Pooling Resources Yields Innovative Investment Strategy
By Shari Berenbach

Building on their shared experiences, 10 community development corporations (CDCs) are cooperatively pursing a new financing strategy. Their initial goal is a $5 million pre-development capital pool. In l998 each received the Fannie Mae Foundation's Sustained Excellence Award, selected by a jury of national experts for their excellence in community service and high impact programming.

With the award came grants, program-related investments and the opportunity to participate in a three-year learning exchange. When the formal period of support from the Fannie Mae Foundation came to a close, the award winners decided to continue their unusual peer exchange and pool some resources to form a new nonprofit, the Sustained Excellence Alliance Corporation (SEA Corp.). They wanted their learning collaborative to continue and to build the capacity of the community development industry.

Each CDC operates a range of programs designed to meet the needs of the communities they service, including the development of affordable housing. Combined, the award winners have produced more than 1,500 housing units since 1998. They plan to develop another 2,000 by 2003. These organizations have successful track records raising construction and long-term capital from a range of commercial and public sources. However, raising pre-development capital funds continues to be a challenge. While historically they have used grants and other contributions for pre-development purposes, such funds weren't always available or in sufficient quantity when needed.

Early this year SEA Corp. structured a Program Related Investment (PRI) Offering to set up a pre-development capital fund. It allows high-net-worth individuals, foundations and independent philanthropists to invest into a diversified pool, while offering targeting of the investment to selected SEA Corp. members. SEA Corp. is self-funding a first-loss fund, with each member pledging $25,000 toward a collective $250,000 loss reserve. SEA Corp. contracted with the Calvert Social Investment Foundation (Calvert Foundation) to serve as the Fund's administrator, performing legal services, investment supervision and loan servicing.

SEA Corp. designed the PRI Offering for those with limited or first-time PRI experience, hoping to educate funders and other investors new to PRIs about how they can incorporate investments on softer, more flexible terms into their overall philanthropic strategy. Proceeds from SEA Corp.'s initial $5 million offering are expected to leverage more than 20 times that value in actual housing financed - generating substantial impact for the philanthropic resources invested. Its members are encouraged by the initial response to the capitalization campaign, which will extend through 2001.

Shari Berenbach is the Executive Director of the Calvert Social Investment Foundation. She or Investment Officer Lori Scott can be reached at 800-248-0337.

Building Upon Excellence is a recent report from the Fannie Mae Foundation that shares the stories and reflections from the 10 Sustained Excellence Awards Program winners. Information is available from Laura McGrath, director, community initiatives by e-mailing lmcgrath@fanniemaefoundation.org.

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