Planning for Success: Why Asset Transfers to Communities Matter

Where are the rents and royalties accruing? After more than a decade of experimentation with just transition and social movement investment strategies, the answer to this question tells us a lot about how quickly and significantly an investment will contribute to community power building.

Asset transfers that enable rents and royalties to accrue directly to community groups limit a donor’s accumulation of wealth on those assets. But if the goal of a foundation or other philanthropic donor is power building, that transfer creates the possibility of enormous gains for communities.

Unmasking the Standard Philanthropic Business Model

For much of the 20th century, few people understood the mechanics of philanthropic foundations. They were (and to some extent remain) mysterious institutions with extensive paperwork firewalls between grantees and decision-makers.

When you strip away the mission-oriented language, private foundations are investment businesses with a charitable arm. Federal law requires them to spend a minimum of 5 percent of their assets annually through their charitable arm, but that 5 percent can include operating expenses like office rent, staff salaries, and board retreats. Clara Miller, former president of the Heron Foundation, has described this approach as a “hedge fund–style business model.”

Historically, endowment investment portfolios have been managed by mainstream advisers instructed by “investment policy statements” to maximize returns in whatever ways they saw fit. Fundamentally, the rules and norms governing foundations were designed to optimize potential for perpetual maintenance and growth of endowments rather than to ensure that funds are spent for charitable purposes.

Organizers began to pay more attention to philanthropic structures and policies in the early 2000s—with the idea of ESG (environmental, social, and governance) screens popularized in a 2004 United Nations–sponsored report, and INCITE! coining and illuminating the mechanisms of the “Non-profit Industrial Complex” in their 2007 book The Revolution Will Not Be Funded.

There is a big difference between owning a building free and clear and owning a building that has a mortgage.

Movement leaders became more acutely aware that nonprofits were competing for a scant 5 percent of foundations’ overall resources, while the money invested through endowment portfolios was out of reach at best and actively perpetuated the harmful impacts of financial markets at worst.

The Essential Value of Ownership

My perspective and approach have evolved over time. My journey began as part of Local First and rural community economic development organizing, and continued as a founding member at the Center for Economic Democracy. More recently, I have stewarded a values-aligned investing praxis cohort for Neighborhood Funders Group, and have organized a community-owned project in my hometown in Western Massachusetts. What has become clear to me is that the impact investing field needs to become far more adept at moving capital to community groups.

One of the core tenets of capitalism is that people who own or control assets—whether cash, stocks, real estate, equipment, or something else—can make money by being paid for the use of those assets. And, of course, owners enjoy the privilege of making decisions about how those assets are used.

Organizers have been working to buy land, housing, and commercial real estate, and transition them to community ownership through land trusts, co-ops, and other collectively governed structures. In theory, this increases community stability and the ability of the community to provide basic needs for itself which, in turn, translates to increased community power.

But there is a big difference between owning a building free and clear and owning a building that has a mortgage.

In the former case (free and clear title), any rents, interest, or profits generated accrue to the community immediately. In the latter, a large portion of the rents or royalties accrue to the mortgage holder or loan provider—whether that is a bank or a foundation—until the loan is repaid. That may not occur for decades!

My aim isn’t to flatten the nuance of these decisions into a false binary between asset transfer and non-asset-transfer strategies. For community’s sake, if purchasing outright isn’t an option, a zero percent loan from a foundation is better than a 2 percent loan from an impact investor, which in turn is better than a 7 percent mortgage from a commercial bank.

My goal is for those interested in community ownership as a power building strategy to do the math on these scenarios and see how different the impact can be.

A Community Initiative in Rural Massachusetts

In Ashfield, MA, the small rural town in Western Massachusetts where I live, the population is 1,695 people, according to the 2020 census. The project I have been leading—Elmer’s Community Center—began with the dream of a “community-owned restaurant” when one of our few commercial buildings was foreclosed and sent to auction.

In the end, due to the small scale of our project—a single building with a first-floor commercial restaurant space and two upstairs residential apartments—we were able to fundraise enough to purchase the building outright. The money came from more than 400 individual donors—about half from our town, and half from neighboring communities.

Zero debt, residential rents…and fundraising events allowed us to raise money and make repairs at a sustainable pace.While we estimated it would take us six months to reopen, it ended up taking two years to restore a certificate of occupancy and find a restaurant tenant with a vision and willingness to sign our shared-use lease. (Our Community Center team makes the building available for events when the restaurant is closed.)

Had we faced pressure to repay debt—either through active fundraising or revenue generation—on top of all the other problem solving, community mobilization, repairs, and cashflow management, the project would have been sunk before we began.

Fortunately, we owned the title free and clear. The combination of zero debt, residential rents (even though we charged far below market), and fundraising events allowed us to raise money and make repairs at a sustainable pace for our community volunteers.

Now that we finally have additional rental income from the restaurant tenant (who is also paying below market rate) and from private event rentals of the space, we believe we can be self-sustaining—with revenues fully covering utilities, repairs, and basic operating funds without significant annual fundraising.

Our tenants will also flourish because our goal is to break even, not make a profit, so we can keep rents low. From an organizing standpoint, I can’t overstate how different that kind of long-term confidence feels compared to prior experiences with the annual fundraising treadmill.

Returning this critical “third space” to active service has had an enormous impact on our community. It has created five new jobs (significant in a community of fewer than 2,000 people), space for a new small business in our town, regular gathering space for friends and neighbors, and an events venue. In our first months since reopening, we’ve hosted a tween rock concert, a retirement party, a funeral gathering, all-ages art nights, mutual aid planning meetings, a free yoga class, a teen mentoring group, and senior trivia nights.

It’s not that we imagine everything will go right or that the path will be smooth. At this still-early stage in the project, we’re one dead boiler away from a pretty serious cashflow crisis. But having demonstrated our ability to get this far together, I have confidence that the community would come together to figure out how to get over the next hurdle without relying on outside aid. That feels like a pretty grounded version of community power building, contributing to the potential that we’ll survive and thrive together through other crises.

Doing the Math

The Elmer’s Community Center purchased our run-down building from the bank for $275,000 in 2022 and we have spent another $175,000 on repairs to date ($40,000 of which was supported by post-purchase rental income). We raised about $200,000 of the initial funds in no-strings money from a dozen high-net-worth individuals. Much of the rest has come from hundreds of smaller donations through a GoFundMe campaign, member fees, checks in the mail, and cash in the jar at fundraising events.

Imagine if we had to borrow the $200,000 that we received from major donors. A 10-year, zero percent loan (among the more generous terms currently on offer from values-aligned investors) would have meant a $20,000 payback annually. A 2 percent, simple interest loan would have increased that to $24,000. For the first two years, loan payments would have eaten through all our rental income plus additional fundraising before we began covering any of our own expenses, let alone making improvements.

Shifting Power

At small scale, I hope more foundation partners see the value of fully funding community real estate acquisition as single “asset transfers.” When rents and royalties accrue immediately and directly to the community, as with Elmer’s, the impact is profound.

At larger scale, making this work can be complicated, but asking the core question about rents and returns still provides a great deal of insight. Basically, who is making money on the deal? If the community group that technically “owns” the building or green energy infrastructure or any other asset is scrambling to not only break even on their operating expenses but also pay back their loan, and the investor is comfortably receiving their principal (plus interest) back, having done no labor beyond the diligence stage, power relationships have not fundamentally changed.

Maybe eventually—10 or 30 years from now—the community will have paid off the loans and begun accumulating the benefits more directly. But is that really shifting power?

Rethinking Impact

Foundations and community groups alike are always juggling current reality with desired impact. I’ve witnessed over and again the significant internal organizing necessary for foundations to counter a tradition that favors permanent endowments.

However, as the impact investing field enters its second decade of serious integrated capital organizing, I challenge this community to stop conflating the transfers of assets free and clear with loans that finance asset transfers over time. There are real material differences between the two, and if impact investors and foundations begin to pay more attention to this, they may make different decisions.

Foundations and individuals committed to spend out already operate with different constraints—they do not need to plan for indefinite regeneration of their funds and can afford to transition assets to community more quickly and fully. Large grants directed toward asset transfers—like enabling a community to buy a building outright—are hugely beneficial.

For foundations that are still planning to maintain their endowments in perpetuity, it’s still worth activating the investment portfolio in whatever ways they can. My current advocacy, in these cases, is a portfolio approach with a catalytic carve out. For the majority of the portfolio, this means aligning assets with mission while maintaining financial returns.

For the catalytic carve out, ask different questions, such as:

• What is the fastest and most significant way to circulate this money directly in the community and ensure the community is directly accruing rents and royalties from those funds?
• If we can’t increase grant payouts to speed asset transfers, can we experiment with forgivable loans that allow carve-out dollars to be used instead?

For donors, asset transfers have real opportunity costs. They reduce the funds available to generate potential financial returns in the future. But if community power building is the goal, asset transfers are a powerful tool to get there.