Growing Latino Entrepreneurship, Building Local Economies Character and Culture in Assessing Risk in Economic Development Projects

Fred Cooper Community Development Concepts Advisory Services Inc. 301/

Culture and Risk -- Different Perspectives Community developers and asset builders – it’s all about impact Sources of capital – it’s all about return on investment

What is risk? Risk is: anything that can prevent, or diminish, the achievement of one’s goals.

What is the biggest risk? Not acknowledging/understanding the sources of risk.

Risk versus Return I Higher the risk, the greater the potential for return

Risk versus Return II Higher the risk, higher likelihood of failure

Risk versus Return III The greater the increase in understanding of risk, and the more actions taken to mitigate risk, decreases likelihood of failure, and increases the potential for return.

Mitigating Risk Understanding your business and market. Financial mitigation – for lenders: loan loss reserves; for developers: project contingencies. Process mitigation – for lenders: underwriting policies, procedures, standards and practices; and portfolio management reviews and risk rating adjustments; for developers: construction draws and performance bonds.

Explaining Risk Lenders and investors may have different perceptions of your risk then you do Lenders and investors may have different objectives than you do Risk to them, and their risk of partnering with you, has to be explained

Explain Risk in their Terms * Explain in terms of risk and the mitigations to risk. * Financially – for lenders: understand your balance sheet; NAR trends and policy; portfolio quality; for developers: development track record, collateral quality, sales or rental record, and project specific sales or rental strategy.

Explain Return Potential For borrowed funds: repayment track record, and project financials. For investments (transaction formerly known as “grants”): track record, financial health and managerial strength. For all -- community development impacts; individual and community asset building.