Photo Courtesy of RI Community Investment Cooperative
This post follows Kevin’s introduction to Diversified Community Investment Funds
The DCIF model is not a standalone tool. Its popularity has caught on because of its unique portfolio anchored by real-estate investments likely to appreciate and its accessibility to non-accredited investors as a pathway toward sustainable local investment. However, its strength is not only dependent on the investment likelihood of local community members. The momentum of the Local Return DCIF in Rhode Island is providing a case study on how to best be prepared through a collaborative relationship within the whole local ecosystem.
The DCIF requires an ecosystem of real-estate developers, small businesses, and homeowners that are ready to benefit from the fund. The residents must be equipped to handle the fund’s coming investments, which includes the ready-skills to develop when the capital becomes available. In anticipation of the fund, Rhode Island’s Local Return DCIF mobilized the Jumpstart model for training, connecting, and financing small, local real-estate developers.
A Collaboration of Local Models
Jumpstart originated in Philadelphia as a local financier that trains and connects small developers in a competitive real-estate environment. The model is catching on to address adaptive reuse needs in cities across the country; they have graduated two cohorts in Rhode Island and have 28 organizers across the country. In a conversation with Angie Williamson, Executive Director of Jumpstart Philly and Jumpstart Germantown, she spoke about the expanding toolkit of Jumpstart,
“Jumpstart Germantown/Jumpstart Philly created a toolkit for other communities to replicate our program; Jumpstart Rhode Island used this toolkit.”
Jumpstart Philly has its own revolving loan fund, but the toolkit for other communities does not include a pool of funds: the capital must be locally sourced or raised. Rhode Island’s solution to the capital question was the DCIF.
How the Fund Can Function
Rhode Island Local Return DCIF co-founders Jessica David and Josh Daly shared insight to Rhode Island’s Jumpstart cohorts in relation to the DCIF. David shared the vision for the now-equipped developers in the ecosystem,
“Our plan is to use the fund to make bridge loans for graduates of the Jumpstart Rhode Island program, essentially as a replacement to extractive hard money products that they’re turning to right now.”
The collaboration of two innovative local models in Rhode Island has led to the DCIF mechanism being shared with all 28 Jumpstart organizers – its replicability is attractive and attainable to Jumpstart programs that don’t have revolving loan funds to lend to graduated cohorts.
The Rhode Island DCIF is still being raised, with investments entirely from local, private individuals with the vast majority being unaccredited. As the ecosystem around the DCIF continues to grow, it simultaneously demonstrates local transformation and sustainability. The Jumpstart graduates can lower the risk-profile of the fund while ensuring local, agile real-estate development as an alternative to projects by large, subsidized developers. As Rhode Island continues to increase local participation, the possibility of institutional investment is growing. The Jumpstart relationship with the DCIF is just one example of the ecosystem both needed and spurred by an existing DCIF. The key is having the infrastructure ready when the fund’s popularity reaches the community, it cannot be raised or deployed without the right match of willingness and preparedness between developers, investors, and local small businesses.
What’s Next?
The new capital stack is dynamic in its ability to build social, financial, and human capital in communities that embrace the collaboration the DCIF is capable of. Community investment possibilities have already been highlighted by Brookings Fellow Tracy Loh and NC3 President Chris Miller in their recent paper, where they explored the benefits of state tax incentives to residents investing locally. The next question of the ecosystem is how institutional partners (philanthropists, banks, and RIAs) will join the investment into DCIFs.