The organization has funded some of the most challenging housing, child-care and charter school projects in the nation.
At the center of its work is a goal that is hugely ambitious and incredibly direct: Alleviate poverty.
To meet this mission, LIIF has provided approximately $500 million in capital and services to support 50,000 affordable housing units, 20,000 child-care spaces, 21,000 spaces in schools and 2 million square feet of commercial space. Plans call for an even greater level of investment in the next several years.
Much of the group’s work is done behind the scenes.
If President and CEO Nancy O. Andrews had to describe LIIF to someone she just met, she would boil it down like this: “What we do is provide capital for low-income communities across the country. We take large loans from banks and other community-minded institutions, and we use those to make smaller loans to community organizations working on different projects like affordable housing, child-care and education.”
When Andrews joined the San Francisco-based organization in 1998, LIIF had approximately $38 million in assets. Today, the group’s managed capital is a quarter of a billion dollars and growing.
What the numbers don’t reveal is that LIIF often finances unique and difficult deals and serves hard-to-reach populations. The organization regularly provides the crucial piece of financing needed to make tough projects possible.
In many eyes, it has emerged as one of the pre-eminent community development financial institutions (CDFIs) in the country.
Growing demand
LIIF began in 1984 as the Low Income Housing Fund to address housing needs. Three years later, the organization’s revolving loan fund had reached $1 million. The group continued to grow, opening a New York City office to establish an East Coast presence in 1991. The nonprofit works nationwide, but much of its efforts are concentrated in California and New York.
In recent years, the organization has expanded to finance child-care programs and charter schools, adopting its current name in 2002 to reflect this broader focus.
“This came out of a vision that we have for the work,” Andrews said. “We want to serve the lowest end of the income spectrum. When you think about what makes a difference in the lives of the poor, it is stable and affordable homes. It’s a platform for family stability.”
Child-care is vital because it allows parents to get into the workforce and readies children to be better students. The third piece is education, which is critical for the healthy development of children.
“It became clear that housing by itself wasn’t enough to move families beyond poverty,” explained Andrews, who used to serve as the deputy director of the Ford Foundation’s Office of Program Related Investments, where she managed a $130 million social-investment portfolio.
Her 30 years of experience also includes serving as chief financial officer for the International Water Management Institute, a World Bank-funded system of research to alleviate world hunger, headquartered in Sri Lanka.
Andrews’ interest in community development issues was sparked early. She is the granddaughter of North Carolina farmers, who depended in large measure on low-wage families to provide labor. As a child, she saw firsthand the social inequities that existed.
LIIF has grown tremendously under Andrews’ leadership, but she points out that the larger community development industry has matured and flourished as well.
“I believe the field has taken hold in the country,” she said. “There’s a good deal of interest by the financial-services sector. Banks are more willing to provide funding to community development institutions.” In addition, several leading nonprofit developers have hit new levels of scale, which has pulled the entire industry up, according to Andrews.
LIIF’s growth, she said, reflects the demand by nonprofit housing developers. The fund provides technical assistance and financing for all phases of a development. The affordable housing products offered include tough-to-get predevelopment loans as well as acquisition, bridge, construction, mini-perm and permanent loans.
In general, LIIF lends up to about $3.2 million from its own accounts and then works with lenders and other financing sources to secure additional financing that a project may need. The rates vary. In many cases, the LIIF deals are so unique that there hasn’t been an established market.
In a new move, LIIF is exploring launching a lending program to clean up brownfield sites for affordable housing development in the New York area.
An example of a recent development that the fund has helped finance is Friendship House in San Francisco’s Mission District. Developed by Friendship House Association of American Indians, the project is an 80-bed affordable housing development and substance-abuse treatment center for Native Americans. LIIF packaged roughly $3 million in permanent financing for the development, leading the United Methodist Pension Fund to the transaction as well as providing $1.2 million of its own capital. Project supporters say that Friendship House is the only project of its kind, bringing together a unique mix of sources and uses.
LIIF has also worked with the nonprofit Burbank Housing Development Corp., based in Santa Rosa, Calif.
One of the key ways that LIIF helps developers is by providing early capital for predevelopment activity or acquisition funding to get projects in condition to obtain permanent financing, said Nick Stewart, deputy executive director at Burbank.
This early funding is critical, especially in a competitive real estate market where developers need to move quickly.
LIIF also served as a permanent lender on Burbank’s 36-unit Wilford Lane Village development in Cotati, Calif. All of the units are available to low-income residents, and half are available to tenants with special needs.
In addition to supporting affordable housing, the fund has also provided grants and loans for childcare, a use that’s historically been difficult to finance.
Andrews’ group and other CDFIs generally tackle projects that don’t register on the usual radar screens. “There’s something complicated about the projects that discourages other financial institutions from engaging,” said Mark Pinsky, president of the National Community Capital Association (NCCA), a network of about 200 CDFIs.
CDFIs are organizations that have community development as their main mission. They provide a wide range of financial products and services to targeted markets that have not been served by traditional financial sources.
Pinsky agrees that the field has blossomed. The industry went over $1 billion in assets in 1994. Today, that number is $15 billion. “We have grown in excess of 30% a year in asset size for 15 years now, which is phenomenal,” he said.
There are approximately 700 CDFIs in the nation. While LIIF focuses on housing and children, other CDFIs may concentrate on small-business lending or job creation.
Like Andrews, Pinsky attributes the industry’s growth to demand. “Every time we succeed, we generate more demand,” he said. “The reality is there is a vast emerging domestic market. I think of it as an opportunity market. Low-income and low-wealth people in communities have the ability to succeed if they can gain access to capital. Often they cannot gain access to capital because there is a perception that they are far riskier than they are. The reality our data tell us after $15 billion of financing is that the perception of risk is much higher than the actual risk. It is possible to lend and invest in those markets successfully.”
Although nothing breeds success like success, the future will be even more challenging. It’s easier to grow from $100 million of financing to $1 billion than it is to move from $1 billion to $10 billion, noted Pinsky.
As a result, CDFIs are going to have to expand in new ways.
Billion dollar goal
LIIF is expected to be among the groups leading the charge. It was recently awarded a Wachovia CDFI Excellence Award presented by NCCA. LIIF was recognized in the area of finance.
Other award winners were the Leviticus Alternative Fund for advocacy, Seedco (Structured Employment Economic Development Corp.) for community impact and the New Hampshire Community Loan Fund for innovation.
LIIF, which is governed by a board of directors that includes prominent developers, lenders and industry experts, has outlined an ambitious road map. The organization’s 2006-2008 plans call for the nonprofit to grow to approximately $400 million in capital under management. In addition, LIIF plans to deploy $300 million in capital in low-income neighborhoods across the country and serve 200,000 people in the next three years.
By 2008, LIIF will have served a total of 500,000 people. By 2014, it wants to have mobilized $1 billion in capital serving a million people. They refer to this as “a billion for a million.”
Over the years, the biggest challenge has been growing LIIF’s capital supply to meet borrower demand and that won’t change, according to Andrews. That’s why they have reached out to a variety of financial partners and will continue to do so in the years ahead.
Observers say one of LIIF’s strengths has been forming strategic relationships. The organization has brought major national banks (including Citigroup, Bank of America and HSBC) regional banks, insurance companies, private foundations and other socially motivated lenders and investors into its projects. In return, these financial partners gain assets that are underwritten with a unique understanding of the market, the project and the risk. “That underwriting becomes a credit enhancement of a sort to the team,” Pinsky said.
Industry veteran Nancy McLaughlin joined LIIF’s 50-member staff as chief operating officer about 14 months ago. She attributes the group’s ability to attract financial partners to its strong reputation. “The losses are virtually zero,” she said. “Our underwriting standards can be matched up against anybody’s, and we have a great track record.”
McLaughlin, who previously served as executive director of the California Housing Consortium, added that one of LIIF’s strengths is its ability to identify and fill future and unmet needs.
One of the group’s newest areas is education, which to date has focused on charter schools. These schools, which provide parents and the local community with more flexibility to shape the curriculum, are becoming popular in low-income communities as families look for alternatives to the traditional community schools.
LIIF has approved nearly $80 million to support approximately 80 charter schools. These schools rarely have the profile of a traditional borrower, so they may have difficulty getting conventional financing.
An example of LIIF’s work with schools is a $7 million loan that the organization provided to the Pacific Charter Schools Development Corp. LIIF combined several sources of financing, including its own capital, to make the loan that will help the highly regarded View Park Preparatory Accelerated Middle and High Schools in Los Angeles add another 500 students and consolidate on one campus.
This loan was made from a $36 million capital pool, which LIIF created in partnership with a leading charter school management organization in Los Angeles. The investments in the pool, which come primarily from traditional investors like Citigroup and Wells Fargo, are credit enhanced by New Markets Tax Credits and a grant from the U.S. Department of Education.
For LIIF, it’s another piece of helping create a healthy community.
For more information, visit www.liifund.org.
