March 23, 2022
In the wake of the murder of George Floyd and protests across the United States that heightened awareness of our nation’s deep-rooted racial inequities, an innovative LISC impact investment fund has been answering the urgent call to close racial health, wealth and opportunity gaps.
The Black Economic Development Fund (BEDF), as it is known, hit an important milestone last month by committing $122 million in investments to African American developers, entrepreneurs and lenders. The money is both fueling growth for African American-owned banks, businesses and anchor institutions in industries where the Black community is historically under-represented, and generating a multiplier effect in communities where loan recipients are building and expanding. BEDF is part of LISC's ambitious initiative Project 10X to promote racial justice and Black economic mobility.
The Fund, whose investors include well-known corporations such as Netflix, Square, and PayPal, raised $250 million—in less than one year. Since its inception in 2021, the BEDF has originated and underwritten loans to developers and forged deals with African American banks to increase the financial resources available to Black business owners. Its reach spans 21 banks and businesses across 13 states, including investments in 15 cities ranging from Washington, D.C., New York and Pittsburgh, to Charlotte, Orlando, Cleveland, and Dallas.
The capital is already having an impact in local places. “Participants are making a difference through job creation and by improving the quality of local housing,” says Kandis Williams, executive director of LISC Cleveland. “This is a tremendous resource that was missing. The opportunity to scale these investments is creating a space for minority-owned businesses to invest and grow on a scale that hasn’t been done in our region—or throughout the nation for that matter.”
“[These] projects set off a chain of events—first by growing businesses that have diverse head-counts, next by indirectly supporting diverse subcontractors, and finally by benefiting underserved communities.”
— George Ashton, president of LISC Fund Management, LLC
Flexible, borrower-centric products
A Key to the BEDF’s success is how it has structured its products around the real needs of Black borrowers. “What makes the BEDF so innovative is that we are working with Black developers to provide financing that is hard to find in the marketplace at all, and at reasonable rates,” says George Ashton, president of LISC Fund Management, LLC, which manages the BEDF.
Ashton adds that the effort pays dividends that go far beyond individual real estate development and businesses. “Their projects, their ideas, set off a chain of events—first by growing businesses that have diverse headcounts, next by indirectly supporting diverse subcontractors, and finally by benefiting underserved communities since diverse developers more often than not invest in underdeveloped communities.”
A trait shared by all the BEDF’s borrowers is their commitment to the communities where their projects are rooted. “Our borrowers are increasingly focused on engaging with minority-owned contractors and property managers, when possible,” says Tiffany Durr, LISC senior director for fund investments. “In that way, they are pushing the industry forward to expand the definition of inclusivity and impact in communities around the country.”
MLK Gateway II, Washington, D.C.
In Washington, D.C., for instance, the Menkiti Group, an African American-owned developer, closed an $8 million BEDF bridge loan to advance the construction of MLK Gateway Plaza II, a mixed-use commercial building in the Anacostia neighborhood of the capital city’s underinvested Ward 8. The first half of the project, MLK Gateway I was completed in late 2021, just as ground was broken on the second phase. “A key focus of ours has been to create a pathway to opportunity by training people on basic job skills and finding a way to participate in the economy,” says CEO Bo Menkiti.
MLK Gateway I is already nearly fully leased and occupied. Its tenants include an African American-owned cybersecurity firm, Enlighted Inc., which not only moved its headquarters to the new development but will also supervise an incubator space to promote budding tech entrepreneurs. The BEDF loan for Gateway II will help to build on this.
Menkiti Group has also set up long-term relationships with contractors of color to support its development. An example is Next Opportunity, a firm that hires locally and works with returning citizens, which has been brought on to provide general labor and cleanup at the site. Menkiti has also looked to boost the Anacostia job market by encouraging its contractors and subcontractors to hire locally.
Victorian Estates, Cleveland, OH
In Cleveland, Brian Hall used a 36-month $1.7 million construction loan from the BEDF to help convert two Victorian-style homes and a carriage house to 19 much needed apartments in the city’s Upper Chester neighborhood.
BEDF stepped in when he faced unforeseen challenges, as renovation work uncovered some key structural issues that had to be addressed. “To continue and get the project done required significantly more equity than we had anticipated,” he recalls. “Our BEDF agreement helped to stabilize the deal and move closer to a point when the project can stand on its own.”
Hall estimates that 75 percent of the workers employed on the Victorian Estates project are professionals of color. “In Cleveland, like other markets, parts of the city and downtown are expanding as the work of revitalizing neighborhoods has begun,” says Hall. “And still, there’s a lack of diverse developers participating. The BEDF is helping to lead an effort toward more diverse development in our city, which benefits contractors as well.”
In fact, for Intrinsic Renewal, the contractor working on the project, Victorian Estates is its largest development to date, said CEO Rich Decembly. “The location on 89th Street is busy, and I am approached by maybe five people a week who admire what we are doing and ask to see if we’re available,” says Decembly. He estimates that he’s lined up six or seven additional projects thanks to his work on Victorian Estates.
Hannibal Square Community Land Trust, Orlando, FL
In central Florida, the Hannibal Square Community Land Trust has a vision for the future: a development that will offer 30 affordable townhouses and a retail-apartment mix to serve as an economic hub in Orlando’s historically Black West Lakes neighborhoods. The project supports African American homeownership and protects families from being priced out by gentrification. Hannibal Square executive director Camille Reynolds Lewis also sees it as a way to build entrepreneurship in the area.
A $5.75 million construction loan from BEDF helped get the project going last December. “We are going against the grain here in that we want to decrease density and are trying for a solid, neighborhood feel while providing financial opportunity and economic development for the small businesses in the area,” says Lewis, who has hired minority-owned contractors to work on the project. “The BEDF is a game-changer for us,” she adds. “It’s really great to have a partner that is more interested in the viability of the project and what it does for the community than just dollars and cents.”
Optus Bank, Columbia, S.C.
The BEDF investments go beyond development firms. In Columbia, S.C., for instance, the fund deposited $4 million in Optus Bank, a 100-year-old financial institution that has originated 90 percent of its loans with minority- and women-owned businesses and homeowners. The deposit will help generate more lending in the communities Optus serves, while also supporting the bank’s $100 million initiative to build Black wealth during the coming decade. It is part of the BEDF’s larger strategy to support Black-owned banks in multiple cities.
Willow Brook Animal Hospital, Dallas, TX
BEDF financing is also fueling the work of Dr. Maya Barfield, a Texas veterinarian, who is utilizing a $1.1 million BEDF loan closed this month to acquire an animal hospital and the commercial building in which it is located in Desoto, a suburb of Dallas. Dr. Barfield, who started her practice 20 years ago, is among just 2 percent of veterinarians in the U.S. who are Black.
Shifting perspectives, and forging ahead
The systemic barriers that have long kept Black business owners out of many markets make the opportunities available through the BEDF all the more important, Durr notes. “We have introduced our borrowers to new partners and, in some cases, provided more flexibility in our deals than traditional lenders would for construction loans,” she said.
Another driver of the BEDF’s success and an inspiration for its innovative products is the commitment of its investors. “As we structured the fund, one major challenge was the limited investment period of our investors and the long-term capital needed to effect change in our communities,” says Michelle Spivak, senior director of business development at LISC. "In the end, our investors understood the need and designed exceptions to their investment policy, and we focused on shorter time horizon than we usually do, allowing the BEDF a balance to achieve its investment and impact goals.”.
In all these ways, the BEDF is filling a critical financing void and tackling the historical inequities that reinforce disparities. “We’re excited about the opportunities for our borrowers, their employees, their vendors and their communities,” Ashton said. “By investing in entrepreneurs of color, we are laying the groundwork for vibrant, inclusive local economies.”
To learn more about the Black Economic Development Fund (BEDF) visit the BEDF website here.
To learn more about the fund manager of the Black Economic Development Fund (BEDF) visit the LISC SI website.