In the News
A 'vote of confidence' for nonprofit developer
The Reinvestment Fund received a $1 million MacArthur grant.
Porus P. Cooper
Philadelphia Inquirer, June 27, 2005
The John D. and Catherine T. MacArthur Foundation has given $1 million to the Reinvestment Fund, a fast-growing Philadelphia nonprofit that finances homes, schools and businesses in low-income neighborhoods.
The money is not one of the "genius" awards the foundation is famed for giving to writers, artists and researchers, but it is equally valuable to the Reinvestment Fund, which will use it to attract more funds.
The grant is the conversion of a maturing 10-year loan, said Julia Stasch, vice president for MacArthur's human and community development program.
Only twice before, in 20 years of making such loans to more than 100 groups, has the foundation flipped a loan into a grant, Stasch said. "It's a vote of confidence in their future," she said.
The grant will help the Reinvestment Fund raise "four or five times that amount in new debt to finance a wide array of affordable-housing" and other projects, she said.
The MacArthur Foundation's endorsement comes amid a growth spurt that has turned the Reinvestment Fund into a conglomerate of community development programs and that its chief executive officer, Jeremy Nowak, said he expects will continue for two or three years.
Most recently the fund financed a ShopRite supermarket in Southwest Philadelphia, in part by using federal New Markets tax credits. It is the only economic development group in Pennsylvania approved for that program.
It is also behind a slew of charter schools in Philadelphia and housing plans in Camden and as far away as Baltimore.
Its many arms, including a private-equity fund called Urban Growth Partners, have financed a variety of businesses, including Mobility Technologies, of Wayne, a traffic-tracking service.
The fund also has developed expertise in gathering and analyzing local economic data that the Street administration has used as the basis for its Neighborhood Transformation Initiative. Some banks and foundations are now relying on the data for their community investment decisions, Nowak said.
The fund employs 57 people and manages $258 million in investment capital, an amount that rivals many local private-equity funds.
It's a far cry from the $10,000 grant Nowak began with 20 years ago. The Reinvestment Fund marked the anniversary earlier this month with a party for its investors at the National Constitution Center where nuns mingled with bankers.
"The bigger we get, the more risky things we can do," Nowak, 53, said, citing as an example the speculative and expensive preparatory work that typically precedes construction. "It's the opposite of what I used to think," the former community organizer added.
Getting bigger would allow the fund's revenues to "internally subsidize" projects and cut its reliance on foundations, he said.
Bigness, however, does not pervade everything it does. Its lending to small businesses, such as bakeries, restaurants and hair salons, has shrunk from 36 deals worth $4.3 million in 2002 to 21 deals worth $3.5 million in 2004.
The fund's small-business lending had spread itself too thin, doing "a little bit of everything everywhere," Nowak said. It also "lost a lot more on small business than real estate," he added, because it lacks the technology that banks use to rate the creditworthiness of borrowers and spread the risk across large numbers of them.
The scope of the Reinvestment Fund's activities makes it "a national model," said David Thornburgh, who heads the Pennsylvania Economy League's Philadelphia division and is one of hundreds of individual investors in the fund.
Thornburgh said he put in $500 about three years ago as a way to endorse its work.
Among the bigger investors are the community development arm of JPMorgan Chase & Co. bank, which has committed nearly $20 million, and the Sisters of St. Francis of Philadelphia, who have invested $60,000.
The money is not a gift, said Sister Nora Nash, director of corporate social responsibility for the order, although for a few years it did not expect any interest. Now the 700-member international order of nuns expects 1 percent, although the fund offers 2 percent to 4 percent.
More important, Nash said, the sisters expect "social returns" such as jobs and affordable housing, and the fund has not disappointed them. The fund says it has created or saved more than 10,000 housing units and 25,000 jobs.
On June 17, the day after MacArthur approved its grant, Nash's order rolled over its investment for another five years.
JP MorganChase has given $3 million to the Urban Growth fund. The nearly $50 million fund is the largest of its kind in the country, said Ruth Salzman, senior vice president for the bank's community development group. The bank is also in the Reinvestment Fund's charter-school financing program. The bank's money is not a grant, she said. "We expect to get it back with a return."
Nowak said the fund's loan programs have "never lost a dime for an investor."
Not all projects have been successes in financial terms; a prominent setback was the bankruptcy of Allegheny Child Care Academy, a chain of day-care centers, now back in business as Brightside Academy.
"We had to write off probably a quarter-million dollars," Nowak said. But, he added, "we created child-care centers and hundreds of jobs all over the city."
The 28 charter schools created with the fund's help have thrived even financially, he said.
Some are now issuing bonds for new financing based on their cash flow, he said.
The Reinvestment Fund "isn't scared off the way conventional lenders would be," Tatiana Granados said.
She and her husband, Haile Johnston, bought a former warehouse with a collapsed roof in Philadelphia's Brewerytown section with plans to turn it into a hub of workshops and a food distribution center.
There was no interest among banks in financing its redevelopment, she said. But six months ago, they got a $150,000 loan from the Reinvestment Fund to pay an architect and a structural engineer.
It also led them to tax credits and is helping them find other sources for the $2 million they need to transform the building they have named Eastern Lofts.
"They are a very deep organization," Granados said.