An article in Fortune highlights a $200 million investment from JPMorgan Chase to support small business and local community development funds. The funding has helped LISC Detroit, the Entrepreneurs of Color Fund (EOCF) and the Detroit Housing Fund create economic opportunities for thousands of Detroit residents. LISC senior vice president Tahirih Ziegler is quoted on the imperative of investing in affordable housing to protect against displacement in Detroit’s vulnerable communities.
The excerpt below was originally published by Fortune: JPMorgan Chase’s $200 million investment in Detroit could show other cities how to bounce back. Just look at the Motor City’s massive drop in unemployment By Matthew Heimer, Fortune
Addressing banks’ bad racial legacy
here’s some poetic justice in the fact that America’s biggest bank became such a benefactor in Detroit. After all, flaws in the banking system are one of the factors that have created such dire straits for Detroit and other underserved communities. In cities all around the nation, “redlining” by banks and federal housing authorities—the practice of classifying minority-dominated neighborhoods as too financially risky for lending—kept Black and brown families from building wealth through home equity, starved local businesses of capital, and drove down property values. (In Detroit, 78% of the population identifies as Black or African American, another 8% as Hispanic or Latino, according to the U.S. Census.)
Redlining has been illegal for decades, but the urban decline that it exacerbated has created its own self-defeating math. Most banks are required by law to keep “loan-to-value ratios”—the ratio of the loan amount to the estimated worth of the project it funds—below a certain threshold, typically 80%. By 2013, property values in most of Detroit had sunk so far that most real-estate projects would cost more to build than they would be worth once completed—meaning they would blow that ration, and wouldn’t qualify for bank financing. For similar reasons, entrepreneurs could seldom assemble enough collateral to secure a loan. Bigger businesses could find ways around these ceilings, or simply self-finance their projects; smaller ones and entrepreneurs were stuck.
To clear this hurdle, JPMorgan Chase built ties with crucial local partners, called community development financial institutions. CDFIs specialize in lending to lower-income communities. They’re usually nonprofits, and the Treasury Department exempts them from some regulations that apply to for-profit banks, the better to reach underserved borrowers. CDFIs are allowed to accept higher loan-to-value ratios and set relatively lenient payment terms. They can also lend to entrepreneurs whose credit scores or lack of relevant experience would disqualify them from bank financing.
“There has to be a mobilized community of partners, that are already aligned on what the city needs. Those kinds of partners are going to help you have the biggest impact.”
— Peter Scher, Vice Chairman of JPMorgan Chase & Co.
In Detroit, JPMC’s CDFI partners include InvestDetroit, which focuses on neighborhood and small business development; the Local Initiatives Support Corporation (LISC), a nationwide nonprofit; and The Detroit Development Fund (DDF), which focuses on entrepreneurship. “Maybe the biggest precondition for success is, there has to be a mobilized community of partners, that are already aligned on what the city needs,” says Scher. “Those kinds of partners are going to help you have the biggest impact.”
With DDF, JPMorgan Chase financed a new initiative called the Entrepreneurs of Color Fund, which not only lends to such entrepreneurs, but helps them develop business plans and train them in accounting and marketing. To date, that fund has extended more than $18 million in loans to Detroit entrepreneurs, helping create nearly 2,000 jobs.
Just as important, the Detroit Fund created a template that JPMorgan Chase has now expanded in other cities. With the help of LISC, the bank has extended the Entrepreneurs of Color Fund to the Bay Area, Los Angeles, Atlanta, New York, Chicago, Washington, D.C., and Newark. It has provided more than 2,100 loans, totaling more than $115 million, to founders who likely otherwise wouldn’t have been able to borrow
Economic hubs for neighborhoods
If abandoned buildings create bad quiet, new construction generates good noise. This June, in a Detroit neighborhood called East English Village, contractors broke ground on a building called The Ribbon. Built on the site of a long-vacant bank branch, it’ll eventually be what developers call a mixed-use building. There’ll be a restaurant on the ground floor—a dumpling place is already signed up as a tenant—with 18 residential units on the second and third floors.
The Ribbon unlikely to become a tourist magnet or merit a spread in Architectural Digest, but it exemplifies the projects that Invested in Detroit has backed—potential economic hubs for healthy neighborhoods. It also shows how the various programs that JPMorgan Chase is funding are synchronizing with one another. East English Village is one of several neighborhoods that JPMorgan Chase, Invest Detroit and the city government have focused on in recent years for intensive investment, including small-business loans and streetscape improvements. The developer behind the Ribbon, Edward Carrington, is a graduate of a JPMorgan Chase-backed training program for entrepreneurs of color. The project is financed in part by local CDFIs. It’s also significant in that it’s replacing an abandoned building with an occupied one; since 2013, the number of vacant housing units in Detroit has dropped by about 20%.
Work in progress at The Ribbon in East English Village. (Photo originally pulished by Fortune and Courtesy of JPMorgan Chase)
The apartments at The Ribbon are symbolically important, too, because all 18 are designated as affordable—available to people who earn 80% or less of the area median income. While per capita income in the city has grown considerably, residential property values have risen much faster. Mayor Duggan has repeatedly expressed concerns about preventing Detroit from becoming gentrified and stratified as the city rebounds. “My daughter lives in Brooklyn,” he told Fortune in 2017. “I’ve studied what happened there. We are adopting strategies so that doesn’t happen.”
Invested In Detroit has been pivotal to those strategies: JPMorgan Chase estimates that the programs it supports have either built or preserved more than 5,000 affordable housing units. The city’s shared goal is to get to 20,000 units, enough to support as many as 60,000 people, says Tahirih Ziegler, a senior vice president at LISC. “We don’t want economic success to drive middle-income people to the suburbs,” she notes. “This is an anti-displacement strategy.”
It’s a very American problem—greater prosperity generating more inequality. But compared to the woes that Detroit is best known for, it’s a nice problem to have.