Making a Difference Through Development

LAKE FOREST, CA—Clearinghouse Community Development Financial Institution is hoping to start a chain reaction by committing to development in low-income communities in an effort to improve lives and make a difference, president and CEO Douglas Bystry tells GlobeSt.com. As GlobeSt.com reported recently, the firm has created a new company, Clearinghouse CDFI's Real Estate Investment Co., which will purchase and invest in real estate to revitalize and improve communities in California, Nevada, and Arizona. We spoke exclusively with Bystry about his goals for the new firm and the challenges and rewards of community development.

GlobeSt.com: What are you hoping to achieve with the new firm?

Bystry: As a CDFI, we're primarily focused on lending for community-development projects. We have a long history of making loans, but with this initiative, we are actually able to drive projects ourselves, from acquiring properties to rehabbing them to ownership. It's actually a different method to achieve our goals of community development by being an owner as opposed to just a lender.

GlobeSt.com: What investment trends are you seeing in the industry?

Bystry: If you look at what has transpired over the last five years, people came out of the financial crisis, where banks were not making loans and there was a withdrawal in acquisitions and development. In Orange County and San Diego, housing starts were way down. We're now seeing that people are committing resources to both development and construction. We believe the industry has changed, and there's a sort of new commitment to new development, new projects and new construction juxtaposed with what we were seeing during the recession.

GlobeSt.com: How do you make the distinction between construction and development?

Bystry: It's probably unlikely we'll be buying land and building from the ground up, which we consider true development; we're looking more for projects that are underutilized or have deferred maintenance and need improvement, as well as projects that will have a benefit to the community surrounding them. We hope to find projects that will be a catalyst for other economic development. If we find a building, be it commercial or multifamily, and we can go in, acquire it, provide rehabilitation and stabilize it, we hope it will create a spinoff investment for the community surrounding it.

GlobeSt.com: What do you see as the greatest challenges to community development, particularly in California?

Bystry: It's the same perception we have always encountered: “Why would I want to invest my dollars in 'those' neighborhoods?” There's a perception that these areas are either too poverty-stricken or there's undesirable or gang activity in them, and it's typically not where you would see mainstream investors invest their money. But for us as a CDFI, we have a mission to commit resources to those areas to try to make improvements, whether in the form of job creation or increased property values or creating a center in a community where there will be spinoff investment. That's what distinguishes us from another developer in the marketplace. We're looking to provide a return, but also to make a difference in the communities where you invest.

The challenge is if we lead, will others follow? We're pioneering, and we're not afraid to be the first in. If we go into a very low-income distressed community and invest $1 million in rehab, are we wasting our money because it's never going to amount to anything, or can we get other conventional investors to say, “This is a neighborhood worth investing in”? Our hope is that we're not investing in an area that's never going to upgrade and that others will follow suit.

GlobeSt.com: What else should our readers know about your new company?

Bystry: As community-development financial institution, we have a designation from the US Department of Treasury. Basically, we are a leader interested in making loans and making a difference in either low-to-moderate-income or distressed communities. What distinguishes us from other financial-development companies is we measure our success by whether or not we made a difference in that community. Did we improve the standard of living and change lives? Our challenge is to find ways to say that not only did we have an impact financially, but also from a community-impact standpoint.

Also we are a certified benefit corporation—a B Corp—which means we were evaluated by B Lab to find out if we were eligible to be called a benefit corporation. There are four criteria to earning this designation: 1. Are you doing good in the community? 2. Are you making a difference? 3. Are you environmentally sound? and 4. Are you treating your employees really well? It's a holistic approach to evaluating companies. Patagonia is an example of a prominent B Corp. So, a third party looked at us and has deemed us not only worthy of doing good, but worthy of other factors. We're not just focusing on profits, but the other criteria of doing good for our employees, the community and the world as a whole.

Finally, we were recently rated by S&P as AA Stable, and we're very proud of it. We worked very hard to get there. It's an endorsement on our financial stability, and as we begin our real estate investment, it puts us in a position of strength.

An example of what we do is One Santa Fe, a mixed-use development in the Arts District of Downtown Los Angeles. We provided $13.72 million of new markets tax credits allocation for the construction of 73,000 square feet of commercial and retail space. The property will create 1,900 construction jobs and 400 permanent jobs and provide $20 million in recurring annual salaries to the community in an otherwise highly distressed area.