May 30, 2017; NextCity
Real estate investment trusts (REITs), pronounced “reets,” are a special type of trust that allows investors to buy real estate and share in the profits and rents. Though these trusts are most often held by pension funds or the biggest investors, an Oregon anti-poverty group has created its own version. Josh Cohen, writing on NextCity, describes the effort to help low-income residents in a section of Portland, Oregon build wealth.
Unlike REITs, which typically attract the wealthy, Mercy Corps’ pilot is aimed at low-income investors in the neighborhood. “We want to turn the REIT model on its head by creating a small, safe, local and low-dollar investment opportunity for all within a community to participate in,” says Sven Gatchev, Mercy Corps Northwest’s community investment trust business analyst.
The first investment is in a strip mall located in a neighborhood identified in a Portland study as a landing place for low-income renters being pushed out of other city neighborhoods as a result of rising rents and house prices. Mercy Corps Northwest bought the strip mall for $1.2 million, intending to use it to test its Community Investment Trust (CIT) concept. Instead of targeting high-net-worth shareholders, Mercy Corps NW is only making shares available to people who live in the several nearby zip codes. Eventually, Mercy Corps plans to sell its entire equity share to local, primarily, low-income residents. It’s also sponsoring financial education courses for local residents to help them learn about building wealth.
For $10 to $100 a month, anyone in the nearby four zip codes would be able to invest. That’s quite different from REITs, which often require $200,000 annual income minimums (or “accredited investor” status) in order to invest. And, unlike most REITs that have difficult sale or withdrawal processes, in this one, investors would be able to easily cash out in case of an emergency. The CIT was also designed to benefit local residents, unlike some commercially offered products, a few of which have been documented to favor sellers over investors.
The effort does more than help people build wealth; it gives people a stake in the future of the neighborhood. In an article by Elliot Njus in the Oregonian, he notes that most people build wealth primarily through home ownership, but for many low income residents faced with rising housing prices, that may be out of reach.
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“What we heard early on is that’s exactly what people want,” said John Haines, Mercy Corps Northwest’s executive director. “Even if you’re buying stock in a company with a store down the street, that’s a little elusive. That’s a little different than knowing, ‘That building is mine.’”
Mercy Corps NW admits the model is untested and complicated. Pro bono attorneys helped structure the program to comply with financial regulations admitted written with different purposes in mind.
Mercy Corps NW is not the only one experimenting with the REIT tools. The Housing Partnership Network, a collaborative made up of 100 affordable housing and community development nonprofits, created a for-profit oriented REIT model to help secure funding for a number of nonprofit owners of affordable housing. It leveraged an initial pool of $100 million provided by equity investments from the MacArthur Foundation, the Ford Foundation, and Prudential with a line of credit from Citibank and Morgan Stanley.
If the Portland project proves successful, Mercy Corps NW plans more like it. And, according to experts, the time is right for real estate. If it works, Mercy Corps NW may also license the concept and let others around the country put the model to work.
The Mercy Corps NW and Housing Partnership Equity Trust are just two of a growing number of social-purpose investment tools. The field continues to define what doing good is or could become. One of the places that conversation will continue is in New York City on June 19th, when the Good Capital Project will host a gathering to dive further into the discussion of how to accelerate money into purpose-driven investments.—Kevin Johnson