A transit-oriented development (TOD) is a mixed-use residential and/or commercial area designed to maximize access to public transport, and it often incorporates features to encourage transit ridership. Even with comprehensive district plans, supportive zoning, and infrastructure investments, TODs face barriers to raising the capital necessary for pre-development, design and engineering, acquisition, construction, and permanent financing. In particular, developers dedicated to affordable housing and economic development need ready access to capital so they can acquire, hold, and develop property in a competitive environment. Coupled with the traditional “funding gap” for moderate income housing, the situation is particularly challenging for sponsors looking to help evolve more livable communities. Some developments that are planned lack smart growth features, such as transit orientation, adaptive re-use, or “clustered” proximity to retail, commercial, and community services.
In 2006, the Boston Foundation (TBF) awarded a $125,000 grant to CLF Ventures to be matched by other organizations and to fund a market feasibility study of a $100 million workforce housing private equity fund. At that time, the absence of affordable- and moderate-income housing was seen as one of the major constraints to the growth of Massachusetts economy. And this triple-bottom-line fund would produce superior risk-adjusted market rates of return for an established group of national institutional investors (the first bottom line) while converting urban infill areas, like the Fairmount Line corridor, into vibrant, mixed-income, mixed-use developments that would further Massachusetts’ economic and environmental health (the second and third bottom lines).
CLF Ventures matched the grant dollar-for-dollar from several other foundations/individuals, and TBF funds were released in August, 2007. CLF Ventures’ partner for the feasibility work was Strategic Development Solutions (SDS). The study focused on market feasibility/receptivity, understanding developer hurdles, key structuring issues, identification of potential fund managers and investors as well as initial deals, and a business plan for the sponsoring non-profit. The CLF Ventures/SDS team also worked with the Northeastern University Center for Urban & Regional Policy to determine the ten-year equity demand for workforce housing within the defined footprint. That work forced a revision in how Massachusetts policy makers viewed the importance of workforce housing as an economic driver and yielded a mid-course correction in the focus of the fund.
Recent discussions with the team indicate continuing pessimism on any private equity fund’s ability to raise new capital for the foreseeable future. However, with recent HUD grant funds driving a wave of interest by both local and national foundations in TOD, CLF Ventures and The Boston Foundation are reprogramming remaining monies to identify local funding gaps; to consider programs and policy options for reducing barriers to TOD development; and to retool for a time when the economy improves.
CLF Ventures’ analytical skills were a large part of this work. Analysis involved a determination of the size of the “footprint” of the first fund, in terms of its geographic scope, to ensure that sufficient New England workforce housing equity demand existed to support a $100 million fund. The assessment also involved how to deploy the resources of the fund in systematically targeting the most appropriate needs for workforce housing through a synthesis of studies and findings previously conducted by the Northeastern University Center for Urban & Regional Policy.
The CLF Ventures/SDS role was to ensure that the Fund was strategically placed within the broad range of sophisticated suppliers and demanders of development capital in the region and carefully attuned to the market needs of major private and public sector entities, communities and workers.
On the basis of rapidly changing market information, the team was often forced to re-conceptualize the fund in order to provide capital to projects addressing the economic, development, and job creation needs facing the region more broadly. Such a fund would still be able to finance work force housing developments where appropriate and necessary to sound economic growth and development.
A critical component of our work was designing a business plan for the Fund Sponsor(s) that would focus on sustaining the triple-bottom-line goals of current and future funds, including mission, governance, operations, and budget of this new unit or set of activities. A key aspect of this structure was to ensure that the ultimate sponsor entity not only supports and facilitates activities that foster workforce housing development through these investment funds, but that the fund also sustains itself by generating additional revenues to support future growth.