Trouble for urban investment funds

The San Diego Smart Growth Fund, one of a number of funds devoted to smart-growth projects across the US, has succumbed to the real estate depression. The Fund, which was established in 2004 with the hope of spurring as much as $500 million in commercial and residential development, “has become yet another casualty of the prolonged economic slump,” the San Diego Union-Tribune reported March 9. Its operators concluded “they had little choice but to dissolve the fund as opportunities for new projects dried up,” the newspaper said.
The Fund at one time amassed $90 million, and planned to invest it especially in workforce housing and urban infill development in low- and moderate-income neighborhoods. The Fund put $30 million into five projects, though two of the projects “are currently stalled because of the depressed real estate market,” said Barry Schultz, who headed the San Diego Capital Collaborative, adviser to the Fund.
“For us, this is a long-term business and right now we have a short-term market problem,” said Jay Stark, a managing director of Phoenix Realty Group, which was instrumental in managing the Fund and attracting capital for it. “We’ll go back to investors at the appropriate time to do more things in San Diego.”
Economic troubles are also impeding the Urban Strategy America Fund LP, a “triple-bottom-line fund” that invests in projects such as Olmsted Green — a development of workforce condominium units, affordable rental apartments, and other facilities on the long-idle site of the former Boston State Hospital in Massachusetts. Kirk Sykes, head of the Boston-based fund, said only two of the 227 condos that were planned there have been sold, and “it’s hard to get people to come to emerging-market locations.”
“On the homeownership side, we’re stuck,” Sykes said during a forum of the Lincoln Institute of Land Policy in late April. “It will come back very slowly in these [low- to moderate-income] locations.” In the interim, “we shifted to affordable rentals,” he said. That undercuts the goal of achieving a mix of incomes, he acknowledged.
Another Urban Strategies project, One Brigham Circle, in Boston’s Mission Hill neighborhood, has been much more successful. It includes a mixed-use, 200,000 sq. ft. building containing office and community retail, and it has a park and a public plaza nearby. One Brigham Circle achieved a 35 percent annual return on investment, Sykes said.
In today’s economy, financing is hard to obtain, Sykes said, and consequently “it’s extremely difficult to do deals.” With new development off the table, “everybody has shifted to acquisitions,” focusing on distressed properties, he noted.