Closing the Funding Gap for Housing Developers of Color

People of color make up an estimated less than 5% of housing developers in the U.S.

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At close to $175 billion, the U.S. housing development market is huge and expanding annually at a nifty 6% clip. But Black Americans and other people of color are estimated to make up less than 5% of the developers in the country. So, indeed, there is room at the table, so to speak.

To boost minority participation in the industry, U.S. Bank and Enterprise Community Partners (ECP) in July announced a $30 million bond to provide loans to black, indigenous and other housing developers of color. The bond was issued by ECP’s CDFI Enterprise Community Loan Fund (ECLF) and is being touted as the first racial equity bond issued by a CDFI. Minneapolis-based U.S. Bank, among other things, served as a structuring agent and advisor. The bank also agreed to buy the first $10 million of the bond.

CDFIs’ rigorous standards about eligibility should ensure that the funds reach the targeted communities, according to the release. Transparency is key to the success of this initiative. Investors, for example, will get updates on how the funding is being spent, the number of housing units produced and the names of the developers

It’s still early, but U.S. Bank and Enterprise are optimistic this unique bond offering will help grow the minority housing development space and spark a deeper interest in the CDFI industry at large.

“This optimism comes from the innovative structure of the bond, which will ensure that all contracts from the proceeds go to developers of color,” says Marcus Martin, managing director and head of environmental, social and governance initiatives for fixed income and capital markets at U.S. Bank.

U.S. Bank and Enterprise won’t disclose the details of the private debt offering, but one prominent industry official suggests that they took advantage of the low-interest-rate environment. Simply put, with interest rates on the 10-year Treasury bond below 1.5%, it’s cheap to borrow money for almost everyone, including the federal government.

Ken McIntyre, chief executive of the real estate executive council, a trade organization for commercial real estate developers of color, notes that at today’s interest rates, if a CDFI can generate at least a 3% return, then that’d be a solid bet for the investors.

Many other organizations and financial institutions are providing funding to expand the ranks of housing developers of color. Especially following the summer of social unrest, many see it as a strong way to boost black and minority business, create communities and urban centers in which many of the developers reside, and eventually close the wealth gap between white people and POC. In May, Citibank, for example, announced it had committed $200 million of equity and financing to minority developers to build affordable housing projects.

But most organizations and institutions like Citibank use their own funds. U.S. Bank and Enterprise are evidently the first to tap the capital markets, literally raising money from outside investors expect a financial return, of sort, on their investment.

Elise Balboni, senior vice president of strategic initiatives at ECLF, sees the bond offering as a sure way to expand the universe of investors who might not be familiar or inclined to invest in CDFIs initially.

“That is why the US Bank bond will be helpful not just to Enterprise but to the CDFI industry in general,” says Balboni.

ECP, a Columbia, Maryland, nonprofit focused on developing low-income housing and addressing racial inequality in housing, is tasked with selecting suitable developers. It’s too early to define the average developer applicant, but Balboni explains that she’s relying a bit on recommendations from local market lenders in about 11 markets across the country to nominate suitable applicants. Some financial requirements are lowered. For example, the amount of required liquidity might be one month instead of four, according to Balboni, but the developers must still be strongly experienced. The critical point is to get entry-level capital into the hands of underserved developers as soon as possible.

In addition, monitoring of loans is very tight, suggests Balboni. Builders must be efficient in utilizing the capital. Funding will be cut if the builders don’t use it in a timely fashion and that portion will be given to someone else. In addition, investors in the bond will get annual updates

So far, Balboni says most of the developers are multi-family home builders and the racial makeup is very diverse.

The developers’ dictum states that “if you build it, they will come.” And US Bank and Enterprise are betting its bond offering inspires other corporations, municipalities and CDFIs to issue similar bonds, as corporate investors seek greater transparency into their social and environmental investing.

“There has been strong interest in the design of similar bonds from stakeholders across the capital markets, from issuers to investors to other banks,” says Martin of U.S. Bank. “The initial response has been very positive.”

Enterprise notes on their website that only 2% of development companies are black-led and only 1.5% of real estate assets under management are controlled by minority-owned firms, and that has created an equity gap from decades of systematic racism in housing.

“The challenge,” Enterprise declared, “is urgent.”

It’s a message that resonates with Lenwood Long, president and chief executive officer for African American Alliance of CDFI CEOs. “I would underscore that, highlight it and make it bold,” he says in declaring his strong support for the U.S. Bank/Enterprise bond offering. “In our community, it’s (about) capital, capital, capital.”

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This story is part of our series, CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is generously supported by Partners for the Common Good. Sign up for PCG’s CapNexus newsletter at

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Christopher C. Williams is a New Jersey-based freelance financial writer. He worked for many years with Dow Jones Newswires and Barron’s Financial Weekly and has contributed to publications including the Wall Street Journal, The New York Times and Essence magazine. He focuses on the intersection of business, economic equity and racial justice.

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