Chris Odom passes Plaza 122 a couple times a week, on his ten-minute drive to and from the gym. On the surface, Plaza 122 looks like any other neighborhood hub for commerce and culture. There’s a hair salon, buzzing with conversation; the central dispatch of PDX Yellow Cab, Oregon’s first Somali-American owned cab company; the new offices of the Somali-American Council of Oregon; and a satellite office of the TransActive Gender Center.
As of last month, Odom became one of Plaza 122’s 500 potential owners, all of them hailing from the four ZIP codes nearest the property.
“The thought of investing in something that’s local, something I could physically touch and see, that was very interesting,” says Odom, who works at a local nonprofit that helps public-school students through mentoring and conflict resolution.
Through the East Portland Community Investment Trust, thought to be the first entity of its kind in the country, individuals or families who live in the four ZIP codes around Plaza 122 can currently invest as little as $10 a month to buy ownership shares of Plaza 122. Besides the residency requirement, investors must be at least 18 years old and must first take Mercy Corps’ financial literacy curriculum (offered in five languages). Shareholders are entitled to an annual dividend payment, in addition to possible annual increases in the value of their shares. Should shareholders need some emergency cash, they can easily sell all or some of their shares back to the trust at current value.
Next City first reported on the East Portland Community Investment Trust last year. The trust recently issued its first round of annual dividend payments to the 13 individuals and families who invested as of December 31, 2017. The dividend was 9.6 percent — meaning for every $100 invested, they received $9.60.
The trust has gained more than 50 additional investors since the beginning of 2018. The average shareholder invests around $80 per month, according to Mercy Corps, the nonprofit that incubated the East Portland Community Investment Trust. The nonprofit expects there will be between 100 to 150 investors by the end of 2018.
Demographics played a key role in the community investment trust emerging in this part of East Portland. It’s a fairly dense neighborhood, with an estimated 185,000 residents, two-thirds of whom are renters, according to John Haines, who led the incubation of the trust at Mercy Corps.
“[The neighborhood] is where people can still find a margin of affordability in a gentrifying city,” says Haines. “It’s a place where the African-American community from north and northeast Portland has been displaced to.”
At the same time, the neighborhood is also home to one of the largest East African immigrant and refugee populations on the West Coast, which is why the Somali-American Council of Oregon and PDX Yellow Cab signed on as tenants in the 29,000 square-foot, 1.43-acre property.
“In the barbershop on the corner, you see a lot of East Africans, Latinos hanging out,” says Musse Olol, chairperson of the Somali-American Council of Oregon. “It’s really impressive. People from two sides of the world getting along. Every time I walk by that barbershop and I see people interacting, it tells me it can be done.”
The idea for a community investment trust arose as a way to encourage low- and moderate-income households to save and invest. About five years ago, Haines recalls, he was at a focus group meeting on the topic at Leander Court, an affordable housing development about a mile and a half down the road from Plaza 122, designed especially for families, with 2-, 3- and 4-bedroom units.
“People talked about what they wanted in their neighborhood, they were missing a bank branch, a pizza place, bike shop, art supplies, workspace … a whole list. One woman said we want to own real estate,” Haines says.
At first, Haines thought she meant homeownership, but that didn’t quite get folks excited. Haines brought up the next thing that came to mind — a vacant commercial property he knew of down the street. “Their eyes lit up, and they said not why, but how — ‘I can only save $70 or $100 bucks a month,’ and the other one said ‘I can’t lose any money,’ another said ‘I don’t understand real estate,’” says Haines. “One woman said, ‘I’m not looking for a lottery ticket, I’m looking for a long-term investment.’”
Mercy Corps went forth to figure out a local investment opportunity that would meet the constraints of families like those at Leander Court. The first priority, once they understood the community needs, was to acquire a property. They soon found Plaza 122. It had just been through a foreclosure, was 66 percent leased out at the time, with room for up to 27 tenants and a fair bit of outstanding maintenance needs. Mercy Corps and two wealthier individual investors (from outside the four ZIP codes) provided $430,000 in capital to the East Portland Community Investment Trust, with the rest of the $1.2 million in acquisition and maintenance costs covered by a bank mortgage.
Then there was the matter of figuring out a way to pass on ownership of the property to residents of the area.
One possible solution was a Real Estate Investment Trust, also known as a REIT. These are legal structures created by U.S. Congress in 1960 in order to allow a wider swath of Americans access to the benefits of real estate investment, including income from tenant rents. Today you can find more than 200 REITs publicly-traded on stock markets today, worth more than $1.1 trillion dollars. There are also many privately-owned REITs — but neither REIT option is really set up for the small-dollar investments that would make real-estate investing possible for the families Mercy Corps wanted to target.
Instead, Mercy Corps uncovered an older legal framework, found in the Securities Act of 1933. The act governs how investments get made and who is allowed to make certain types of investments in the United States. Passed at a time when the 1929 stock market crash was still fresh in everyone’s mind, the act was intended to protect investors from being swindled out of hard-earned dollars. Buried deep in a list of provisions, Mercy Corps discovered the Section 3(a)(2) exemption. Under this framework, a business may sell shares to any investor residing in the same state where the business is located, as long as those shares are guaranteed by a bank.
To secure the necessary share guarantee from a bank, when East Portland Community Investment Trust refinanced its mortgage last summer, it requested that part of the refinanced mortgage include what’s called a letter of credit — essentially an extra pool of cash set aside and only used to buy back investors’ shares. The letter of credit qualifies as a guarantee from the bank, allowing the trust to sell small-dollar shares to investors. This guarantee also protects investors against any losses.
Additionally, the letter of credit means that the community investment trust can buy back all or part of an investor’s shares at any time. This gives families peace of mind that their savings are about as accessible as they would be in a savings account, in case they need cash in an emergency. Neighbors can’t trade shares with each other, though. They can only sell shares back to the trust. Only one investor to date has cashed out, according to Haines. And if you move out of the neighborhood, you can no longer purchase additional shares, and the trust will buy back your existing shares at the end of the year.
“It’s tricky to get the banks to do this,” says Haines. “That’s been a hurdle to find a big national bank to replicate this.”
Locally, East Portland Community Investment Trust worked with Northwest Bank, based in Boise, Idaho, to refinance their mortgage with a letter of credit last year. “They were very good to work with, and they want to do more of these with us if we do them around the Portland region,” Haines says.
The next challenge was figuring out the most effective outreach to meet local families where they are along their journey to investing. Some residents, Haines says, want a little support and encouragement to get their household budgets in order. Some want to understand the differences between types of investments, including risk and return. And some just want to meet and learn from other families going through similar challenges. With support from JPMorgan Chase, Mercy Corps created a peer-driven financial literacy curriculum to meet those needs, called “Moving from Owing to Owning,” which they offer to groups of usually eight to 12 people at a time. The classes typically run over the course of two consecutive Saturdays, but Haines says they will work around anyone’s schedules. The Meyer Memorial Trust provided funding to translate the course into four additional languages.
“We all shared our stories about finances and investment, debt, credit,” says Odom, of his experience going through the curriculum. “The second class we went even deeper into it, ways to avoid damaging credit, ways to identify a good investment and bad investment, doing a risk assessment before putting a large amount of money into products.”
Depending on how much each investor chooses to contribute, the East Portland Community Investment Trust has room for anywhere from 300 to 500 eligible families to invest and own the property at any given time. As more families invest, they’ll buy out the original investment from Mercy Corps and the two local investors.
The East Portland Community Investment Trust relies primarily on word-of-mouth to market itself to others in the neighborhood. Odom, for example, has plans to introduce the trust to an informal group he’s helped organize to address black youth development in Portland.
“[That group] is about building a sense of community primarily among the black youth, adults as well, to rebuild the family structure,” Odom says. “We meet on a monthly basis, sometimes multiple times within one month. [We’ve] been doing that for about 12 months now … the goal is to them all about [the community investment trust].”
This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our monthly Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.
Oscar is editor of Next City. Before that, he was a contributing writer and Equitable Cities Fellow for Next City. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.