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Cascade: No. 68, Spring/Summer 2008

How Can Foundations Change Urban Markets?

Leaders of two regional foundations who spoke at the reinventing older communities conference described their organizations’ efforts to strengthen neighborhoods by pursuing market-based strategies, and a prominent urban developer explained that foundations could play a critical role in spurring urban development.

David T. Abbott, executive director of the George Gund Foundation in Cleveland, and Feather O. Houstoun, president of the William Penn Foundation (WPF) in Philadelphia, spoke on a panel with Richard D. Baron, chairman and CEO of McCormack Baron Salazar (MBS)1 in St. Louis. Jeremy Nowak, president and CEO of The Reinvestment Fund (TRF) in Philadelphia, moderated the panel.

Abbott explained that the Gund Foundation has a regional focus on economic change and has been instrumental in organizing the Fund for Our Economic Future (FEF),2 which promotes regional economic development in northeastern Ohio. The fund is trying to stimulate economic change by investing in areas such as bioscience development and entrepreneurialism, Abbott said. About half of the $60 million raised through FEF has been disbursed, he added.

Most of the Gund Foundation’s community development efforts are focused through Neighborhood Progress,3 a nonprofit that seeks “market recovery” through investments in housing, safety, and schools in six Cleveland neighborhoods, Abbott said. The neighborhoods are neither the best nor the worst ones in Cleveland.

In addition, the Gund Foundation is trying to encourage real estate developers to learn from nonprofits that have expertise in sustainability, green space development, and public art. The foundation is funding Building Cleveland by Design,4 which allows nonprofits to help builders and developers design more eco-friendly buildings.

The William Penn Foundation (WPF) has been a major supporter of community investment in targeted neighborhoods throughout the region, providing strategic investments to support development. With WPF support, The Reinvestment Fund (TRF) has developed neighborhood plans with LaSalle University. The red arrows identify negative market forces and the blue circles identify strong investment opportunities. A new TRF-funded supermarket is planned in the top set of concentric circles. (Map courtesy of The Reinvestment Fund)The William Penn Foundation (WPF) has been a major supporter of community investment in targeted neighborhoods throughout the region, providing strategic investments to support development. With WPF support, The Reinvestment Fund (TRF) has developed neighborhood plans with LaSalle University. The red arrows identify negative market forces and the blue circles identify strong investment opportunities. A new TRF-funded supermarket is planned in the top set of concentric circles. (Map courtesy of The Reinvestment Fund)

Abbott said that foundations often find involvement in real estate projects “uncomfortable,” but he encouraged these organizations to “step out of their comfort zone.” He invited nonprofits and others to tell foundations “how we can partner with you.”

Houstoun explained that WPF and some other foundations are following a market-based strategy in which their funding is intended “to trigger the kinds of investment that can actually turn a neighborhood around. It doesn’t mean we abandon needy neighborhoods; we think differently about what we can accomplish there.”

A market-based strategy may be able to turn around a city neighborhood that has anchor institutions and is only in the early stages of decline, whereas funding services for high-risk youth may make sense in the more deteriorated areas of the same city, she suggested. Sometimes foundations need to “speak truth to hope” and explain that some funding requests in distressed neighborhoods “aren’t going to turn the tide,” she said.

Both Abbott and Houstoun said that their respective foundations complement a market-based strategy with advocacy on national and state policies.

Baron, who has developed urban projects for the past four decades, observed that foundations lack “institutional memory” of what worked in neighborhood development because of staff and board turnover and have made “a very serious mistake” by over-reliance on a capacity-building strategy. He added that many foundations “are insular, have a difficult time collaborating with each other, and are often risk-averse.”

Baron said that foundations “could make an enormous difference in changing local communities” by filling financing gaps such as earlystage pre-development costs for acquisition, environmental tests, and architectural work. The early-stage money is the hardest to find nowadays, he said.

A girl plays piano in the music room of a new public elementary school in Centennial Place, a mixed-income HOPE VI project in Atlanta developed by McCormack Baron Salazar. (Photo courtesy of McCormack Baron Salazar)A girl plays piano in the music room of a new public elementary school in Centennial Place, a mixed-income HOPE VI project in Atlanta developed by McCormack Baron Salazar. (Photo courtesy of McCormack Baron Salazar)

Foundations should invest in projects developed by nonprofit developers to enable the nonprofits to learn the development business and how to use the myriad of complex, oftenchanging government programs, Baron said. The infrastructure of public agency staff trained in development has been lost, he said, adding: “One of the great deficiencies in the U.S. and Europe is that we have not trained a group of social entrepreneurs to take on the heavy tasks of rebuilding neighborhoods.”

Nowak added that foundations should provide “smart subsidies,” not substitute for money that is already available or “obscure inefficiencies.” He and the panelists agreed that foundations incur reputational risk if they get involved in development projects, a factor that inhibits their participation.

Houstoun said that what’s often needed is more collaboration among different organizations in a community and noted that foundations can require such collaboration as a condition of funding.

In a discussion period, Abbott and Houstoun were asked how foundations keep themselves accountable and evaluate their progress. Nowak pointed out that foundations, unlike private-sector firms, “don’t have customers with a set of expectations.” Abbott said that the Fund for Our Economic Future (FEF) retained several area economists to develop a dashboard of economic indicators that measure the progress of the regional economy. The Federal Reserve Bank of Cleveland collaborated in the effort. In addition, the Gund Foundation retained the Center for Effective Philanthropy5 to conduct anonymous surveys of grantees. Houstoun said that WPF has a strategic plan and that its staff meets every six months to evaluate progress. Like Gund, WPF also receives anonymous grantee feedback through the Center for Effective Philanthropy and routinely invests in external evaluations of its grantmaking strategies by independent experts.

Baron said that school reform is a “critical ingredient” for revitalizing urban neighborhoods and that he has worked with public, charter, and parochial schools. He added: “Dysfunctional school systems have a negative impact on real estate. In city after city, we struggle with trying to rebuild a neighborhood and at the same time improve the quality of a school so we can broaden the economic base of a neighborhood, give families a reason to come to the neighborhood, and change the market. We won’t build until we know a school is going to be rebuilt and that it will be a first-class school.”6

For information, contact: David T. Abbott at dabbott@gundfdn.org; www.gundfoundation.org; External Link Richard D. Baron at richard.baron@mccormackbaron.com; www.mccormackbaron.com; External Link Feather O. Houstoun at fhoustoun@williampennfoundation.org; www.williampennfoundation.org; External Link and Jeremy Nowak at nancy.horton@trfund.com; www.trfund.com. External Link

The George Gund Foundation at Work

The Gund Foundation supports community development in Cleveland primarily through a local intermediary, Neighborhood Progress Inc. (NPI), which is funding 14 community development corporations and has designated six areas for a strategic investment. The investment aims at restoring private markets, including real estate, in Cleveland neighborhoods that have undergone decline but show potential to recover. The photos are in two of the investment areas.

In the photo above, workers are landscaping a market-rate newly constructed house developed by NPI and the City of Cleveland. NPI owns and plans to renovate historic Saint Luke’s Hospital, which is shown in the background. (Photo courtesy of C. Rafalke)In the photo above, workers are landscaping a market-rate newly constructed house developed by NPI and the City of Cleveland. NPI owns and plans to renovate historic Saint Luke’s Hospital, which is shown in the background. (Photo courtesy of C. Rafalke)

In this photo, a construction worker is shown amid 190 mixed-income units being built in a HOPE VI development. (Photo courtesy of Julie VanWagonen)In this photo, a construction worker is shown amid 190 mixed-income units being built in a HOPE VI development. (Photo courtesy of Julie VanWagonen)

  • 1 MBS’s mission is to rebuild neighborhoods in central cities across the U.S. Since 1973, MBS has developed 124 projects in 33 cities; the projects include more than 13,895 housing units.
  • 2 FEF, formed in 2004 and chaired by Abbott, operates through grantmaking, research, and civic engagement. The fund has about 100 members, which are primarily foundations but membership also includes banks, other businesses, and universities. For information, go to www.futurefundneo.org. External Link
  • 3 For information, see www.neighborhoodprogress.org. External Link
  • 4 For information, see www.clevelandgbc.org/bydesign/index.html. External Link
  • 5 For information, go to www.effectivephilanthropy.org. External Link
  • 6 Nowak said that charter schools represented TRF’s second largest loan portfolio with financing of $120 million provided to schools educating 23,000 youngsters and added that “conventional philanthropy has been slow to respond” to the need for school-based management improvement reforms.

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