investors provided a loan to cover the property’s initial equity; this debt is the equity that the community’s investors are purchasing over time.
The Collins Foundation provided funding for capacity building so CIT could hire an operations manager, and CIT was also able to raise funding from JPMorgan Chase and the Meyer Memorial Trust in order to deliver the “Moving from Owing to Owning” course and translate it into five languages. Impact investors also returned as private donors to support program operations.
|Plaza 122 funder types||Plaza 122 funder roles|
Long-term real estate loan
Letter of credit
Curriculum development and training
Operating support (new hires, web development, other)
Curriculum translation and training
|Impact Investors||PRI (initial equity, subordinated debt)|
|Private Donors||Operating support (investor training, capacity building)|
Source: Community Investment Trust, “Community Investment Trust Case Study,” 2020.
CIT did not receive public sector funding, but support from local governments could have helped tremendously by providing real estate, paying for operating support, or covering their CIT license. To assist those who wish to replicate their model, CIT has outlined the various roles that different potential funders could play—including local governments—in the table below.
|Funder types||Risk measures||Funder Roles|
|Banks||Value and LTV; debt service coverage; leased %; tenant improvement; deferred maintenance; leasing cost/upgrades; secondary repayment source; guarantor||
Short-term Construction loan; long-term real estate loan; letter of credit; community grants
|Foundations||Program-related investment; operating support; grant for feasibility study and/or CIT license; letter of credit (LC) guarantee; liquidity reserve (a fund to support the LC)|
|Impact Investors||PRI (initial equity, subordinated debt); operating support (training, capacity building); pay for CIT license; LC guarantee fund; liquidity reserve|
|Private Donors||Miscellaneous program support|
|City/County/State||Provide or subsidize real estate; permitting expedience; equity gap/subordinated debt; grant for operating support; grant for CIT license|
|Nonprofit/Housing Agency||Project Management; investor training; investor outreach; project type selection (affordable housing, ground floor commercial retail, existing building, historic rehabilitation, new building, etc.)|
Key components or features
The Community Investment Trust describes its model as containing the following features:
- Low dollar investments ($10 to $100 per month).
- Geographic boundaries by ZIP code for investor participation.
- Short- and long-term returns for investors through an annual dividend and share price change annually.
- Guaranteed protection from loss for investors through a direct pay letter of credit from a bank.
- Investor education course—“Moving from Owing to Owning”—offered in five languages, covering budgeting, goal setting, and the risk and return profiles of investments.
- Investor efficient management and communication, including a website: investcit.com.
- A user-friendly and efficient investor management portal.
The Community Investment Trust has implemented a people-centered and place-based approach in designing its investment model. There was no assumption that members of the community wanted a commercial real estate investment option; the idea grew out of conversations and engagement with the community. Most importantly, as an opportunity designed for low- and moderate-income residents, the model did not compromise on accessibility. Community investments can only go up with their guaranteed protection from loss, and 100% of the net worth of the property is in the community’s hands. Additionally, the “Moving from Owing to Owning” course ensures that all investors have a thorough understanding of how their investment is contributing to their net wealth.
By the end of 2019, CIT had delivered three rounds of dividends averaging 9.3% to over 160 families. Investors had a share price gain from $10 to $15.86, and 98% of investors are renewing their investment at a new share price annually. The Community Investment Trust also creates community; 68% of investors admit that their civic engagement has increased since making their investment, and tenants of Plaza 122 report more business and visibility because of community ownership and the connection to their customers. If community ownership encourages civic engagement, then it can also lead to improved neighborhoods that better represent the interests of often neglected residents.
During COVID-19, the Community Investment Trust has remained remarkably resilient. CIT paused charges on their investors’ accounts for three months during the shutdown, and they reminded investors that divesting is an option. However, only one investor cashed out, and they have continued to gain new investors. With nearly 200 investors, the group’s demographics are representative of the community, as shown below. Of all the tenants in Plaza 122, only one was unable to meet rent for a few months.
The Community Investment Trust has designed a model for replication in other places, which could prove useful in local COVID-19 economic recovery strategies. To date, over 60 cities in 23 states have expressed interest in using CIT’s model to strengthen their economies.
|Community Investor Demographics|
|From households making less than $40,000 annually||54%|
|Born outside of the United States||49%|
Challenges and lessons learned
Legal challenges and lessons
The CIT model uniquely incorporates a built-in provision to protect their investors from loss through a letter of credit, but this feature did not come to be without major challenges. Although the CIT wanted to provide risk protection for their investors, there were security law hurdles that made it difficult to offer risk-free, loss-protected investment opportunities to unaccredited investors. CIT sought an investment security that was exempt from registration for unaccredited low-income investors with the U.S. Securities and Exchange Commission (SEC) and the state. After utilizing legal expertise to find a solution, the CIT team discovered that, under federal law, they can provide a direct pay letter of credit from a bank to exempt their investors from registration, while investors receive liquidity and loss protection against any decline in their principal investment over time.
Commercial real estate challenges and lessons
The CIT team shared the following lessons after undergoing the process of purchasing Plaza 122:
- Pay attention to the findings in the property assessment tool.
- Secure property with contingencies to perform due diligence, including getting an updated appraisal.
- Communicate with potential banks early.
- Seek opinions in the neighborhood (schools, fire and police departments, libraries) about the property.
- Talk with existing tenants.
Sources and additional resources
Do you have a similar solution in your area? Is there another problem that you’re tackling in an innovative way that you’d like to share with a wider audience? Contact us at email@example.com.