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CDFIs are stepping up to the plate

Updated: April 13, 2012 - 12:20 pm

Posted: April 13, 2012

By philip newswanger

philip.newswanger@insidebiz.com

Organizations like Virginia Community Capital, a nonprofit, are playing a larger role in building communities and local economies.

They are filling the gap left by many banks, which have retrenched because of the recession. As a result, banks have tightened their lending standards, leaving many communities, especially in low-income neighborhoods, bereft of capital.

Into the gap steps VCC, designated a community development financial institution by the U.S. Treasury. It is based in Christiansburg with a Richmond office. CDFIs provide capital and tax credits via several Treasury programs to invigorate impoverished communities in rural and urban America. The most notable is the New Markets Tax Credits program, which supplies qualified investors with 39 percent in tax credits for seven years if they invest in poor communities.

As a CDFI, VCC's reach is statewide, including Hampton Roads. VCC is behind two projects, both in Portsmouth. The organization has supplied permanent financing for home rehabilitations in Portsmouth's Park View neighborhood and construction financing and a permanent loan for adaptive reuse of the old Navy YMCA in downtown Portsmouth to a 20-unit affordable housing project.

The Olde Towne Co., with funding through VCC, is renovating homes in the Park View neighborhood.

"Daniel Aston, principal of The Olde Towne Co., believes in renovating old houses and creating homes for generations to come," said Jane Henderson, president and CEO of VCC.

VCC has another tie to Hampton Roads. Newport News Development Director Florence Kingston has been named a board member of the organization. She sees many possibilities for VCC to provide benefits throughout Hampton Roads.

"I just believe as a board member, I will open doors for them to identify possibilities," she said.

That could mean lending to or partnering with economic development authorities, housing authorities and developers.

Kingston also sits on VCC's for-profit affiliate, Community Capital Bank of Virginia, which retains a B Corp certification. The certification is issued to organizations if they pass a rigorous test of their social goals by B Lab, a nonprofit organization dedicated to using the power of business to address the world's most pressing challenges, according to its website. B Lab supports entrepreneurs who use business as a force for good.

B Corp is a certification and not a legal entity. On the other hand, a B corporation is a legal entity and pays standard corporate income taxes. The B stands for benefit.

Virginia is one of only seven states, including New York and California, that recognize B corporations as a legal entity.

But B Corporation certification is available to businesses in all 50 states and around the world, and there were 475 certified B Corp companies from more than 60 industries, as of last November.

"Neither [VCC or Community Capital Bank] is a B Corp, but Community Capital Bank is B certified," Henderson said. "We have not changed our legal structure at this time, but are researching the impact of doing so."

Also part of VCC's arsenal is $20 million in New Markets Tax Credits, which it plans to leverage for investment in health care in medically underserved areas of the state and for rural projects. VCC was one of two Virginia organizations that received an allocation of the tax credits.

"In the 2008 round, VCC was awarded $15 million for health care in medically underserved areas," Henderson said. "Most of the allocation was used for two health care facilities - Tri-Area Community Health Center in Floyd and Blue Ridge Medical Center. We have $3.6 million remaining."

VCC could parley the tax credits in Hampton Roads, but it depends on the project.

"If there is a project that fits our requirements for either of our new markets tax credits allocations we'd look at it," said Henderson, who was the senior vice president and director of community development for the former Wachovia Bank.

Asked to name some pending projects, Henderson said, "No, we can't talk about pipeline transactions. However, we have several we are looking at. Stay tuned."

VCC was founded in 1995 by Community Housing Partners and supplied microloans for small enterprises owned by low- to moderate-income individuals and supporting industrial development authority programs in three counties in Southwest Virginia.

"Working from one office in Christiansburg, our market was strictly Southwest Virginia and projects of limited scale," Henderson said.

"A capital infusion of $15 million transformed the organization in 2005. A few formal measures came with this transition. VCC was re-engineered, officially emerging as an independent Community Development Financial Institution, a distinct entity with its own 10-person board.

"VCC's geographic impact also grew, and by April 2006, we had a new platform for our services: the entire commonwealth of Virginia," Henderson said.

As a statewide CDFI, VCC's service reach expanded and a Richmond office provided more local contact in the eastern part of the state, Henderson said, and its pool of capital expanded from $15 million in 2005 to $19.1 million in 2007.

In the first two years of operation, VCC funded 23 projects that built 538 new and 65 renovated units of affordable housing, created 64 new jobs and retained 19 positions, and provided over 311 hours of free technical assistance to projects throughout the state, Henderson said.