A few things you might not know about Detroit:
So many people are moving into the downtown and midtown areas that worries have arisen about displacing the poor.
When the Detroit Pistons and the Detroit Red Wings move into the new $700m Little Caesars sports complex next fall, Detroit will be the only city in America in which all four major sports teams play downtown.
Some 72 percent of national business leaders and 83 percent of local entrepreneurs rate Detroit as an excellent or good place to do business, according to a new survey released last week.
Detroit’s comeback is real, albeit mostly limited, so far, to the city’s core. Still, the changes that have swept through a city that could not pay its bills or deliver basic services just a few years ago have been nothing short of remarkable.
What drove the turnaround? Many things–the leadership of Mayor Mike Duggan, a resurgent auto sector, cohesive business leadership, the rapid growth of Quicken Loans (which employs 15,000 people downtown), a five-year $100m investment in the city from J.P. Morgan Chase and a fierce local pride that never waned, even in the dark days. Philanthropy played an essential role, too.
Capital Impact Partners, a community development financial institution (CDFI) and a major lender in Detroit, has taken investments from government, banks and foundations and turned them into projects that drive economic activity and improve lives. Foundations backing Capital Impact Partners including Kresge, Fisher and Ford.
“Detroit is unique because of the collaboration that has occurred, not only on the philanthropic side, but because the city, community organizations, Wayne State (University) and CDFIs have all come together,” says Ellis Carr, the president and CEO of Capital Impact Partners. “Everyone believed in the vision.”
I’m writing today about Capital Impact Partners for two reasons. First, there’s been a flurry of interest lately from foundations and other asset managers in what’s typically called impact investing. Impact investing is trendy (ask Bono) but it’s not new: CDFIs like Capital Impact Partners have been doing impact investing for decades.
Second, I’ve got a special place in my heart for Detroit. I lived in Grosse Pointe Park, across the city line, from 1985 to 1991, and reported for the Detroit News and the Detroit for a decade. These were tough times for the city, when it took some effort to Say Nice Things About Detroit–a motto you’d see around town on T-shirts and bumper stickers.
Then things got worse: From 1993 through 2003, no new units of housing were built in downtown Detroit. By contrast, since 2010, Capital Impact Partners has helped finance more than 1,000 housing units, and it’s just one lender among many.
Founded in 1982, Capital Impact Partners has headquarters in suburban Washington, offices in Detroit and Oakland, and a national footprint. It has deployed more than $2bn in loans over the years, supporting affordable housing, cooperatively-owned businesses, dignified aging, health care providers and healthy foods. It also has place-based loan programs devoted to Oakland, Washington, D.C., and Detroit.
A nonprofit, Capital Impact Partners raises its money from banks that have to comply with federal rules requiring them to lend in low- and moderate income neighborhoods, from a Treasury Department CDFI fund (that the Trump administration wants to cut way back) and from foundations, which provide grants or low-interest loans, usually as part of what are called program-related investments.
Ellis Carr explains: “We’re able to bring different types of capital together to bring down interest rates…CDFIs are profitable, but we’re not profit-maximizing. We have to be profitable so that we can continue to lend and invest.”
Its lending program in Detroit has taken many forms. Early on, when banks were unwilling to lend directly to housing developers, Capital Impact financed such projects as The Auburn, a $12.3m mixed-use development in midtown that includes 58 housing units, including 12 set aside for low income tenants, and eight retail stores, including a bookstore and a Thai restaurant.
Carr says: “CDFIs were able to de-risk the transaction and bring in outside capital.” Because Capital Impact Partners is more willing than commercial lenders to take risks in service of a social mission, its lending can help spark a neighborhood’s revitalization. “We can create enough investment and proof of concept, so that the money center banks can them come in,” he says.
The CDFI has also made loans to Detroit charter schools, to a child care center and to an assisted living facility, Carr says. It supports small businesses, too, by, for example, backing a statewide fund called the Michigan Good Food Fund that invests in small businesses that provide affordable, healthy food in poor neighborhoods. Last fall, the fund made $75,000 grants to a startup called the Detroit Black Community Food Security Network, which is developing a grocery store, cafe and community space, and to a nonprofit that wants to expand the Northwest Detroit farmers’ market so it can operate year round.
A shift to the neighborhoods
Capital Impact Partners seeks to do all this work in ways that promote inclusive neighborhoods, meaning that they should accommodate a mix of well-to-do, middle class and poor people. Last year, it published a report looking at ways to address the impact of Detroit’s revival on poor people who are being displaced from their homes.
Some critics say that the city’s recovery “has been highly uneven, resulting in increasing inequality.” Capital Impact Partners and its foundation allies agree that attention must now shift to the city’s sprawling, poor neighborhoods. J.P. Morgan Chase. too, committed another $50 million to Detroit earlier this month, as the Free Press reported.
Because quantifying impact is an issue for impact investors, I ask Ellis Carr how Capital Impact Partners measures the effect of its work. “This is the holy grail that everyone struggles with,” he says. Right now, Capital Impact Partners tracks outputs–how many units of housing are built, how many students are educated, how many visits are made to a health clinic–but it can’t measure outcomes, i.e., how people’s lives have been changed. Nor can it isolate its own impact from the work of collaborators. Impact investors can’t expect to see how “this dollar is doing exactly that” because too many forces come into play.
I also ask Carr whether foundations could do more to support CDFIs. The top 50 foundations hold about $250bn in assets, according to the Foundation Center, and only a sliver is devoted to program-related or mission-aligned investments.
“We, as CDFIs, are very interested,” Carr says. “Even a small portion of the endowments that exist today could be used for domestic community development. That would unlock a tremendous amount of capital for us to lend.”
This is an opportunity for foundations that is largely being missed. Foundations that care about poverty ought to deploy all of their resources–not just their grants, but their investment assets and their knowledge–to alleviate poverty. But they don’t. Nor do they tend to collaborate well.
So there’s lots for the philanthropic community to learn from Michigan’s foundations and the intermediaries that they support–not just Capital Impact Parters, but Invest Detroit, another CDFI, and the New Economy Initiative, a $100 million project to support entrepreneurs.
As Detroit Mayor Duggan says in the video below: “What the CDFIs in this town have done, they’ve brought about redevelopment at rates I never thought I’d see.” Nice.