Community Development Corporations: Partnering with Non-profits

Community development corporations (CDCs) are not-for-profit organizations run by a board of directors made up of residents of the communities they serve. CDCs provide services and programs and engage in activities that support communities. One of these services is to provide affordable housing for low income families. Through partnerships with city, state and federal programs, CDCs can bring in grant money that can help buy down the cost of housing for first time homebuyers. Sometimes this extra financial boost is just what some for-profit investors and builders need in order to move a house or make a project's numbers work.

For instance, if an investor purchased a home to rehab and wanted to sell it for $100,000 after the work was completed, they would have to find a buyer to qualify for that amount. But if the investor partnered with a CDC that had grant money available of up to $20,000 per homebuyer, then the buyer would only have to qualify for an $80,000 loan. Not only would that broaden the available base of buyers, it would add incentive to the buyer, who would be getting a $100,000 home for $80,000. Other opportunities exist with larger projects where grants can be obtained to offset the cost of construction on a project. (For more information, see Financing Low Income Housing Projects.)

One of the stumbling blocks that some non-profits have is in capacity building. Some CDCs would like to increase the amount of houses being produced but lack the internal capacity to make that happen. This is where the private sector comes into play. Private investors and builders partnering with non-profit CDCs can be win-win for both. The CDC is able to apply for and obtain grant funding for the low to moderate income earner to help buy down the cost of the housing purchase, while the private investor can bring in the knowledge, skills and leverage of rehabilitation or new construction. When working together, the CDC gets increased capacity building by outsourcing and the private investor gets access to funds to help buy down the cost of a project that could otherwise be unobtainable.

This type of partnership is common in larger projects, such as historical restorations and rehabilitations of older multi-family and commercial buildings. In most cases, the costs of such projects far exceed the return on investment, so tax credits and grants are the solution to provide the gap financing to make them happen.

This same type of partnership can happen with single family housing projects which in turn helps CDCs increase the number of affordable housing units available on the market. This gives the investor and builder an advantage in a down market such as this one because there is always a need for affordable housing. The profits may not be as substantial on a per-unit basis as they would be for the construction of a house of $200,000 or more, but the opportunity to maintain operations through a down market, make a profit and help the families that are at the core of this nation's economy is a return and reward that far outweighs anything investors could experience anywhere else. (For more information, see Growth Through Low Income Housing.)

If you would like to have an advantage over other investors, contact your local CDC or community housing development organization (CHDO) to find out more about them, and whether they are interested in partnering with private investors. If you have a large commercial or renovation project, but are having trouble making the numbers work, one of these organizations might be interested in partnering with you.