Community Investment Fund
Summary
A Community Investment Fund (CIF), sometimes called community investment trust/vehicle or community impact fund, is a financial structure that builds wealth and promotes self-determination for local residents and community members by pooling investments, often low-dollar and protected, to acquire and collectively steward local community-serving properties and businesses.
There’s no one way to operationalize CIF for community ownership; however, based on the examples we have seen, the following are two common pathways utilized by CIFs:
Property acquisition followed by community share offer: The CIF purchases the property utilizing conventional loans and private/ impact investors. This was often done before the CIF started publicly advertising its community share offering. Community investors then can purchase shares of the CIF (e.g., shares of the corporation or trust). In the interim, the entity behind the CIF effectively acts as a mission-driven steward, holding properties for the community’s interests.
Example: The Community Investment Trust (CIT) in East Portland purchased Plaza 122 in 2014 and launched the community investment offering in 2017. The trust is an asset transfer tool allowing for low dollar, local investors to build wealth in their neighborhoods.
Fund formation followed by property acquisition: The CIF (or the organization assembling the fund) announces and raises funds with an offering memorandum specifying target proceeds, investment strategies, and mix (e.g., percentages in social enterprises and community-owned and controlled real estate), etc. Once the fund is formed, the CIF proceeds to invest in properties and businesses that align with its values.
Example: Boston Impact Initiative (BII) launched Fund I in 2018, raised $7M in two years from nonaccredited and accredited investors, and fully deployed the fund in 2022 into 50 enterprises. BII then launched Fund II, a $20M integrated capital fund that doubles down on BII's racial equity and economic justice mission.
Advantages
Low barrier wealth-building opportunity: CIFs often have affordable investment offerings (e.g., $10/month for East Portland CIT) that usually do not require investors to be accredited.
Offer both short and long-term returns with greater liquidity: Unlike directly owning a property where returns are only realized when the property is resold, CIFs offer short-term returns (e.g., annual dividends) and long-term returns (e.g., at loan fund maturity or appreciating share value). Some CIFs also allow community investors to withdraw investments at any time without penalties.
Complementary to neighborhood economic development: Community investors may prioritize patronizing CIF-owned or invested properties and the businesses located therein, especially when the properties are acquired before the community investment offering and clearly showcased in the associated community engagement activities.
Challenges & Critics
Complexity navigating securities regulatory requirements: the Securities and Exchange Commission (SEC) requires registration if you are involved in securities-related activities. Being registered with the SEC comes with challenges such as compliance costs, strict and ongoing reporting requirements, etc., which often requires additional staff time with specific expertise.
Example: NICO winded down after 1.5 years in business. While COVID is the primary challenge faced by NICO as the company’s whole public existence had been during COVID (since March 2020), they cited the overhead and administrative expenses of being a public company being unsustainable at the current scale of their portfolio.
Risk of prioritizing investors: CIFs without strong governance and democratic mechanisms in their decision-making processes may resemble traditional, extractive Real Estate Investment Trusts (REIT) in that investor classes are prioritized over tenants and frontline communities.
Lack of intermediaries to support implementation: CIF and community investment is still a relatively new sector and lacks the same supporting ecosystem as the CLT model. Many of the CIF examples we examined had to start at ground zero without existing templates. This makes CIF projects more time and resource-intensive.
Example: Portland CIT sought services from attorneys to design the investment security exempt from registration for unaccredited low-income investors. However, other CIFs (e.g., Capital Region CIT and Colorado Springs CIT) have since used East Portland CIT’s template to get started.
Limitation on scaling: CIFs are effective in part due to their intentional design to remain small and local (e.g., their portfolio and investor base) to appropriately serve the needs of their target borrowers and investees. This design doesn’t lend itself easily to scaling, at least vertically, as it would be pressured to increase the investment and loan sizes which could jeopardize the focus on serving the target population.
Loosely defined market segmentation: “Community investment” isn’t well defined in that investment strategies and objectives vary across sectors (e.g., real estate, small businesses), return profile (e.g., 0% up to market rate), and investor requirement (e.g., limiting to certain ZIP codes or open to all). This manifested in the wide-ranging examples of the community investment trust model, from patient, non-extractive capitals with a participatory community engagement process to funds with market-rate return for the investor class.
Emerging Practices
-
Deemphasize and carefully balance the power of investors through democratic control
Governance varies from model to model, but many CIFs incorporate mechanisms (e.g., one investor one vote, community elected committees) to enable the community shareholders and stakeholders to set economic development priorities.
💡 Example: The Guild designed the Community Stewardship Trust to have a one-investor-one-vote structure (the same way The Guild operates as a workers-owned cooperative) for key decisions regarding the properties held under the trust. The investment committee of the Groundcover Fund, The Guild’s integrated capital fund, will also consist of a community advisory board.
-
Scale horizontally
Given CIF’s intentional design to stay small and local to best serve the target properties and investees, scaling can best be done horizontally, meaning that instead of increasing investment ticket size, they make themselves replicable by, e.g., publishing case studies, developing tool kits, providing affordable consultation.
💡 Example: Mercy Corp’s CIT published a case study on the East Portland CIT and tool kit and offers an array of replication products such as: feasibility study, legal framework and entity formation, and operation products (website, management portal, customer service, etc.). The fees range from $10-30,000 and 3% of property acquisition cost, depending on the product and project size. Utilizing the products from Mercy Corp, the model is being replicated by organizations and communities in Colorado Springs, CO and Albany, NY.
-
Safeguard community investments
The seniority of the investment fund can be given to community investors (followed by other impact investors such as philanthropies) to minimize their risk of loss.
💡 Example: Boston Impact Initiative Fund II gives community notes (for nonaccredited investors) a 5% return and first seniority on repayment, along with a shorter maturity timeline of five years instead of 10 years for the Solidarity 3% and Philanthropic 1% notes. To support wealth-building, the interest rate on the community note adjusts to 7% if the investor renews it for another five years.
-
Utilize proportionate risk to determine investment timeline and return
In addition to conventional methods of estimating risk, CIFs take into consideration risk relative to the investor’s total assets for fund design (e.g., timeline and size of return) to meaningfully combat wealth inequalities.
💡 Example: The Ujima Fund, of Boston Ujima Project, has redefined risk and prioritizes financial returns for non-accredited investors with a shorter investment timeline (e.g., Investments starting at $50 with a three-year term for Massachusetts residents).
-
Easy exits in addition to affordable investment offerings
CIFs’ target communities often include underinvested neighborhoods where residents have limited resources and disposable income. To protect and encourage the participation of local resident investors, CIFs can be designed so that investors can easily withdraw profits and even the fund itself.
💡 Example: East Portland CIT views investor cash out as a positive CIF impact. In 2022, 20 investors cashed out for reasons including emergency, home down payment, repair, or mortgage.
-
Increase property visibility with community investors
For CIFs that directly own or have significant equity ownership in community-serving properties and businesses, increased visibility leads to higher patronage from community members and investors. In addition to increasing project success rate, this also fosters a sense of community and agency.
💡 Example: East Portland CIT organizes tenants and investors meet-and-greet, with more than 70% of attendees visiting the property and business afterward.
-
When feasible, seek exemption from SEC
SEC exemption allows the CIF to save on compliance and legal costs and staff time associated with strict and ongoing reporting requirements.
💡 Example 1: Boston Impact Initiative, and its charitable loan fund, is exempted under Section 3(c)(10) of the Investment Company Act as a charitable organization.
💡 Example 2: ChicagoTREND’s Walbrook Junction project is exempted from registering with the SEC under Regulation Crowdfunding.