1. 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

2. 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

3. 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

4. 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

5. The Financials – Base Case Funding Sources

6. The Financials – Equity Ownership

7. 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

8. 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
11% Cap
10 yr Pro Forma
5% of Low Income Contribution Matched
25% Foundation Equity Floor
90% Cash Distributed
5% Asset Mgmt Fee
Returns

9. 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%

10. 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%

11. 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%

12. 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%

13. 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

14. 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

15. 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

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