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June 25, 2004
Community Investment Benefits Middle Income Earners in Los Angeles
    by William Baue

The Genesis Workforce Housing Fund develops the first institutional investor-backed project promoting home-ownership for middle-income earners in the US.

"Community investment is often associated with initiatives that benefit low-income earners, for example those unable to buy suitable housing. However, community investment can also benefit middle-income earners, who similarly face inflated real estate markets. Such is the case with a new real estate development that broke ground earlier this week in the Lincoln Heights neighborhood, near the Avenue 26 Gold Line Metro Station, in Los Angeles. Phoenix Realty Group, which manages the Genesis Workforce Housing Fund that is financing the 165-condominium development, is branding it as the nation's first for-sale workforce housing project backed by institutional capital.

"We have created a vehicle for banks, insurers, and pension funds to make investments that will help fill a void in the housing market that leaves LA residents making from $50,000 to $110,000 a year with few affordable housing choices and long commutes," said Jay Stark, chief operating officer of fund manager Phoenix Realty Group.

First offers on the units, which will range in size from 700 to 1,800 square feet and from $210,000 to $375,000 in price, will go to those earning between 80 and 200 percent of the area's median income.

Avenue 26 Condominiums

"The social benefits for residents of these communities include quality, affordable housing, higher job satisfaction, reduced commuting time and expense, and more time available for family, leisure and community service--all in all, a higher quality of life," said Brad Rosenberg, president and CEO of the Genesis LA Economic Growth Corporation, a nonprofit that established the Genesis Workforce Housing Fund.

The Genesis Workforce Housing Fund has acquired $57 million in assets so far in its initial round of fundraising, more than half-way to its goal of $100 million. The "Avenue 26 Condominiums" development is the first of six projects in urban Los Angeles financed by the fund to break ground, with an anticipated completion date of 2005. Together, the six projects total 500 affordable housing units.

Institutional investors in the fund include Northwestern Mutual Life Insurance, Washington Mutual (ticker: WM), Citigroup (C), Hanmi Bank, and Far East Bank.

In addition to supporting workforce housing, Phoenix also supports tax credit-financed affordable housing. As well, Phoenix acquires existing affordable housing properties that are at risk of losing their affordable status and works with local and regional developers to redevelop them. In fact, Phoenix considers such community revitalization to be a $200-billion-market opportunity for institutional investors, as the strategy has previously been pursued exclusively by small-capitalization investors.

"Phoenix is empowering community-based developers by providing the institutional capital and additional development expertise they need to be successful in building these projects and reinvigorating the urban core with the positive economic impact brought by institutional sources of capital," said J. Michael Fried, founder and CEO of Phoenix. "They are seeking 'double bottom line investments' that offer competitive returns on socially responsible investments."

Genesis Workforce Housing Fund returns range from 12 to 16 percent.

Mssrs. Stark and Fried believe that this model of so-called "smart growth equity funds" that link housing and employment is replicable in other Californian urban centers. For example, Phoenix will soon begin raising a projected $60 million to capitalize the San Diego Smart Growth Fund to finance both for-sale as well as rental housing in that metropolitan area. In addition to supporting affordable housing, such funds can finance commercial development linked to employment as well.

"There are many other metropolitan areas that are ripe for this kind of reinvestment," said Mr. Fried. "In the future, we will be looking at major urban centers nationwide with buildings or vacant sites that can be developed into workforce housing and support commercial activity."


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