Everyone likes a safe and vibrant community. We know, however, the safety, security and economics of each community is different. Some communities go through tough times for a variety of reasons, and challenged neighborhoods may get neglected and blighted. The solution, or so it would seem, is often thought to be more direct government intervention. Residents will demand more police presence to keep a troubled area safe, or they might demand tax funds be spent cleaning up abandon properties.
The issue with this type of government involvement is it is an ongoing cost and a temporary band-aide. And sometimes the government simply doesn’t have the funding to begin to fix the problem, so it is left with no other option but to ignore a deteriorating neighborhood.
Citizens tired of waiting for a government solution have found a successful way to take redevelopment efforts into their own hands and bring new life into tired districts. The non-profit world has found a win-win solution by creating community development corporations, or CDCs for short. The concept is to marry a community’s needs for services with the community’s need for redevelopment.
Low income housing tends to be the most prominent example of this. The CDC will buy blighted properties, renovate them into desirable properties, and then rent the properties to low income people after construction. The CDC may obtain a business loan for the renovation, which it will pay back using the rents it collects once the property is operating. In this way, lower income residents see an improved quality of life, the neighborhood gets an improved look that attracts future investment, and the CDC stands to benefit from a cash flowing asset. The CDC, as a non-profit, uses any surplus cash flow to fund any CDC operating costs or invest further in additional projects. This same model has been repeated in different ways, which may include investing in shopping centers, grocery stores, theaters, etc.
How does a CDC initially get capitalized so it may purchase property or get a business loan? It can be tricky, but there are ways. If property development is the aim, a deal may be struck with the current property owner to provide seller financing. There also may be government grants, or tax credit equity available. In this case, it can be a successful way to partner with donors or the government by demonstrating the need should only be a one-time occurrence, and thereafter the operating property can pay for itself.
After a CDC has taken the first step by rehabilitating some properties in a neighborhood, for-profit developers take notice and see an opportunity to benefit from investing early in a neighborhood being turned around. They are often the next ones to purchase blighted properties and redevelop them for their own personal gain. The combined efforts of the CDC and for-profit developers can result in a cleaned up neighborhood which is once again attracting residents. This, in turn, tends to alleviate the conditions that draw in criminal elements. This is how a CDC achieves its mission.