Community Development Financial Institutions (CDFIs) are the unsung heroes of neighborhood development in deprived areas. JPMorgan Chase has been a significant contributor and advocate for CDFIs. The company has provided billions of dollars to help communities in need support affordable housing, small businesses and community facilities that provide access to much-needed healthcare, healthy food and other resources. Partner Insights spoke with Kevin Goldsmith, managing director of community development tax credits and intermediary loans at JPMorgan Chase, to learn more about the company’s work with CDFIs.
Commercial Observer: What are CDFIs and how do they fit into the commercial real estate industry?
Kevin Goldsmith: CDFIs are financial institutions designated and certified by the United States Department of the Treasury that provide capital to underserved communities. There are about 1,100 certified CDFIs and four types: credit unions, community development banks, venture capital funds and loan funds, which account for about 50% of CDFIs. Our company primarily focuses on CDFI loan funds, the largest category in terms of number, but smaller in terms of assets compared to CDFI banks and credit unions. Their mission and flexibility make them important to the commercial real estate industry. CDFI loan funds are not‘t subject to the same regulatory control as traditional banks. They don’t take deposits and they don’t receive FDIC insurance, so they have more flexibility in the types of loans and underwriting they provide. Many CDFI loan funds are also not-for-profit organizations, so they raise funds and receive federal grants and philanthropic support. They also raise capital from banks looking to extend their support to underserved communities.
Tell us about the CDFI funding process.
CDFIs must focus more than 60% of their activity on their underserved target population. Most CDFI loan funds are nonprofit and tap into a variety of funding sources, including grants and capital from the US Treasury Department’s CDFI Fund, foundations like the MacArthur and Ford Foundations, and banks like JPMorgan Chase.
CDFIs often mix sources of capital to reduce the cost of loans for its borrowers. For example, a CDFI may receive funding from our Community Development Banking team in addition to a grant. Let’s say these sources mix at an interest rate of 1.5% to 2%. The CDFI may then be able to lend to a project at 5% or 6%, which is generally below market for what the project would otherwise be able to obtain.
JPMorgan Chase has dedicated staff and capital to affordable housing across the country. How do CDFIs fit into this effort?
As a regulated financial institution, our lending scope is limited based on risk profile and credit metrics. This is where CDFIs come in. For example, we worked on a facility with Enterprise Community Investment. Enterprise has been a great partner of ours in many areas. We invest in its low-income housing fund and its New Markets Tax Credit (NMTC) allowance. We also lend directly to Enterprise. In 2021, we were the lead investor and closed a $40 million facility under Enterprise’s $350 million Equitable Path Forward Growth Fund (EPFGF). EPFGF provides BIPOC (Black, Indigenous, and People of Color) developers with pre-development loans, working capital loans, and acquisition financing, which are difficult to obtain from conventional sources.
In addition to capital, Enterprise provides BIPOC developers and minority-led development companies with resources, business coaching, and technical assistance. Sometimes when a smaller developer takes on a big project, they have to partner with another developer for financial strength, but the smaller developer may end up sacrificing a good chunk of the return to the larger developer. The company engages in these partnership discussions and negotiations to ensure that the smaller developer receives a fair share of the returns, sometimes even providing its own safeguards to limit the need for the larger developer.
In addition to helping create affordable housing, how do CDFIs contribute to job creation and other community needs?
If you look at the products and services of many CDFIs, they are about as diverse as those of a large financial institution. They do non-profit lending and small business financing. They made loans to the Paycheck Protection Program. They provide technical assistance and mentoring to small businesses and communities. They are often at the intersection and coordinate public-private partnerships. All of this advances their goal of serving under-invested communities with access to the capital, resources and jobs communities need.
Can you give us one or two specific examples of how JPMorgan Chase’s work with CDFIs has helped a community?
We have invested in hundreds of NMTCs and affordable housing projects with CDFIs. There’s the North Lawndale Employment Network (NLEN) that we shut down here in Chicago. IFF, a local CDFI partner, provided loan capital for this project, and we provided equity financing from NMTC. As a result, several hundred additional members of North Lawndale and surrounding communities now have access to quality skills training and workforce readiness programs. We also funded grocery stores in areas of Detroit and New Orleans that were food deserts. These were both in partnership with large national and regional CDFIs who provided part of the capital stack for part of the NMTC allocation to these projects.
How much has JPMorgan Chase contributed to these communities over the years through CDFIs?
Over the past two decades, our team has provided over $2 billion in direct funding to CDFIs. This is the initial impact, but the impressive part is the mobilization of other capital resources by the CDFIs. When we lend to a CDFI, they usually combine that capital with other sources (either in their finances or in project finance), so there is a multiplier or leverage effect. This combination of other capital resources by CDFI translates into several billion dollars of capital invested in low-income communities.
What is the most important lesson you hope a reader will take away?
CDFIs are an important component of the capital continuum to support underinvested communities. They can offer capital on terms and with flexibility beyond conventional sources. They also provide extensive technical assistance and support to borrowers in low-income areas and engage with the community to understand local needs. CDFIs are highly valued partners in providing a holistic approach to community development financing.