Urban funds target development

“Urban initiative funds,” or UIFs, are on the rise. First the New Mexico Urban Initiatives Fund began operations and placed its initial investment — $1.5 million — in the $9.8 million Gold Avenue Lofts project in downtown Albuquerque. Now a second UIF, the South Florida Urban Initiatives Fund, has been launched in Florida and has identified several projects it hopes to support in the southern part of the Sunshine State. A UIF is likely to be established to aid projects in New Jersey cities next. After that, additional funds will be set to focus on other parts of the US — in each case providing money mainly for mixed-use projects in neighborhoods that conventional investors have bypassed. Each urban initiative fund invests what financiers refer to as “mezzanine debt capital” — money that fills the gap between conventional lending and the project’s overall financial needs. It’s called “mezzanine” financing because it goes on top of whatever a developer is able to borrow from more mainstream sources. American Ventures Realty Investors, a national investment and asset management firm based in Coral Gables, announced the Florida fund in March and indicated this summer that it will almost certainly provide capital for a major mixed-use development in Miami’s Overtown neighborhood once the project is approved by the city. Michigan-based Crosswinds Communities wants to build up to 1,400 housing units, more than have been constructed in Overtown, a depressed minority neighborhood, in decades. The stylish Miami firm Arquitec-tonica has been retained to design the project, which will include 75,000 square feet of retail and office space in addition to townhouses, lofts, live/work units, and mid- and high-rise dwellings. The first segment encompasses 3.5 blocks. At least one more block would be developed in a later phase. Thomas W. Jeffrey, American Ventures’ CFO, says, “Everybody believes it will be approved. It will be a dynamite project.” How much money the venture fund would invest there has not been disclosed. The New Mexico UIF, is helping new urban developer Chris Leinberger and the Historic District Improvement Co. (HDIC) revive the center of Albuquerque (see Dec. 2002 New Urban News). Gold Avenue Lofts contains ground-floor stores, second-floor offices, and 41 upper-level condominium units. Nearing completion, the Lofts project is part of HDIC’s effort to bring a variety of uses into several downtown blocks. Philip Blumberg, head of American Ventures, predicted a year ago that each fund would have $50 million to $100 million to invest, rolling its money over every four years. Jeffrey recently altered the forecast, saying the New Mexico fund, whose lead investor is the McCune Foundation, “probably won’t get much bigger than $15 million.” He explains there may not be enough qualified projects in the state to justify $50 million of investment. South Florida’s investment potential far surpasses New Mexico’s, Jeffrey says. “We could put out as much money as we could raise.” All UIFs, Jeffrey says, aim to invest in projects that are “in a pioneering neighborhood” or that are “funky, something different, not something the guys who put hundreds of millions of dollars into residential real estate would finance.” The John S. and James L. Knight Foundation is the lead investor in the South Florida fund, which was brought into existence with help from the Collins Center for Public Policy, a nonprofit think tank in Miami. Roderick Petrey of the Collins Center says American Ventures will be “focusing investments of this Fund in low-income neighborhoods that are on the brink of development.” Foundations are attracted to UIFs because they can invest in projects that carry out their missions. Other participants include banks, who use these investments to satisfy requirements of the federal Community Reinvestment Act. National expansion New Jersey will probably get a UIF later this year or in 2005. “Fabulous New Urbanism-type redevelopment is going on” in the Garden State, Jeffrey says. “There’s an active state and local government support system for identifying blighted downtowns and getting them moving. We want to be a part of that.” Several big banks participating in the New Mexico and South Florida funds also operate in other parts of the country. Their enthusiasm is spurring American Ventures to look into establishing UIFs in additional regions. From the banks’ perspective, the advantage of a UIF is that the fund researches potential markets and developers, relieving the banks of that burden. “We spend time meeting with local governments and redevelopment organizations, touring areas, and meeting with local developers we’ll be investing in,” Jeffrey points out. Thus, banks can meet federal requirements for investing in blighted areas, low- to moderate-income housing, or community development activity without each investment being a one-of-a-kind challenge. u