Capital Impact Equitable Development Initiative – Detroit

Capital Impact Equitable Development Initiative – Detroit

Capital Impact is a nonprofit Community Development Financial Institution (CDFI) with a 35-year history of delivering strategic financing, social innovation programs, and capacity building that creates social change and delivers financial impact nationwide.

Real estate projects and commercial developments have the ability to completely change neighborhoods and cities. Yet in many cities in America, even in cities with a population that is majority people of color, the majority of developers are white.

In an effort to better ensure that real estate developers truly reflect their city’s diversity and that minority real estate developers are able to participate in growth and revitalization efforts, Capital Impact launched the Equitable Development Initiative (EDI), beginning in Detroit, Michigan. Charting a new path toward inclusive economic opportunity, this program combines local knowledge, partnerships, and key strengths – including program design and capital solutions – to support minority developers grow their careers and support communities. Since the program’s inception in 2018, EDI has supported 67 real estate developers of color in Detroit and program participants have benefited from the content discussed in the program sessions, the availability of mentors and advisors, critical networking activities, and the opportunity to work on case studies and development projects to put their learnings into practice. In 2019, the organization launched the program in Washington, DC as well, which has graduated 34 alumni.

Reflecting Diversity to Create Real Opportunity and Impact

The program was founded in Detroit, Michigan by Capital Impact program staff and led by Elizabeth Luther, Director of Detroit Programs at Capital Impact. The concept for the program arose when Capital Impact staff members reflected on their lending portfolio and expressed the “desire to do more lending to real estate developers from Detroit who reflect the city’s majority-Black population,” as highlighted by Elizabeth. “I had the privilege, with a tremendous amount of support from colleagues internally and externally, of designing the program, and have been overseeing and working to improve the Detroit [EDI] work ever since.”

Real estate developers of color face many of the same challenges people of color face in our economy, including the racial wealth gap and lack of access to capital from banks and investors. Black households have 10-times less wealth than white households, and Black people are twice as likely to be denied mortgages, business loans, and other forms of capital. Getting into real estate development often requires up-front cash, access to equity capital to leverage debt to get small and mid-sized deals done, and strong existing networks and relationships in the industry. “Detroit is a mixed-market city, where property values are high in places and low in others,” Elizabeth said. “And since the market is weak, investors can be hesitant to put money in. There are other challenges, too, including just breaking into the industry. Real estate is a relationship-based industry, so developers need to build strong connections just to break into the industry.”

Capital Impact aims to improve economic mobility in targeted neighborhoods in Detroit through an inclusive growth framework. They invest in strategies that promote increasing neighborhood density with a healthy income mix through multifamily and mixed-use developments and provide financing for key community services like education, senior housing and healthy foods. As they explain, their work creates:

• Mixed-Income Development: A combination of good planning, good design, and higher densities can support healthy, interactive, walkable areas with concentrations of services and amenities that can support households across the income spectrum.
• Inclusive Growth: Research suggests that the healthiest neighborhoods avoid high concentrations of extreme wealth or poverty. Diverse, mixed-income communities promote pathways to economic mobility and equitable access to quality services.
• Revitalized Neighborhoods: With the right investments and commitment, Detroit is becoming a city where newcomers and current residents alike possess equal access to good homes, safe and vibrant neighborhoods, good jobs and quality educational supports.

To accomplish these goals, Capital Impact has designed innovative capital tools like the Woodward Corridor Investment Fund and the Detroit Neighborhoods Fund, supported by JP Morgan Chase, that have helped unlock Detroit’s enormous development potential. They also partnered with developers, community agencies, other CDFIs, and the City of Detroit to drive investment into Detroit’s urban core and asset-rich neighborhood centers.

“The program has chipped away at the problem,” Elizabeth said. They rolled out a $12.5 million loan fund (The Diversity in Development – Detroit Loan Fund) in 2020, which provides financing for developers of color working on mixed-use properties, with preferences given to folks who have gone through Capital Impact’s EDI program. They received 35 applications totaling just under $100M in the first year alone. “We’re excited about this tool we’ve developed, but it’s still early. We’ve also had positive outcomes with program alumni winning RFPs from other local organizations like Invest Detroit, a partner CDFI and critical local leader.”

Impact Measurement and Management Is an Integral Part of The Program’s Success

“We’ve done a look-back and a developmental evaluation,” Elizabeth said. “My background is in urban planning and I feel strongly about data-driven decisions. It’s important to me to measure in real time anything that you’re doing, and I always push for developmental evaluations where I can.” Elizabeth told us that Capital Impact doesn’t get a lot of pressure from funders for it, but it’s something they’ve learned from experience they have to do to maximize the impact of their programs and investments. “The program has a lot of people and a lot of moving pieces, so having a third-party entity  project-manage the evaluation, ask questions we’re not thinking about, and report back in real time, helps keep our team focused.”

Pacific Community Ventures (PCV) started its role as evaluators for the EDI program in 2019. Throughout the evaluation, PCV wanted to understand how the program impacted those who went through it in relation to the five program goals:

1. Supporting historically underserved developers
2. Contributing to mixed-use neighborhood stabilization
3. Network building for program participants
4. Knowledge building for program participants
5. Wealth building for program participants

The initial work was a retrospective evaluation to assess the impact of the program across the first two cohorts in 2018 and 2019. The PCV team started by understanding who the program was serving through analyzing program applications, background and experience levels, and motivations for participating and then reviewing what it took to have an application accepted. This was critical because Capital Impact wanted to make sure the program reached and served those who needed it the most. PCV also evaluated the curriculum and training materials across each program cohort, and recommended changes based on what approaches resonated the most with participants.

In addition to reviewing application and training materials across the program cohorts, PCV also conducted interviews and surveys with program participants to understand what they gained from the EDI program, as well as interviews with technical assistance providers and other key stakeholders of the program to understand if the program was successful in achieving its objectives. During interviews and surveys with program participants, the team asked what worked well in the program, what were potential areas for improvement, and what their future plans were in real estate development after the program.  One area in which PCV identified the potential for greater focus and technical assistance was around access to the right type of capital for the current market; this was an area that can still remain a challenge for folks who have gone through the program.

After that initial assessment of the 2018 and 2019 cohorts, Capital Impact got a high-level sense of what was working and where the gaps were. Based on the recommendations provided by PCV, Capital Impact made improvements to the 2020 program. For example, one of the major areas of change was around the capstone project that participants worked on during the program. The 2018 cohort had some participants work on a real development project and the 2019 cohort had all participants work on a fictitious development project. Based on feedback found during the evaluation, in 2020, all participants formed teams and selected from viable sites in Detroit that could be carried over post-program; each team was paired with a dedicated advisor. That change of incorporating a real, tangible project through the program made both participants and advisors feel more invested in the program.

“PCV has made a lot of great recommendations,” said Kayla Baker, DC Initiatives Manager for CIP. “We use the feedback regularly and in real time.” While PCV started by doing a retrospective evaluation on the first two cohorts of the program, they stayed on in 2020 to do a real-time developmental evaluation. Therefore, in addition to the previous components of analysis that PCV also conducted during the 2020 evaluation (e.g., program application analysis, interviews, surveys, etc.), PCV also surveyed program participants on a weekly basis to capture immediate session feedback.

In addition, “[the program team] made changes based on both evaluations,” Kayla said. “For example, the advisors wanted more structure and info, and wanted to provide more insight into the design of the program as a whole. We also wanted to engage them in new ways, and it worked well.” EDI program advisors played a critical role in developing the program material, providing support to participants when needed, and providing key feedback for program improvement.

The real time evaluations PCV did made a big difference in adapting to COVID-19. PCV heard a lot from program participants when Capital Impact shifted from in person to virtual learning due to COVID-19. “Having real-time feedback on that let us pivot faster to change curriculum schedules and keep it working. It also helped identify challenges and opportunities without over-balancing the loudest voices in the room,” Elizabeth said.

The Equitable Development Initiative Program In Action: Edward Carrington and Flux City

Flux City is a Detroit-based firm led by developer Edward “Eddie” Carrington that conceptualizes urban development in a manner that assumes change is the norm. This approach brings the characteristics of adaptability, resilience, and flexibility into sharper focus as they aim to deliver on outstanding projects of superior value that energize communities throughout Detroit.

Eddie has been in real estate for over a decade, spending his first years buying, renovating, and selling single-family homes one (or sometimes two) at a time. “I’m more of a hands-on type of person,” Eddie said. “That’s the fun part, ripping out sinks and cabinets. I did a lot of the work and learned to fill in the roles I couldn’t do myself – plumbing, electrical. All of that experience taught me about building an all-star team.”

Over the years that Eddie was successful in doing one house at a time, he would build different teams and began to understand all of the challenges with contracting and construction, just on a small scale. Eddie told us he had never looked at single family rehab as “redevelopment”, just an investment. “A lot of people here in Detroit would take their auto plant earnings and put it into real estate as a retirement investment. I never thought of doing more than single-family homes because I’d never met someone who looked or talked like me doing real estate at a larger scale,” Eddie said.

Most developers in the Detroit area (and nationally) are white men doing $50 – $100 million projects, and, as Eddie said, “that’s never going to be me.” Then in 2017 he started meeting developers of color doing small-scale developments, mixed use developments. “Listening to these developers of color and their processes helped me see myself differently.” Eddie started to think bigger, and even though he had a banking background he said, “I still had a foreign feeling in building pro forma deal sheets and working with funders. It was intimidating to do.”

In 2018 Eddie was introduced to Capital Impact. “There’s a program called Better Buildings, Better Blocks, and Capital Impact was mentioned in the class. I heard about their EDI program and I was intrigued. I got in and I was excited, but didn’t know what to expect. I went through this free program and fast forward to now, with the amount of support and knowledge and connections — these are the departments you need to know for a variance on parking, for working on updating zoning for mixed use developments, this is how you put together a pro forma, this is what financial institutions really care about, here’s how to do community engagement, how to do an RFP. When I was younger, I would think, ‘That building is 20,000 feet, I’ll never apply for that.’ Fast forward to now, having the tools from Capital Impact and the minority mentors from the initiative gave me the confidence to apply for these opportunities.” 

So what’s Eddie working on now that he’s been through the EDI program? “Flux City recently won the opportunity through [local CDFI] Invest Detroit to redevelop an old bank that is located within Detroit’s East English Village community into a 3-story mixed-use building. We’re currently planning to have retail programming on the ground floor and two residential floors with 17 units with 14 of those units being affordable. We’re calling the multi-million-dollar development The Ribbon. Flux City is in talks with CIP on taking a senior debt position in the project, via their Diversity in Development Detroit Loan Fund offering.”

Although the word “flux” has a negative connotation to some, for Eddie, being in a state of flux (being in a state of continuous change) is actually a positive thing. “Creating spaces that evolve with the community is key for any successful developer in today’s times.” Regarding Eddie’s future in development: “In the next five years, I plan to fine-tune my skillset within the small development space of $30 million or less. I like the small-scale realm because it allows for me to spin up a project quickly. Smaller projects also are more widely accepted by the communities that I like to build within. First and foremost, we have to provide a blueprint for doing development with the community in mind. A lot of developers don’t do community engagement well, and I would love to continue to create that blueprint on how to be in front of the community and making sure they’re heard and they support what we’re building, with local retail and walkability incorporated into everything I do.”

“Just knowing that we’re capable of taking advantage of these opportunities that are out there is exciting,” Eddie said. “And I credit that to CIP and their EDI.  It was like a master class in developing. People pay $30,000 for the kinds of white-glove services they provided us, and specific to our market. This has been a very key moment in helping me look at myself as a real estate developer.”

Using IMM to Look Ahead

When it comes to the future of the EDI program, Capital Impact had said PCV’s evaluation helped them understand that the mentorship they offer is the hallmark of the program, and they’ve had to expand ongoing technical assistance once the program ends. Alumni can sign up for office hours to get feedback on the projects they’re pursuing, and they’re looking to build that out with new hires and case management. They’re also looking to build out new partnerships with community members in Detroit to provide project opportunities. The team has expanded the program to Washington D.C. and is looking at further expansion into 1-2 new markets.

As for what Capital Impact needs to continue scaling this important work, Elizabeth says, “We need partners, and the mission is important.” They’re also doubling down on their focus on racial equity and racial justice, which is why they’re expanding it to more cities. “That’s an area where we want to do good work and do more work.”