Neighborhood Transformation

Neighborhood Transformation


The Community Reinvestment Act obligates federally regulated banks to "meet the credit needs" of low income neighborhoods "within the confines of sound banking practices".

In an effort to help banks meet those obligations there have been identified unmet credit needs relevant to the development of affordable housing in low income neighborhoods by nonprofit developers in South Florida. It is the hope of these developers that they will to be able to engage in a dialog with banks to explore innovative ways for them to participate in the redevelopment of low income neighborhoods.


  • Banks can make equity investment in nonprofit sponsored affordable housing development ventures
    • Banks (or bank-owned CDCs) should find a way to make equity investments in nonprofit sponsored real estate development ventures.

      For various reasons it is not possible to use the Low Income Housing Tax Credit to attract investment capital for small (5 to 50 unit) multifamily projects. Bank equity investments could stimulate the production of an increased number of rental units.

      In addition, banks (or bank-owned CDCs) should make equity investments in commercial development projects that are sponsored by community based developers (possibly taking advantage of the New Markets Tax Credit" program..

  • Banks can make available revolving lines of credit for that can be used in combination with public sector grants for the acquisition and rehabilitation of previously foreclosed single family housing
  • Banks should make predevelopment loans available to projects sponsored by nonprofit developers.
    • These funds are needed to pay for predevelopment expenses such as architectural drawings, environmental tests, and land banking.
  • Banks can provide grants to nonprofit developers to support their affordable hosuing efforts
    • The cost of doing development in declining low income neighborhoods is higher than doing development in the suburbs. Land assembly, for example, is much more expensive. Many of the vacant parcels are environmentally contaminated ("brownfields") or have inordinate amounts of liens ("lienfields"). The patchwork of ownership and the necessity of budgeting relocation costs make the assembly of large cost effective parcels extremely difficult. The most significant barrier, however, is the fact that the low income residents can only afford to pay low rents and low mortgage payments.

      These are the underlying reason for the almost total lack of investment in many of these communities. Thus, it is not realistic to look to "potential profits" as a source of funding to cover the administrative costs of nonprofit community based developers.

      This type of support will increased flow of "bankable" real estate development venturers.

  • Make bank owned foreclosed property more available for affordable housing
    • Bank can facilitate acquisition of bank owned foreclosed property by nonprofit developers so as to expand inventory of units available for the creation of affordable housing

  • Banks can purchase 501(c)(3) tax exempt bonds
    • Banks, either directly or through a bank owned CDC, should consider becoming an investor in affordable housing projects that issue 501(c)(3) tax exempt bonds with a below market rates of return.

      By using these types of bonds qualified projects can avoid having to pay ad valoremreal estate taxes. The savings could be used to produce a return on investment for the investors in an otherwise unfeasible project. It is estimated that a $20 million investment could leverage $100 million on in project funds.