Thursday, October 22, 2009

Guest Blogger My B. Trinh: Reflecting on Leveraged Funds

Tight credit markets are having a profound effect on community development practitioners and the communities that they serve. Now more than ever, effective use of public resources is critically important. It is perhaps time then, to reflect upon fund leveraging in recent years.

Leveraging public dollars can multiply the availability of capital in a particular market. For example, the New York City Acquisition Fund was created with $40 million from local government and foundation sources which was leveraged to raise over $190 million of lending capital from private institutions.

A recent study by Enterprise of the New York City Acquisition Fund and other leveraged funds revealed that they were able to provide a large number of acquisition loans at very favorable terms while supporting affordable housing objectives. It also revealed that a successful fund requires the following local factors:
  • City government support;
  • Takeout financing;
  • Foundation support;
  • Bank investment;
  • Ability to generate high loan volume;
  • Established CDFI partners; and
  • Housing development capacity in the target market.
However, recent changes in the market have slowed loan production. Facing lower loan volume, the New York City Acquisition Fund is seeking ways to alter the fund to provide resources for affordable housing preservation beyond the short-term acquisition loans that it already provides. The New Generation Fund in Los Angeles is also facing underutilization due to market conditions. It is seeking to reposition the fund to address the local issue of maturing acquisition loans on properties that cannot move forward with development due to the state’s fiscal crisis.

Leveraged funds have proven their ability to bring large amounts of capital into a market in the form of acquisition loans with very favorable terms. However, the market’s deterioration in recent years has demonstrated the importance of any given fund’s flexibility to ensure that it can be repositioned for maximum utility.

My B. Trinh is the Bart Harvey Enterprise Fellow 2008-2010. She recently completed an in-depth study of three acquisition funds designed to leverage capital for affordable housing development.

1 comment:

Anonymous said...

The full report can be found at: http://www.practitionerresources.org/cache/documents/672/67284.pdf

The summary version is available at: http://www.practitionerresources.org/cache/documents/672/67283.pdf