1. You have been President and CEO of CDF for almost 20 years – during which time the nation experienced many financial events, including the subprime mortgage crisis and housing crash. From your perspective as a local lender, how has Cincinnati weathered these storms?
At no time during my tenure with Cincinnati Development Fund did I realize the value we brought to our communities more so than during the financial crisis — due both to our ability to lend patient, non-regulated capital and to our collaborative approach toward working through our portfolio of defaulted loans.
Cincinnati and Hamilton County suffered through the mortgage crisis and saw home values decline like every city in America. Low-income neighborhoods were hardest hit; county-wide, we saw new foreclosure filings averaging 6,000 per year each year until 2010. Both the City of Cincinnati and Federal Government dedicated resources to remediate the loss of value caused by long-vacant, abandoned housing by offering subsidy to nonprofit community development corporations to buy/improve/sell as many vacant homes as the funding would allow. CDF was able to provide these CDCs with low-cost construction financing – which was critically important because regulated banks were not able to lend for speculative for-sale housing during this period.
I could give many examples of CDF’s ability to be patient and collaborative with our borrowers during these difficult times, but one project that was particularly challenging was the Dandridge Townhomes development. The homebuilder selected by the community to build the first new homes in Pendleton, a low-income community northeast of downtown Cincinnati, filed bankruptcy in 2008, when the construction on the six attached townhomes was about 50 percent complete. Given the state of the housing market, no developer wanted to assume the risk of completing this important project, but CDF recognized that to leave the project half-built would be devastating to the community. CDF was able to lean on its broad local relationships to find an experienced project manager to take over the loan non-recourse, paying him a management fee. Rather than sell the completed homes at a below-market price, therefore depressing values throughout the neighborhood, we listed them at the pre-crisis price and agreed to hold a zero-interest second mortgage for 10 percent, which was not due until the buyer sold or refinanced. Because of the 0 percent second that helped toward required down payment, the units were affordable to someone earning as little as 65 percent of area median income. All six units sold very quickly, and, in the 9 years since, the project manager continued to renovate all the vacant buildings around them as well as build several more in-fill homes. These homes are selling for 5x more than Dandridge Townhomes, on a per-square-foot basis.
2. When CDF was first established, its lending was predominantly for affordable housing projects. In 2005, the fund started to finance larger commercial projects using New Markets Tax Credits. How else has CDF grown and/or changed to meet the needs of the community over time?
The addition of NMTC to our “toolbox” in 2005 allowed us to earn servicing spreads on those larger loans, which created retained earnings that have gradually build our net assets from $0 to over $16 million. In 2007, the board authorized us to utilize $250,000 in net assets to make direct loans for higher-risk purposes, such as land banking, stabilization, and predevelopment. Having patient capital for our blighted communities has made a significant difference in our developer partners’ ability to assemble critical mass properties for redevelopment.
As our net assets increased, we have been able to leverage those funds with millions of additional dollars in grants, Foundation Impact Investments, and EQ2 investments, which led to the creation of additional direct lending products in response to community needs. Examples: CDF received a small grant from the Starbucks Create Jobs USA fund through OFN to offer loans for storefront tenant improvements in buildings in commercial districts that struggled to attract tenants. It enabled us to successfully apply for HFFI funds, which we received in 2012. Through our partnership with IFF, we have added fixed-asset financing for nonprofit facilities and equipment, and, most recently, a grant from the Duke Energy Class Benefit Fund allowed us to add energy efficiency lending to our growing toolbox.
CDF has focused its growth on expanding products, rather than expanding its geographic reach. We believe there is great value in the relationships, knowledge, and expertise we bring to the Greater Cincinnati community, and we will continue to be nimble, creative, and responsive to the ever-changing needs of our communities.
3. You’ve said that financing urban redevelopment during a challenging financial climate requires a lot of creativity. Can you explain what you mean by that and how CDF expresses its creativity?
At all times, CDF prides itself on its ability to make “hand crafted” loans, rather than following formulas, as is required by regulated financial institutions. Our lenders understand each of the neighborhoods, the organizations we lend to, and the projects at a level that allows them the flexibility to craft terms that will result in a win-win for all parties. CDF had made loans that defy conventional wisdom with excellent results — we literally had no losses prior to the 2008-2013 crisis, and we have enjoyed a default rate of near 0 since working through the challenges of those years.
4. Over the last year or so, CDF and IFF partnered to expand access to capital to more Cincinnati-area nonprofits through JPMorgan Chase’s PRONeighborhoods program. How has this partnership benefited Cincinnati?
CDF/IFF have made 10 loans totaling $9,397,382 through the partnership, but the benefits go beyond the obvious benefits of providing a new financial tool and access to capital for non-profit facilities and equipment.
Because of our partnership, IFF stepped up for Cincinnati in 2015, when not one Ohio-based CDE received a NMTC allocation, and generously allocated $6 million of NMTCs for the development of the long-awaited Barron Center for Men. This facility provides homeless men access to shelter, three daily meals, emergency clothing items and laundry services, daily programs, and individualized case management. This new shelter replaced a substandard facility that was unable to offer anything besides basic emergency shelter.
IFF also introduced CDF to new funding sources – notably Northern Trust, which has provided CDF with a $2 million community development investment bond at very attractive rates. IFF has also participated on other NMTC projects as both CDE and leveraged lender, including one important mixed-income, mixed-use development adjacent to Findlay Market.
5. You attended a local university in Cincinnati and have spent most of your career in the city. As a Cincinnati native and lifelong resident, where are some of your favorite haunts?
Cincinnati is full of MUST SEE attractions, from the natural beauty of the riverfront, our parks, our cultural institutions and historic architecture, and some of the most highly acclaimed chef-owned restaurants in the country. That said, there are three places I take any visitor from out of town:
(1) Findlay Market, which is listed on the National Register of Historic Places and is Ohio’s oldest surviving municipal market house, having been in operation since 1852. You can find a great assortment of produce, meats, fish, hand-crafted pasta, artisan breads, flowers, cheese, and ethnic foods as well as street vendors selling soaps, oils, jewelry, and other merchandise. It is a gathering place for people from all over the region and reflects the social, economic, racial, and ethnic diversity of Greater Cincinnati.
(2) Arnold’s Bar and Grill, which has been in operation since 1838 and is among the oldest continuously operating bars in the U.S. Their courtyard is possibly my favorite place in the city, and the live local music is a wonderful accompaniment to the food and beverages
(3) Last but not least, no first-time visitor should leave our city without having a drink at the beautiful bar at the Palm Court in the landmark Netherland Hilton Hotel downtown. Opened in 1931, it is an Art Deco masterpiece and has a fabulous trio playing jazz standards and classics on Friday and Saturday evenings. If time and budget allow, the fabulous Orchids restaurant adjacent to the bar is unforgettable fine dining experience!