Foundations and New Urbanism: How good a match?

If foundations that support the philosophy behind New Urbanism invested their endowments in these projects, they might provide an major source of capital for new urbanist projects. Financing is a persistent frustration for developers of new urbanist communities. Conventional real estate financing criteria reward inexpensive projects with immediate returns and punish projects that cost more early on, but don’t pay off until later. A few projects, however, have tapped into foundation investment as a source of patient capital. These projects are the subject of recent CNU research, which found six projects where foundations had played a major role: Abacoa, Florida, where the MacArthur Foundation was the main investor. Plan Baton Rouge, in which the Baton Rouge Area Foundation sponsored the development of a downtown plan, which is now spurring major investments. The LTV Hazelwood site in Pittsburgh, where the Benedum Foundation, Heinz Endowment, and Mellon Foundation have contributed to planning and financial stability with grants, below-market-rate investments, and market-rate investments. In Portland, Maine, the Libra Foundation has invested its endowment to revive the historic downtown public market, to purchase and rehabilitate numerous downtown buildings, and to develop a defunct mental health hospital into a transit-oriented development. The Jacobs Family Foundation has invested all of its money in Market Creek Plaza in San Diego, in order to create a walkable, mixed-use area. And in Downtown Albuquerque, New Mexico, long-term investments from the McCune Foundation have leveraged significant short-term capital in the development of a large infill and streetscape project. Time tranches Like many new urbanist projects, the 25-acre infill development in downtown Albuquerque requires considerable up-front investment, but much of the profit is expected to come over the long term. In order to secure adequate investment for immediate improvements, the developers offered three separate investment types, or “time tranches.” Short-term private investors seeking returns of 15 to 18 percent purchased shares in the first tranche. They receive all proceeds from the project until their agreed-upon returns have been met. The long-term tranche belongs to the City of Albuquerque, which contributed $25 million in land, improvements, tax abatements, construction, and parking. The city receives 25 percent of the profit in years 6 to 11, and 50 percent from year 12 to year 20, or until 125 percent of its investment is returned, whichever comes first. Investment in the crucial mid-term tranche, however, came largely from the McCune Foundation, the developers, and the site’s former property owners. After the short-term tranche commitments are met, these investors share the profits with the city, receiving 75 percent in years 6 to 11, and 50 percent for the next nine years. When this 20-year payoff period ends, the mid-term investors will receive all of the profit. Assuming the improvement goes well, the foundation, property owners, and the developers will be healthily compensated after 20 years , even though their shorter-term profits are not guaranteed. Under contract with CNU, the research was carried out by Strategic Economics of Berkeley, California, and funding came from the Funders Network for Smart Growth and Livable Communities. For more information on this research, please contact CNU.