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July 16, 2010
Bond Program Will Help Affordable Housing in New York City
    by Robert Kropp

Through its CRA Qualified Investment Fund, Community Capital Management will finance the acquisition and development of 5,600 affordable units.


One of the programs established by the Obama administration's American Recovery and Reinvestment Act of 2009 is the Build America Bond program, which authorizes state and local governments to issue taxable bonds to finance capital expenditures at lower borrowing costs.

A recent example of the program was unveiled in New York City this week, where one of the nation’s largest tax credit bond deals will incorporate public and private financing sources to generate more than $400 million for 21 public housing developments. The taxable series portion of the deal was purchased by the CRA Qualified Investment Fund, which was launched in 1999 by Community Capital Management, a Florida-based fixed income investment advisor.

SocialFunds.com spoke with Barbara VanScoy, Senior Portfolio Manager at Community Capital Management, about the New York City initiative, as well as the opportunities for institutional investors who wish to accomplish their community investment mission.

"The CRA Qualified Investment Fund is an open-ended mutual fund that was created initially for banks to meet the standards of the Community Reinvestment Act (CRA)," VanScoy said. "What we do is reinvest dollar –for-dollar back into a bank's community."

The
Community Reinvestment Act (CRA) was enacted by Congress in 1977, and intends to encourage banks to help meet the credit needs of the communities in which they operate.

"Because of strong demand from institutional and retail share classes, in 2007 we launched an institutional share class that allows investors to designate specific securities allocated to them for social purposes that either meet a geographic footprint or a specific mission," VanScoy said. "We also launched a retail share class at that time, which allows individual investors to invest in a fund that is one hundred percent devoted to promoting community development in a market-rate investment vehicle.:

VanScoy spoke highly of the
New York City Housing Development Corporation (HDC), Community Capital Management's partner in the bond deal, noting that she has worked with HDC on several issues in the past. HDC provides financing programs for multi-family affordable housing in New York City, and is the nation’s leading issuer of multi-family affordable housing bonds.

"HDC has a phenomenal market rate approach to financing affordable housing in a difficult housing area, and this deal allows them to leverage economic stimulus funds for affordable housing," VanScoy said.

She continued, "The bond issue was almost $70 million. Predominately, the issue is tax-exempt, but they were able to carve out with us a taxable portion of the deal. Our taxable series specifically was used to finance the acquisition and development of 5,600 affordable units."

"It's a partnership that's beneficial on both sides," VanScoy said. "The truth of the matter is there weren't a lot of taxable municipal buyers out there, prior to the launching of the federal Build America Bonds program. For housing authorities to know that they have an end source for their taxable bond proceeds is beneficial for them."

"Housing authorities in other cities will be able to look at this deal and ask if it is something they could do, using some of the stimulus funds to create more affordable housing in their communities without taking on excessive financial risk," she added.

Since its launch in 1999, the CRA Qualified Investment Fund has consistently posted positive returns for fixed-income investors with a community investment mission. When asked about the consistent performance of the fund, which weathered the subprime lending crisis and the subsequent collapse of the housing market, VanScoy said, "When we look through bonds, we look not only from an investment perspective—which, obviously, is first and foremost on our minds—but also for what the ultimate purpose of the proceeds is. Where are the cash flows going, and what are the credit implications?"

"We only select securities that we think are worthwhile," she continued. "The pools we buy are all 30 year fixed rate loans, we do not invest in adjustable rates, and we look at the borrowers themselves. They have to be low-to-moderate income borrowers who can afford the loans they take out. They may be low wealth, but they're high credit quality."

As an indicator of the success of its investment philosophy, Community Capital Management last year announced that it surpassed $1 billion in fixed income assets under management that it manages for its investors. As of March 31, 2010, it had $1.1 billion in assets under management.

 

 
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