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Sound investment

Social needs emphasized alongside profits with local investment fund.

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It sounds too good to be true, but all accounts indicate that the recently-announced Sound Community Initiatives fund will play a brilliant role in revitalizing poor neighborhoods in Tacoma and beyond.

Organized by members of the Martin Luther King Housing Development Association and local mogul Larry Kopp, the SCI fund promises to invest as much as $3.2 billion into low-to-moderate income communities in Pierce, Thurston, King, Snohomish and Kitsap counties. The investment model is relatively new — 10 years or so — and has worked well in Los Angeles, Chicago, Miami and other regions with significantly poor pockets of population. Participants call them double-bottom-line funds, promising healthy returns for investors — bottom line No. 1 — along with jobs, investment and amenities for struggling Puget Sound neighborhoods — bottom line no. 2. 

In the wake of what some observers have characterized as an outright assault on federal funding in poor neighborhoods, outside help and innovation have been necessary to reinvigorate investment in poor neighborhoods such as Hilltop.

The Bush Administration’s 2007 budget cut $600 million from the Department of Housing and Urban Development, cut Sections 202 and 811 programs that provide housing to the lowest income seniors and people with disabilities, cut $300 million from the public housing capital fund, and cut $1 billion from HUD’s Community Development Block Grant program. 

In response to such cuts, organizations such as the MLKDA have been forced to look to the private sector for help.

Drawing private investment in poor neighborhoods has traditionally been a challenge, insofar as investors rarely make investments solely in the interest of good will — if there isn’t a buck to be made, they are generally reluctant to get involved. Communities such as Hilltop in Tacoma, in which more than 30 percent of residents live below the poverty line, have traditionally struggled to draw any large-scale capital investment, while millions of dollars are gleefully invested downtown, just a quarter-mile away.

Attempts have been made at developing so-called below-market funds, which are offered at below-market cost, with relatively unattractive payback for investors. Most of the early below-market funds were created as not-for-profit corporations, and generally did little to attract private investment in poor neighborhoods.

Double bottom line funds emerged in response to the need for innovative approaches that would produce a decent return for investors.

Harvard Professor Belden Daniels is credited with developing the concept, which borrowed the idea of the double bottom line from non-profits and charitable organizations that suggested social impacts were as important as the financial bottom line emphasized by corporations. Since then, the double bottom line has become a sort of pop concept among post-Regan investors and companies that claim to emphasize social impact in addition to making money.  Martin Luther King Housing Development Association Director Felix Flannigan met Daniels at a planning conference in 2004 and was introduced to the double bottom line funding concept by the professor and a small group of bankers who had successfully used it.

Puget Sound will be the first region in the Northwest to benefit from such a program thanks to three years of work by Flannigan and a group of local investors, who performed extensive research before deciding to use the model. Market analysis provided during the early stages of the fund’s development indicated $800 million worth of demand during the next 10 years for residential and commercial real estate in low-income regions — surpassing demand in all but the largest regions in the country, such as Los Angeles.

The fund will be managed by Los Angeles-based investment group Kennedy Wilson, which handles more than $8 billion worth of commercial and residential property, and two double bottom line funds. Kennedy Wilson officials will have an office on Hilltop, and promise to bring tons of experience and expertise to the table as projects are chosen and carried out.

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