Investment funds created for urban core areas

Two new funding sources for infill development are coming into being, each with the potential to leverage a half billion dollars or more of real estate investment in the next decade. One focuses on the Miami area, the other on Albuquerque. Philip Blumberg of American Ventures Realty Investors, the group launching the two “urban initiative funds” (UIFs), wants to set up similar funds in other metropolitan areas possessing what he calls “enlightened political leadership.” He cited Chicago and Philadelphia as potential sites. “It could be the largest effort to bring private money to infill situations in the country,” says Chris Leinberger, principal of Arcadia Land Company, a leading new urbanist developer. The Gold Avenue lofts being developed by Arcadia in downtown Albuquerque are the first project to receive money — $1.5 million — from American Ventures’ New Mexico Urban Initiative Fund. The Gold Avenue undertaking is bonafide New Urbanism, consisting of a six-story liner building that contains 41 residential lofts and 12,000 square feet of first-floor retail space. Occupying a quarter-acre, it conceals a parking garage from view. “It’s the densest residential project in New Mexico since the Taos Pueblo” in the 14th century, notes Leinberger. The lofts are part of a much-praised revitalization effort spearheaded by Arcadia in a 12-block section of downtown. Moule & Polyzoides drew up the master plan, and The Design Group of Albuquerque designed the loft building. Financing for the $9 million project also consists of $1.1 million in developer equity and a $6.4 million construction loan from Wells Fargo Bank. New Urbanism’s design principles will play an important role in both the New Mexico fund and what is called the South Florida Urban Initiative Fund, according to Blumberg. “I look at many of the New Urbanism principles as representing not only good design, but good marketable design,” he says. “In many cases projects designed with these principles are more desirable than projects not designed with these principles. That, to me, says lower risk and better returns.” Blumberg says he has no agenda other than to make money for his investors, which include foundations, banks, and other institutional investors. He makes a point of distinguishing the UIFs from socially conscious investing. “There are opportunities in urban locations where mainstream capital is not flowing,” he says. One of American Ventures’ institutional investors, the Knight Foundation, which is interested in redeveloping cities while making a solid return on investment, first broached the idea of designing the funds. Financing continues to be one of the biggest stumbling blocks in getting New Urbanism built. Banks typically have residential and commercial lending departments, yet have difficulty appraising and evaluating the risk of mixed-use projects with new urban design. The value of quality design — as demonstrated by 1999 Valuing the New Urbanism study funded by ULI — is not factored into the lender’s equation. The UIFs may help in infill situations, because they offer another source for new urbanists to seek capital. Leinberger compares the UIFs to the federally backed Urban Action Grants (UDAGs) of the 1980s. That defunct program provided what he calls “gap financing” to leverage the financing of real estate projects. The UIFs will provide what Blumberg calls “mezzanine debt” — also dubbed “first tranche equity” by Leinberger. This is a form of financing that carries higher risk and generates higher returns than bank construction loans. The UIFs will finance 10 to 20 percent of an urban infill project. Each UIF will have $50 million to $100 million to invest, rolling over its money every four years, Blumberg says. Thus, over eight years, each fund could leverage a half billion to two billion dollars in real estate development. The South Florida fund is planning to announce its first real estate allocations before the end of this year. The investment will include a redevelopment in the Overtown area of Miami.