Tools & Resources

An Affordable Housing Investment in Minneapolis

This case example appeared originally in Essentials of Impact Investing: A Guide for Small-Staffed Foundations
Investor: Carl & Eloise Pohlad Family Foundation
Investee: Northside Home
Asset Class: Private Debt
Investment Amount: $4 million
Impact Sector(s): Housing
Date of Investment: 2013
Projected Exit: Full repayment in 2023
Financial Return Goal: Below Market Rate
The Pohlad Foundation, established in 1993, supports efforts to improve the quality of life in the Minneapolis-St. Paul region. Northside Home is a joint venture of Urban Homeworks (UHW) and Project for Pride in Living (PPL), designed to create safe and affordable home ownership options in north Minneapolis. The program purchases and renovates houses, including remediation of hazardous building materials, and provides families with two options: a direct path to home ownership, or a lease-to-own phase with financial counseling to help families successfully move from tenancy to home ownership. PFF’s focus is moving vacant properties to dwellings expediently. Performance covenants, written into the note, require on average renovations are completed within nine months of property acquisition and that no more than 20 percent of the dwellings completed are vacant.
When the project began in 2013, Northside Home had a goal of raising $13.70 million to complete 100 single-family homes. Pohlad Foundation made a $1 million grant and a $4 million loan, with a 1 percent interest rate until January 1, 2018, then a 2 percent interest rate PRI. Originally, Pohlad Foundation’s PRIto Northside Home came with a dollar-for-dollar match requirement as a way to attract more funding from other foundations, government, or financial institutions. However, because of rising costs and lender financing for only 80 percent of a home’s sale price, the foundation removed this requirement. The PRIagreement was amended for this purpose in early July 2015.
Process: The Pohlad Foundation allocated $5.4 million in grants and PRIs to diminish the impact of the housing foreclosure crisis in Minnesota. Despite successfully bringing 251 new home owners into the two zip codes most impacted by foreclosures, the situation in north Minneapolis remained difficult, especially after a tornado further caused significant damage to many homes. The development of Northside Home began shortly after a large portion of tornado damage was repaired. The foundation began conversations with UHW about a buy/ sell or buy/lease-to-own initiative that would assist families that were ready for this product. UHW determined it would need additional assistance to complete this large project and reached out to PPL, a larger affordable housing developer, and negotiations began in earnest.
Partners Involved In Investment: The project received a $1 million loan and a second $1 million loanpledge from Twin Cities Community Land Bank. Other grant investors include the Minnesota Housing Finance Agency and the city of Minneapolis, which provided gap financing and grants.
Projected Impact: The foundation earns minimal interest (1 percent) on its investment, which is payable in quarterly increments until January 1, 2018, when the interest rate increases to 2 percent. Because this is an advancing promissory note, the loan value is also reduced by an individual house’s outstanding principal and accrued interest due when it is sold. This loan will create affordable and healthier housing for families, add local construction jobs, improve north Minneapolis communities, and help children perform better academically by giving them stable housing. As of June 15, 2015, 21 properties were purchased or under site control. Of these properties two were sold to owner-occupants, nine households were under lease-purchase agreements; two homes were completed and being marketed for lease-purchase; two were under construction with completion by August 31; and six homes were scheduled for closing on August 1, with construction to begin immediately thereafter.


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