Bringing Fort Apache to Wall Street


How do you get Wall Street with its fiscal muscle to back housing in the South Bronx and its devastated Fort Apache neighborhood? What's the trick to tap main-line finance for thousands of low-income housing projects that community-development corporations are itching to put up in neighborhoods coast to coast?

Peter Goldmark, former head of the Port Authority of New York and New Jersey, put that question to the foundation world two years ago. He had just assumed the presidency of the Rockefeller Foundation, America's fifth-largest.

Late last month Mr. Goldmark and other major foundation chiefs came up with an answer: a new financing structure named the National Community Development Initiative. It is the most ambitious effort ever to link community-development projects with big-time institutional investors in Wall Street finance pools.

To launch the effort, several major foundations are putting up serious money -- Rockefeller's $15 million joined with $15 million from the Lilly Endowment and a total of $17.5 million in pledges from philanthropies ranging from Hewlett to Knight to the Pew Charitable Trusts. Even in a mean recession, Prudential Insurance has agreed to commit $15 million.

The funds are designed to help on every front from core support for community-development corporations to loans for their projects. Perhaps the most unique element is the involvement of "Freddie Mac," the Federal Home Loan Mortgage Corporation, which has agreed to buy $100 million of mortgage loans that regular banks make on the CDC housing projects.

Freddie Mac buys up mortgages from banks and sells them on Wall Street -- it's helped finance one of eight American homes since 1970. But up to now, it has barely reached the low-income field. As a result, local banks have been ultra-reluctant to make loans to community-development corporations. With Freddie Mac a potential partner, the banks may be a lot more willing.

CDCs, says Mr. Goldmark, are already "winners" in returning investment and social order to ravaged neighborhoods. "Very few CDC-revitalized neighborhoods have gone down." But their scope is too narrow: "We have to take what works and expand it from two or three blocks in a city to 30 or more."

Is $15 million too big a risk for the Rockefeller Foundation? "It's adventurous," Mr. Goldmark told me. "That's why if John D. Rockefeller were here, I think he'd like it."

Other critical partners in the new system will be the two big "intermediaries" that already serve the community-development field -- the Local Initiatives Support Corporation and the Enterprise Foundation started by developer James Rouse. With their intimate knowledge of CDC operations, they'll take the big foundation grants and work with individual CDCs in 20 cities. The business acumen of these bodies also telegraphs a reassuring signal to Freddie Mac and other potential major investors.

Now, says Mr. Goldmark, a framework will exist in which "local foundations and other corporations can invest in center-city renewal with security, and on a wholesale basis." Add in all the likely leveraging, he claims, and you have a half-billion-dollar effort over three years -- the largest non-government commitment to rebuild poor city neighborhoods in history.

It's small wonder that two years of hard effort went into building the model. Says Prudential Foundation president Peter Goldberg, one chief player: "It was a real challenge to put eight funders, two intermediaries, 20 cities and Freddie Mac into one package." All had different guidelines and operating rules. There were "tough negotiations."

John Mutz, Lilly Endowment president and a chief architect of the agreement, says, "While this venture is admittedly complicated, it is also elegant in its distribution of risk over a consortium of partners who, together, can address a need of national proportion."

There's an old saying that when a committee designs a horse, you get a camel. But the animal born of all these negotiations lacks a hump: There is no federal involvement. Why? Privately, the designers say, there was fear that with federal regulations and politics, the new creature could have been hopelessly bogged down.

"We set the terms. The feds may want to plug in later," Mr. Goldmark explains.

Everyone does hope Washington will get involved eventually. Even a half-billion-dollar private initiative falls leagues short of the housing need in America's most wounded neighborhoods. Ultimate costs will be in the multi-billions.

Another missing link is a strong national initiative to strengthen the leadership ranks of community-development corporations -- a major interest of Mr. Goldmark's which he decided to put on the back burner while he concentrated on the big financing package. Even so, Paul Grogan, president of the Local Initiatives Support Corporation, may not be exaggerating too much when he calls the new initiative "a high-water mark of creative philanthropy in the United States."

Within five years, experience and hard knocks will likely have changed the shape and features of this National Community Development Initiative. But in a time of federal nonfeasance, of near-paralysis in housing for poorer Americans, here's a formula emblematic of the novel alliances and approaches the times demand.

Neal R. Peirce writes a column on state and urban issues.

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