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Wednesday, October 1, 2014

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Cascade: No. 79, Winter 2012

Forum Focuses on Effective Community Development Corporations*

“The persistent capacity among nonprofit community development organizations has always been notable … it is just more notable in present times … .” — Joseph McNeely, Executive Director, Central Baltimore Partnership

The Philadelphia Fed hosted a forum last August that focused on some of the different approaches used by community development organizations. The event, titled Models of Surviving and Thriving CDCs: A Forum on Organizational Approaches and Strategies, was jointly sponsored by the Philadelphia Fed, the Delaware Housing Coalition, the Housing and Community Development Network of New Jersey, and the Philadelphia Association of Community Development Corporations. The forum reflected the Fed’s ongoing interest in community development corporations (CDCs). The 40 attendees were experienced community development leaders. One central theme that all of the presenters focused on — despite the size, years in existence, or structure of their organization — was how critical partnerships and collaboration are to their effectiveness.

The keynote speaker, Joseph McNeely, and the other presenters discussed some of the different approaches used by their organizations. Following are some of the highlights of their presentations.

Central Baltimore Partnership: A New Type of Organization — A Virtual CDC

Joseph McNeely, executive director of the Central Baltimore Partnership (CBP), described his organization as a “virtual” CDC because the organization’s methodology and structure are different from that of traditional CDCs. The first major difference between the CBP’s virtual strategy and the traditional CDC strategy is that instead of spending time building an organization, the partners (e.g., universities, hospitals, government, and community organizations) first wanted to determine if they could actually work together and accomplish something. The second nontraditional aspect of the collaborative is that the members didn’t want to start with a plan — they wanted to start with an action. The collaborative took nearly a year to build. McNeely described the developmental stages of the collaborative: building relationships, deciding to work together, agreeing on development strategies, and implementing major project development.

In five years, the CBP has raised about $10 million and has received about $70 million in tax credits. McNeely emphasized that in the virtual CDC model, none of the money actually goes to programs run by the CBP itself. Rather, the funding goes to the programs or projects of the partners or to a collaboration of partners.

Asociación Puertorriqueños en Marcha and the Jonathan Rose Companies — Partnership for Large-Scale Development

Asociación Puertorriqueños en Marcha (APM) and the Jonathan Rose Companies recently signed an agreement to jointly develop a vacant property adjacent to the busy Temple University train station. The goal is to use the property for mixed-income housing as well as commercial and community facilities. Rose Gray, vice president for community and economic development of APM, recalled that in 2001, sustainability, green building, and transit-oriented development seemed like lofty goals for a very low-income neighborhood in Philadelphia. But in discussing her partnership with the Jonathan Rose Companies, Gray said, “One needs to step out of the realm of one’s own experience and be open to new things.”

Mark Levin, chief counsel at Regional Housing Legal Services and APM’s project attorney, pointed out that an organization such as APM doesn’t go from building single-purpose developments to a $47 million mixed-use, multiphase development with both low-income housing tax credits and new market tax credits. Levin explained that lenders to, and investors in, large-scale projects consider the developer’s financial strength, ability to provide guarantees, development experience, political power, contacts, and management and operating capacity. APM was able to adequately meet some of those concerns but needed a partner to help with the concerns it couldn’t meet. Levin also explained that, in addition to looking for a partner who has expertise in complementary areas, there are many other aspects of the partnership that must be worked out, such as how financial risk is allocated, how cash flow and developer’s fees are divided, who makes what decisions, and how disputes get resolved.

Paul Freitag, managing director for development at the Jonathan Rose Companies, stressed that the key to his company’s success with partnerships is “that as different as we may be, we still very much know each other’s business.” He explained that the goal is to have “both parties really understand what’s happening with each aspect of the project.” In addition, Freitag insisted that communications must be defined up front. The Jonathan Rose Companies and its partners develop a governance chart to maintain effective communications.

Community Asset Preservation Corporation — A Special Purpose Organization

According to Wayne Meyer, president and CEO of New Jersey Community Capital (NJCC), a 24-year-old community development financial institution (CDFI), “the lack of accessible, flexible capital is the barrier to neighborhoods doing their work.” Meyer explained that he believes that organizations must be able to collaborate and partner with one another. He maintained that partners have “to put skin in the game; each has to give up something to get something better. It’s not something that we traditionally have done well together as a field.” Every community development organization felt that it had to do everything — “everyone wanted to feel that they had to be everything to everybody.” According to Meyers, that model doesn’t work anymore.

In 2009, NJCC created a new nonprofit real estate organization to rehabilitate distressed neighborhoods. The model for the Community Assets Preservation Corporation (CAPC) was based on one that Meyers had used when he had worked at HANDS, Inc., in Orange, New Jersey, just prior to his joining NJCC in 2009. CAPC’s strategy is to arrange for discounted bulk purchases of bank-owned, nonperforming mortgages and foreclosed properties. The purpose of that strategy is to stabilize vulnerable neighborhoods, preserve individual community assets, protect homeowners and tenants from the effects of the foreclosure crisis, and increase the availability of affordable housing. As of August 2011, CAPC had purchased 153 units; its five-year goal is to purchase a total of 750–1,000 residential units. CAPC’s success relies on partnerships with local for-profit and nonprofit developers, civic associations, municipalities, lenders, and other organizations.

Urban Affairs Coalition — Providing Fiscal Sponsorship and Support Services

In addition to the programs that the Urban Affairs Coalition (UAC) operates directly to improve the quality of life in the region, it provides 75 nonprofit and government organizations with back office support and shared services. These services include finance and accounting, human resources, grant management, and program support, as well as shared costs for expenses such as purchasing and insurance. Bulk purchasing and contracting for highly specialized functions result in significant cost savings for participating organizations.

The UAC offers fiscal support and shared services to its participating organizations. Fiscal sponsorship, which is the most encompassing, provides comprehensive services to the organization, including the use of UAC’s section 501(c)(3) status. Under this arrangement, staff members employed in partnership organizations are considered to be UAC employees. The UAC also offers packages for collaborative services, fee for service, and consulting services, which allow organizations to operate under their own 501(c)(3) status. In addition to cost savings, fiscal support and shared services provide the receiving organization with other benefits such as additional time to pursue its mission, the ability to better weather an economic downturn, capacity building, and industry best practices, as well as an extensive network of contacts.

Cicely Peterson-Mangum, executive director of Logan CDC, agreed that her organization benefits significantly from UAC’s fiscal sponsorship. At the same time, Peterson-Mangum pointed out the challenges and trade-offs, particularly those associated with funders. Under fiscal sponsorship, the sponsored organization’s financial statements are aggregated with its sponsor’s financial statements, which could potentially lead funders to think that awarding grants to both organizations would be equivalent to awarding multiple grants to one organization. Similarly, because of the consolidated statements, lenders may not get as clear a picture of Logan’s financial position.

Ultimately, Peterson-Mangum agreed that the benefits of fiscal sponsorship outweigh the challenges. A major advantage is that it enables Logan CDC to provide high-quality health insurance for staff members at a fraction of the cost because the insurance is purchased under UAC’s health plan. Another advantage that Peterson-Mangum discussed is that UAC advances cash payments to ensure a stable and consistent cash flow environment.

The dilemmas of the fiscal sponsorship model are not unique to Logan CDC and the UAC, as there are many nonprofits throughout the country that operate through fiscal sponsorship.**

Presenters and moderators at the community development forum on August 9, 2011, were (seated, left to right) Diane Sterner, executive director, Housing and Community Development Network of New Jersey; Wayne T. Meyer, president, New Jersey Community Capital; Grizel Ubarry, president, G. Ubarry, Inc.; and Cicely Peterson-Mangum, executive director, Logan Community Development Corporation. Second row, left to right: Amy B. Lempert, community development advisor and outreach coordinator, Federal Reserve Bank of Philadelphia (FRBP); Dede Myers, vice president, FRBP; Joe Myer, executive director, National Council on Agricultural Life and Labor Research Fund, Inc.; and Trino Boix, director of operations, Urban Affairs Coalition. Back row: Keith Daviston, chief financial officer, Urban Affairs Coalition; Mark E. Levin, chief counsel, Regional Housing Legal Services; Paul Freitag, managing director of development, Jonathan Rose Companies; Rose V. Gray, vice president, community and economic development, Asociación Puertorriqueños en Marcha; Joseph B. McNeely, executive director, Central Baltimore Partnership; Ken Smith, Delaware Housing Coalition; and Rick Sauer, executive director, Philadelphia Association of Community Development Corporations.Presenters and moderators at the community development forum on August 9, 2011, were (seated, left to right) Diane Sterner, executive director, Housing and Community Development Network of New Jersey; Wayne T. Meyer, president, New Jersey Community Capital; Grizel Ubarry, president, G. Ubarry, Inc.; and Cicely Peterson-Mangum, executive director, Logan Community Development Corporation. Second row, left to right: Amy B. Lempert, community development advisor and outreach coordinator, Federal Reserve Bank of Philadelphia (FRBP); Dede Myers, vice president, FRBP; Joe Myer, executive director, National Council on Agricultural Life and Labor Research Fund, Inc.; and Trino Boix, director of operations, Urban Affairs Coalition. Back row: Keith Daviston, chief financial officer, Urban Affairs Coalition; Mark E. Levin, chief counsel, Regional Housing Legal Services; Paul Freitag, managing director of development, Jonathan Rose Companies; Rose V. Gray, vice president, community and economic development, Asociación Puertorriqueños en Marcha; Joseph B. McNeely, executive director, Central Baltimore Partnership; Ken Smith, Delaware Housing Coalition; and Rick Sauer, executive director, Philadelphia Association of Community Development Corporations.

National Council on Agricultural Life and Labor Research Fund — Evolving to Further the Mission

The National Council on Agricultural Life and Labor Research Fund, Inc. (NCALL) is a 35-year-old organization that has changed over the course of its existence in response to the needs of its primary rural Delaware service area. Joe L. Myer, executive director since 1981, said that NCALL is a “bit of a hybrid organization.” It provides direct services such as homeownership counseling, foreclosure prevention, and financial literacy. It also functions as an intermediary, providing technical assistance, consulting, and community development lending.

Although NCALL has integrated a variety of community development services, Myer explained the importance of collaborating and entering into partnerships with other organizations, particularly concerning local, state, and federal policy. For example, NCALL is a founding member of the Delaware Housing Coalition, which advances the housing message to elected officials. NCALL also became a NeighborWorks organization; NeighborWorks provides its members with technical assistance and training. And with its extensive housing counseling team, NCALL developed a relationship with Habitat for Humanity International affiliates to provide counseling to prospective homebuyers. In addition, NCALL aligned with the Diamond State Community Land Trust to help devise new and innovative approaches to providing permanent, affordable housing.

Myer pointed out that third-party confirmation of an organization’s performance can help to build an organization’s reputation. NCALL’s loan fund is certified by the CDFI Fund and received a CDFI Assessment and Ratings System (CARS) rating. In addition, as a NeighborWorks organization, NCALL is rated annually and has program reviews every three years.

Formulas for Success

Grizel Ubarry, president of G. Ubarry, Inc., summed up the meeting by listing five characteristics that were common among the presenting organizations.

  1. Collaboration. Successful organizations realize that they cannot do everything themselves. Regardless of their size, organizations need to work together to expand their capacity and to gain civic and governmental support. Collaboration can be effective among diverse organizations that have similar goals.
  2. Risk taking. The leaders and people who run organizations must have a vision of what they want to accomplish and not be afraid to take steps to get there.
  3. Capacity building. Organizations must consistently increase their skills and knowledge to keep moving forward, and they must learn from their experiences, including their missteps.
  4. Leveraging. Successful organizations leverage their own resources and those of others. “By interconnecting programs and services, [organizations] meet multiple needs while seeking to be comprehensive, integrated, and holistic in their approach to finding solutions,” summed up Ubarry.
  5. Adaptability to change. Successful groups know their marketplace and realize that in order to survive they need to change with the times. In order to be an agent of change, they must be a catalyst for change.

For more background on the organizations, their leaders, and their efforts, visit the main information page for this forum.

  • * The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
  • ** See the National Network of Fiscal Sponsors External Link.