Creating an investment vehicle for moderate and low-income individuals to build assets is necessary in order to help individuals of moderate means have opportunities to move into better socio-economic status. Through owning an asset (i.e., home or business), an individual or family can leverage the value of the asset to obtain income for other purposes (i.e., paying for an education, creating a business, etc.). Owning an asset also gives a family the ability to transfer something to their loved ones which can provide the recipient a security blanket. For instance, parents can transfer their homes upon their death to their children which the children can then choose to either live in, rent out and generate a stream of income, or sell and use the income for their own purposes.
In low to moderate-income communities, it can be very difficult for individuals and families to develop certain types of assets such as homes and businesses. For both assets, it requires an individual to have a large sum of money saved up to make the initial purchase of the assets along with technical expertise and time in order to maintain and grow the value of the assets. However, there can be an opportunity to create an asset-building, investment vehicle for low to moderate-income individuals and groups which would not require a large sum of money for the initial investment nor the technical expertise in order to maintain and grow the investment. In Portland, Oregon, Mercy Corps Northwest created a Community Investment Trust as an investment vehicle for low-income individuals to invest in income-producing commercial property that is located within their neighborhood.
The Community Investment Trust (“CIT”) takes from the real estate investment trust model also known as a “REIT”. The way the CIT works is that individuals living within certain zip codes can buy shares in the CIT for a $10, $25, $50, or $100 monthly investment, after they complete a course which teaches about budgeting, setting financial goals, and understanding the basics of investment. The CIT owns a commercial property such as a shopping plaza which can be developed using debt-financing (i.e., a loan). The business tenants of the plaza pay rent which is used to pay the expenses of the plaza such as maintenance and repayment of the debt. If there are any remaining profits after the expenses are paid, the profits are distributed to the CIT investors through dividends. As the debt of the shopping plaza is paid off, the ownership stake of the property increases which results in an increased value of the investors’ shares in the property. As a result, the CIT investors profit in two ways: 1) the dividends that they receive from the profits after expenses are paid and 2) the increase in their share value as the debt of the property is paid down.
Mercy Corps Northwest first CIT project is in a 29,000 square foot shopping plaza in outer Southwest Portland. The shopping plaza currently has 26 to 30 businesses and nonprofit tenants. With the shopping plaza being located within the zip codes of the investors, it gives the people the ability to see their investment dollars at work and feel a sense of ownership in their neighborhood. They are more incentivized to patronize the businesses of the shopping plaza because they know that the money they spend at the businesses will eventually end up back in their pockets and not in the pocket of some wealthy individual or institution outside of their community.
This investment model is something that all communities should try to replicate because it benefits for many, if not all of the stakeholders involved. For the community, it gives them actual ownership stake in an asset located within the community which is rare to find for most low- or moderate-income communities. Many commercial producing assets within these communities (i.e., shopping centers or multi-use buildings) are owned by wealthy individuals or institutions who are not from nor reside within the community which tends to generate resentment by community residents. Additionally, the ownership of the shares can be used to leverage other opportunities or create a security blanket for families to pass onto their loved ones. For example, it could be possible to create a CIT where the shareholders can leverage the value of their shares to obtain a small business loan or loan to make a home purchase. The CIT model also benefits the businesses which choose to locate within CIT properties. A business located within a CIT property will have an easier time building community support because the community will want to ensure the business succeeds so that their investment can also succeed.
Many low to moderate-income communities currently have empty plazas or commercial buildings that are waiting to be redeveloped and reused. By figuring out a way to replicate this investment model within low- to moderate-income communities, we can do more than just help revitalize the economic activity within a community but also build community wealth.