Breaking the intergenerational poverty cycle May 26, 2011 Sara Hoversten Brian Rajotte John Rumin Hendrik Van Hemert Community-Led REIT Breaking the intergenerational poverty cycle

Program Addresses 3 Challenges Can low-income individuals use a REIT structure to create local wealth while learning personal financial literacy – breaking the intergenerational poverty cycle? MC Mission: Alleviate suffering, poverty, and oppression by helping people build secure, productive, and just communities MCNW Desired Outcomes: Increased income Asset and net worth accumulation Community integration Housing stability Program Addresses 3 Challenges Enhancing financial literacy of residents Creating a vehicle that allows residents to directly invest in their neighborhoods Leveraging existing NGOs’ missions to create greater impact MercyCorps Northwest

MCNW Program Commercial property redevelopment ($1M in Lents Neighborhood) Property owned by REIT Investors: low-income residents Investment: $10-$50/month Financial literacy program 26% of all renters spend 50% + of income on rent 17.2% of households have 0 or negative net worth 60.1% of renters’ net worth could not subsist for 3 months without income Oregon Equity Buy-Up: 300 Investors – 4.6 Years 10% IRR

Value Add Reduced risk to debt sources - Use of public redevelopment funds Higher returns to low-income investors - Community investment match Liquidity protection - Concept of share price with foundation floor Leveraging professional expertise - Compound impact of local lenders CSR efforts

The Financials – Base Case Funding Sources

The Financials – Equity Ownership

Base Case Scenario Returns Low Income Investing Members 300 Low Income Investor IRR 22% Distributions Cash or Reinvested as Equity 10 yr Pro Forma 5% of Low Income Contribution Matched 25% Foundation Equity Floor 90% Cash Distributed 5% Asset Mgmt Fee Returns

Base Case Scenario Returns Foundation Payback Period 4.6 Yrs Distributions as % of Equity 9% IRR Stabilized Debt Service Coverage 1.39 Net Sale Proceeds Yr 10 $700k @ 11% Cap 10 yr Pro Forma 5% of Low Income Contribution Matched 25% Foundation Equity Floor 90% Cash Distributed 5% Asset Mgmt Fee Returns

Base Scenario $ $ $ Foundation Community Bank Low-Income Investors Financing: 25% Returns: 2% Community Bank Financing: 75% Returns: 6% $ $ $ Base case, numbers are stylized but appropriate for one specific project in the Lents neighborhood of Portland. Relative scales are important even if the numbers are slightly off in places. Low-Income Investors Equity Buy-out: 4.6 yrs Returns: 22%

Public Money $ $ $ $ Foundation Community Bank Public Money (PDC) Financing: 25% Returns: 2% Community Bank Financing: 55% Returns: 5.5% $ $ Public Money (PDC) Utilizing Urban Renewal Money to lower bank risk Financing: 20% Returns: 4% $ $ Focus on increase to low-income. Public money represents many pools of public funding from historic renovation to urban renewal bonds. Community Bank Returns decrease because risk decreases with new subordinate debt. Extra returns can accrue to low-income investors. Buy-out period decreases with re-investment larger because of greater returns. Low-Income Investors Equity Buy-out: 4.3 yrs Returns: 23.5%

Community Match $ $ $ $ $ Foundation Community Bank Public Money (PDC) Financing: 25% Returns: 2% Community Bank Financing: 55% Returns: 5.5% $ $ $ Public Money (PDC) Utilizing Urban Renewal Money to lower bank risk Financing: 20% Returns: 4% Community Match Community members matching low-income investments Returns: 3% $ FOCUS: Provide an opportunity to medium and high income individuals in the community to support the project while recovering reasonable returns. There are many ways to create this opportunity that the REIT structure may allow. Providing two levels of stock would also help ensure returns are fair and provide non low-income investors maximum impact with reasonable returns. Community members match low-income investors, driving up the buy-out speed and increasing returns by taking a lower return. $ Low-Income Investors Equity Buy-out: 3.5 yrs Returns: 26%

Financial Literacy $ $ $ $ $ Foundation Community Bank Financing: 25% Returns: 2% Community Bank Financing: 55% Returns: 5.5% $ $ $ Public Money (PDC) Utilizing Urban Renewal Money to lower bank risk Financing: 20% Returns: 4% Community Match Community members matching low-income investments Returns: 3% Paying for the financial education will cost overall program somewhat reducing yeilds to low-income investors. This scenario may be necessary if a local organization is unable or unwilling to pay for the financial literacy program. $ $ Financial Education Financial literacy programs provided by community banks to increase scalability and reduce overhead Low-Income Investors Equity Buy-out: 3.5 yrs Returns: 26%

Real Sources of Returns Financial Impact Low-Income Residents Above market returns Financial literacy Improved neighborhoods Leave poverty cycle Community Banks Appropriate returns CSR efforts Foundations Inflation-adjusted returns Leveraged impact Building Tenants Stable patronage Community Members Higher property values Desired local businesses Reduced poverty

Potential Partners Community Banks Foundations Scaling Competitive returns CSR Efforts/CDFI Certified Expand financial literacy efforts Foundations Available capital Demonstrated social commitment Asset building programs Albina’s Mission: “We're here to help inspire you and our local neighborhoods. Deposit s at Albina are reinvested in our local Portland neighborhoods inspiring jobs, wealth and success.  What comes to us, stays in Portland!” Paul Allen Foundation: Transforming lives and strengthening communities by fostering innovation, creating knowledge, and promoting social progress” Scaling

Challenges Unclear Legal Structure Tax Issues 5/50 Rule Passing Pilot Stage Interdependency of Participants Financial Issues Asset Management Structure Operating Guarantee Distribution Waterfall Cash Flows from Interest Solidify fund’s structure Complete pilot stage Secure national partners Next Steps

Questions? Community REIT will: Increase income Accumulate assets and net worth Build community Provide housing stability Questions? Questions then big take-away.