A publication of Great Lakes Capital Fund
Volume 21 | Issue 3 | 2014
Promises Made, Promises Kept. Syndicators and lenders will attest to our rock solid reputation.
For more information, contact our administrator at 248.833.0550
FEATURES
A SHARED MISSION..................................................... 6
HISTORY OF GLCF........................................................ 8
A PARTNERSHIP BEYOND HOUSING........................... 12
GLCF JOINS A LONGSTANDING PARTNERSHIP WITH NORTHEAST BANKS..................... 14
23
SUCCESS FACTORS IN NONPROFIT MERGERS............. 16
ADDED VALUE FOR OUR PARTNERS............................. 22
12
DEPARTMENTS
CEO’s Message.......................................................... 5 Making a Difference
advertiser index..................................................... 34
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Ginosko Development Company “Building a Brighter Future Today” Ginosko Development Company (GDC) is a real estate development company specializing in quality affordable housing creation and preservation. GDC, through its subsidiaries and joint ventures, engages in the acquisition, development, redevelopment, ownership, and operational oversight of multifamily properties primarily in the United States. Its activities include the acquisition and development of residential properties and undeveloped land reserves for development or sale. Ginosko is the Greek meaning for, “to understand completely” or “to know.” We at Ginosko Development Company, believe that a thorough understanding and comprehensive knowledge is the unbreakable foundation for any successful real estate venture. GDC’s communities are known for their careful planning, attention to detail and respect for the environment. GDC strives to lead in the evolution of real estate use in order to meet the market needs of a global economy.
41800 West 11 Mile Road, Suite 209 | Novi MI 48375 office 248.513.4900 | fax 248.513.4904
www.Ginosko.com
CEO’s MESSAGE GOVERNING BOARD Wendell Johns, Chair Former SVP, Fannie Mae Michael J. Taylor, Secretary/Treasurer PNC Bank Catherine A. Cawthon Fifth Third CDC Derrick K. Collins Chicago State University
MAKING A DIFFERENCE
Christine Hobbs Former Director, Freddie Mac Multifamily
BY MARK MCDANIEL, CEO/PRESIDENT GREAT LAKES CAPITAL FUND
William C. Perkins Wisconsin Partnership for Housing Development, Inc. James W. Stretz George K. Baum & Company Donald F. Tucker Don Tucker Consulting Paul J. Weaver Former SVP and Controller, FHLBI
CORPORATE OFFICERS Mark S. McDaniel, President & CEO Christopher C. Cox, CFO James L. Logue III, COO Jennifer A. Everhart, Executive Vice President Rick Laber, Executive Vice President Kevin Crawley, Executive Vice President This magazine is published quarterly by the Great Lakes Capital Fund (GLCF) to provide readers with information on affordable housing and economic and community development resources. This publication is copyrighted. The reproduction of Avenues to Affordability is prohibited by law. For additional copies, comments, concerns or to be added to the mailing list, please contact the Great Lakes Capital Fund office at 517.482.8555 or visit www.capfund.net. Editorial and Advertising Mary McDaniel, CMP • Alternative Solutions, LLC 517.333.8217 • mcdaniel64@comcast.net Graphic Design Melissa Travis • Ink Ideas Graphic Design, LLC 989.272.3101 • www.inkideasgraphicdesign.com Cover Design & Illustration Matthew McDaniel • Student matthewmcdaniel1294@gmail.com Lansing Headquarters 1118 S. Washington Avenue Lansing, MI 48910 Phone 517.482.8555 Detroit Office 1906 25th Street Detroit, MI 48216 Phone 313.841.3751 Illinois Office 225 West Washington, Suite 1350 C Chicago, IL 60606 Phone 708.781.9603 Indianapolis Office 320 N. Meridian, Suite 1011 Indianapolis, IN 46204 Phone 317.423.8880 Wisconsin Office 2 E. Mifflin Street, Suite 101 Madison, WI 53703 Phone 608.234.5291 Delaware Office 100 W. 10th Street, Suite 302 Wilmington, DE 19801
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hen I started with Great Lakes Capital Fund 21 years ago, I was excited to have the chance to be involved in something new and cutting edge. I loved the idea of being the creator of something that was unique which would solve a problem for financing affordable housing. After being in the development world for twelve years, I realized my real passion was to help people have better life circumstances. It could be having safe decent affordable housing, helping new developers reach their dream, or providing people with fulfilling work. I thought doing that in Michigan was a pretty heavy lift. I could have never imagined what everyone’s passion and commitment would bring. As I mentioned in my letter in the last edition of Avenues, we have had two history making events in the last year, the creation of Develop Michigan, Inc. (DMI) and the joining together of Delaware Community Investment Corporation (DCIC) and Great Lakes Capital Fund. We addressed DMI and the development finance organization model in the last magazine. This edition is dedicated to DCIC and how we joined forces. It is a story that is important to understand and that will give its readers an example and roadmap on how to approach issues of sustainability, efficient growth, and the importance of matching cultures. In Great Lakes Capital Fund’s early days I was envious of DCIC’s success and diversity. I used to tell the board that it is what we want to be when we grew up. And here we are today, together. This coming together will have great outcomes to the developers, investors, and residents in Delaware and surrounding states. Our hats are off to Jim Peffley and the entire staff of DCIC for seeing the possibilities and vision of our new relationship. The DCIC staff is as passionate and committed to the principles and mission of their work as our staff. We all have dedicated our lives to making a difference in this world for others.
5
PRESIDENT’S MESSAGE
a shared mission BY jim peffley, president DELAWARE COMMUNITY INVESTMENT CORPORATION
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e l come to the Delaware edition of Avenues to Affordability. It has been nearly a year since the Delaware Community Investment Corporation (DCIC) became part of the GLCF family, and we are excited about our successes to date and the opportunities that lie ahead. In this edition we will discuss why we joined together, the unique aspects of our shared business model, the value we can offer in our expanded market, as well as a few lessons learned for organizations that might consider a similar course. The decision on the part of DCIC and its shareholders to become part of GLCF was all about our shared mission. Of course there were many factors at play, but the driver of the decision, and the guiding principle of the “joining” process, was always the goal of expanding the positive impact of DCIC. I joined DCIC as President & CEO in late 2011, having spent the prior nine years at Fannie Mae and eleven years with the Delaware State Housing Authority (DSHA). My charge from the Board of Directors was to set DCIC on the correct course to thrive in the next phase of its life. DCIC and GLCF were established in the same year, with nearly identical missions. DCIC was unique in that it was established as a “shareholder owned” nonprofit by a group of banks that needed a conduit for CRA investment in Delaware. In the course of its twenty year life, DCIC thrived and had a major positive impact in Delaware, having provided equity and permanent debt on the vast majority of LIHTC deals closed in the state, and debt on a wide variety of community facilities such as charter schools, nonprofit medical facilities and theaters. DCIC has enriched the lives of many Delawareans. DCIC is an organization with an impressive history, and one that developed tremendous goodwill with its local partners. Its basic challenge was that the Delaware market was small, and 6
changes in the financial markets required partners with a level of infrastructure (back office functions such as investor reporting) that DCIC’s market could not realistically support. There were just not enough deals in Delaware to support the level of infrastructure DCIC would need to effectively provide capital to our local partners over the long term. It was clear that DCIC needed to expand geographically in order to thrive in the future. We developed a vision for the future that included geographic expansion and diversification of business lines. Fortunately, DCIC’s successful history provided the organization with a balance sheet that could support the growth that would be required to realize our vision. Although we had the resources to remain independent and grow, I knew that it would take years and require investments in the millions. In my prior career I had advised a number of nonprofits to consider mergers/partnerships in order to expand their mission impact, and in my mind I knew joining forces could very well be the right course of action. That being said, it is not an easy course of action for an organization with a rich independent history and the resources to remain independent. The decision had to be driven by the mission, putting aside other concerns. We looked at a variety of partnership options, but GLCF consistently rose to the top, for a number of reasons. First, GLCF shares our mission and focus. Second, they had already achieved the long-term vision that we had laid out for DCIC by taking an entrepreneurial approach to the mission over the years (see the article on page 8 for a description of their growth path). Third, they have a best-in-class team and infrastructure, with a diversified set of products and services (see the article on page 22 for a description of the expanded list of products and services that DCIC can offer. If we were to join forces with GLCF, DCIC could be in a position to quickly realize its long term vision and expand its impact in DE, saving years of time and millions of dollars. Finally, perhaps the most compelling reason that GLCF was such a good fit for us is that we shared the same philosophy and approach to the business and mission. Both organizations have a history of building true partnerships with customers and investors. This was very important to us, as GLCF had maintained the difficult balance of having a disciplined GREAT LAKES CAPITAL FUND
approach to the business, while at the same time building close alliances with its customers and investors. They, like DCIC, had acted as an extended team for their investors by understanding their investment needs and providing links to local opportunities. DCIC’s team has very strong local relationships that has enabled it to source investment opportunities, and to create new investment opportunities. Similarly, as it expanded geographically GLCF built a strong local presence in each market. Having local leaders on the team was a critical factor in maintaining the ability to act as a true partner for our customers. Our local “on the ground” presence adds value for our customers. We understand each deal and how it benefits our community. We will devote the time and resources to make a deal viable, we will work closely with our customers to make sure it becomes operational, and we are on the ground and available to help when issues arise, as they often do. This was a shared approach between GLCF and DCIC, and it is critical to our business model (see the article on page 15 that describes our approach to partnerships). In early February 2013, I had a preliminary conversation with Jim Logue (GLCF’s COO) about the possibility of joining forces. Both Jim and Mark McDaniel (GLCF’s CEO) approached the conversation as partners, with a focus on how we could do more together. In March, DCIC’s staff and Board began to actively negotiate with GLCF regarding joining forces. We closed the transaction and DCIC became part of the GLCF family in September, six months after we began discussions. The fact that we were able to negotiate and close the transaction in six months is remarkable considering the fact that both organizations are complex, with a large number of investors and stakeholders. DCIC needed to receive approval from a Board of Directors that had built an organization with a great track record of success, and we needed to receive approval from all of our founding investors. It was a demanding process that we were able to navigate in a relatively short period of time. The overwhelming value of the partnership, and the accommodating approach of our GLCF colleagues, resulted in unanimous approval of the transaction by our shareholding investors in September. DCIC’s investors had significant control over the organization under its prior structure, but unanimously released control because the benefit was compelling. If you are reading this article and are part of an organization that is considering a similar partnership, feel free to call me and I can provide you with additional insights on our experience and lessons learned. Also, I encourage you to read the piece from Wilder Research on page 16 that examines success factors for nonprofit mergers. Joining forces with GLCF allows DCIC to expand its community development work and offer greater value to our investors and customers. A description of the expanded value DCIC can now bring can be summarized as follows: • Greater number and variety of tools to facilitate/finance AVENUES TO AFFORDABILITY
Our Mission
The mission of the DCIC is to serve as a vehicle for community revitalization by taking direct action through the financing of, and investment in, housing and related activities designed to address the needs of low to moderate income persons and areas; to aggregate and coordinate the use of public and private resources to improve and expand community development throughout Delaware.
community development activity, including support of community development activity in the critical predevelopment stage, when financial resources are most scarce. We now have a variety of debt and equity options, and we have new services to offer local partners including title services, consulting, etc. • Greater organizational depth provides enhanced service for our investors, enables us to attract more capital, and will enable DCIC staff to focus on facilitating and expanding community development activity in the communities we serve. • Regional footprint – allows the organization to support our existing customers’ activity in neighboring states, and will provide us with the ability to serve new communities. • Enhanced ability to reinvest in our community through reinvestment of DCIC’s income into mission activities. The partnership is already bearing fruit in Delaware. We are working on a new LIHTC Equity Fund, which has experienced strong interest from investors and developers. We are using our new debt options to support local partners, such as predevelopment financing, FHA permanent loans, and loans to support important community facilities. In addition, we have expanded the DCIC team with experienced local leaders and we are actively engaged with local partners to help them realize their visions. We have begun to focus on the geographic expansion, and will be seeking to develop new partnership and to add value in new communities where there is a need for our products and services. It is an exciting time at the DCIC office, otherwise known as GLCF’s East Coast presence. Jim Peffley is the President of the Delaware Community Investment Corporation. He can be reached at 302-655-1420.
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GLCF HISTORY
the
beginning How a socially-minded entrepreneur and his pioneering nonprofit created an economic impact of over $2.7 billion and counting. Reprinted from Avenues to Affordability, Issue 1, 2013
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n Battle Creek, Michigan, a formerly homeless veteran finds welldeserved, permanent housing and is welcomed into the community, like family. He discovers a passion for cooking and gives back to that same community by teaching others the trade. In Chicago, Illinois, low-income parents are able to send their autistic sons and daughters to a school that offers the highest standards of care. The curriculum balances academic and functional skill development, providing a mix of behavioral, speech, music, occupational, and vocational therapies. This school, a lifeline, connects the families and their children to vital services needed to thrive, promoting the highest level of long-term functioning possible. In rural Oconto, Wisconsin, a paper mill (the area’s largest employer) avoids closing its doors, instead modernizing its production to yield products from 100% recycled fiber. A cutting edge closed-loop waste water system is installed and the locally-owned mill is projected to operate sustainably for at least 50 years. In Walkerton, Indiana, a neighborhood plagued by blight and crime is completely redeveloped with new infrastructure and beautiful rent-to-own homes offered to low-income families at lower costs than the previous dilapidated, substandard rentals. This project catalyzes further in8
vestment in the rural community. All of these exceptional projects may have remained wishful proposals without the dedication and expertise of the staff at Great Lakes Capital Fund (GLCF) and its many vital partners. How did a socially-minded entrepreneur and his pioneering nonprofit create an economic impact of over $2.7 billion and counting? How did this organization become the paradigm for financing community development activities in the Midwest and other distressed parts of the country? The story begins in the 80’s, a crucial pivot point for housing in the U.S. When the Tax Reform Act of 1986 established the Low Income Housing Tax Credit (Housing Credit) program, its primary purpose was to produce affordable housing in an efficient and market-driven manner. It provided a modern alternative to the failed public housing policies of prior years, better aligning social equity and economic efficiency. Today, the Housing Credit program is commonly accepted as the most successful housing program in our nation’s history. Over 2.4 million apartments for low-income families and individuals have been developed since the Housing Credit was created, according to latest estimates by the National Council of State and Housing Agencies (NCSHA). Despite the program’s success, the U.S.
faces an alarming trend. Studies by Harvard University’s Joint Center for Housing Studies (JCHS) in 2011 and 2013 show that America’s renter households have become increasingly burdened by housing costs over the past several decades. In 2011, nearly half of all renter households spent more than 30 percent of their household income on housing costs (rent and utilities). By generally-accepted standards for housing affordability, this group is moderately cost burdened and 28 percent of these renter households are severely-burdened, with over 50 percent of their incomes consumed by rent and utilities. In contrast to proportions of housing affordability in 1960 and 2000, these figures highlight a clear problem in rental housing affordability. When households spend such substantial amounts of their incomes on housing, their ability to afford basics such as food, clothing, medical care or transportation are severely impaired. Investing in savings and other tools for long-term financial solvency is pushed even further out of reach. The local economy suffers as well, as residents have no extra wealth to spread to local businesses. As such, affordable housing is integral in empowering people to escape poverty and in stabilizing neighborhoods. Against this backdrop in 1992, the Michigan Capital Fund for Housing GREAT LAKES CAPITAL FUND
(MCFH) was created in partnership with the Michigan State Housing Development Authority (MSHDA) to meet the immediate and critical need for affordable housing in Michigan. Nationally-based equity funds were active in Michigan but did not adequately meet the needs present, with funds being largely unavailable for smaller scale developments and projects with nonprofit sponsors or neighborhood housing organizations. MCFH rose to meet those needs, expanding the use of the Housing Credit to underserved markets. Tasked to lead the way for the newly created 501(c)(3) nonprofit organization was Mark S. McDaniel, BSURP, a seasoned real estate professional with a history of dedication to serving communities in his home state. Mentored by MSHDA’s executive director, Terrence Duvernay, and in collaboration with current COO, Jim Logue, the dream of MCFH was brought to fruition and operations began in a small office space in Lansing in 1993. MCFH Fund I, closed in 1995, channeled $10 million of investor equity into five affordable multi-family developments. Following the successful execution of its first Housing Credit fund, MCFH began to grow and closed an additional Housing Credit fund annually thereafter. The newly-formed nonprofit had taken off and was able to repay the initial $500,000 grant for operations provided by MSHDA less than three years after opening its doors. In 2002, MCFH partnered with local real estate professionals in Indiana to recreate the successes achieved in Michigan in this new market. Indiana Capital Fund for Housing (ICFH) was born. The first ICFH fund financed eleven affordable communities utilizing $26 million of investor equity. Soon after, MCFH and ICFH merged to create what is now known as Great Lakes Capital Fund (GLCF). As GLCF’s reputation and expertise grew, so did the demand for its services, and in 2003 a new subsidiary corporation was formed – Capital Fund Services (CFS). GLCF was well known as the Housing AVENUES TO AFFORDABILITY
Credit syndicator of the Midwest, although its services and staff expertise transcended the traditional syndicator label. By 2005, the company had fully embraced its position as ”more than a syndicator” and began managing a New Markets Tax Credit (NMTC) allocation of $60 million on behalf of the Michigan Magnet Fund (MMF). GLCF expanded into the state of Wisconsin to meet the demand for affordable housing and began offering debt products for affordable developments through CFS. GLCF had effectively positioned itself as a “one-stop shopping” resource for its affordable housing development partners, strengthening the Housing Credit program’s impact. In 2006, the company recruited some of the best title professionals in the industry and Capital Fund Title Services began operations. That same year, the nonprofit achieved another major milestone: It surpassed $1
billion in economic impact. The following year, CFS received a CDFI designation and gained access to an even broader pool of capital to finance community development activities in its footprint. Since then, GLCF’s momentum has only continued to build. Its staff has grown to over 50 employees located in five different offices. GLCF has extended over $1.7 million in grants. Its Lending portfolio has surpassed $87 million in debt. Its Housing Credit portfolio now includes 550 developments, which provide more than 33,000 affordable rental homes across the states of Michigan, Indiana, Wisconsin, Illinois, New York, Mississippi and Minnesota (in order of market expansion). Of these developments, approximately 57 percent serve families, 32 percent serve seniors and the remaining 11 percent serve special needs populations. GLCF currently manages 41 Housing Credit funds and
BUILDING MICHIGAN
FOR 75 YEARS. C E L E B R AT I N G YEARS
With affordable multi-unit projects from Grand Rapids to the U.P., Wolverine has been building in Michigan for 75 years. Here’s to 75 more.
9
GLCF HISTORY
25 NMTC assets. The success achieved wouldn’t have occurred without the staff. The team hails from a variety of fields: accounting, finance, real estate, construction management, property management, urban planning and public administration. Their division of labor is unique, with Asset Managers specializing in a particular phase of the asset’s life (construction/ lease up, stabilization, troubled assets, and disposition). Compliance associated with program guidelines is monitored by a professional Compliance group, separate from the Asset Management team to allow asset managers time to fully analyze and manage their asset portfolios. GLCF has held itself to top standards for Fund and Asset Management, and has never experienced a Housing Credit recapture due to foreclosure. Protecting investors and minimizing any potential exposure they
may have is of utmost importance. Because of that, GLCF maintains a greater level of reserves than typical syndicators and has never had to call capital from investors above their original commitment amount to save troubled assets. GLCF has several investors that have invested since MCFH Fund I in 1995, a testimony to its track record in what have been considered as some of the most “difficult” markets in the nation. GLCF has consistently upheld 100% on-time investor reporting and has met or exceeded its targeted rate of return for each fund since inception, ensuring that investor promises have been kept while invaluable social returns are delivered to the communities in which investments are made. Although the company has evolved and expanded, its core remains unchanged. GLCF is and always has been tremendously adept at raising and deploying capital into real estate partnerships.
Our timely, economical and business-minded professionals have been providing environmental due diligence, site investigation, and Brownfield consulting services to our clients for over 20 years. • Phase I & II Environmental Site Assessments (ESAs) • Baseline Environmental Assessment (BEA) and Due Care consulting • Hazardous Materials Management and Consulting • National Environmental Protection Act (NEPA) Compliance • ASTM E-2018 Property Condition Assessments (PCAs) • Low-Income Housing Tax Credit (LIHTC) Capital Needs Assessments (CNAs) • Fannie Mae, Freddie Mac Physical Needs Assessments (PNAs) • HUD Project Capital Needs Assessments (PCNAs) • HUD RAD Physical Needs Assessments (RPCAs) • HUD RAD Green Physical Needs Assessments (GPNAs)
Call 800-313-2966 or visit www.pmenv.com
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At the heart of this is the will to serve people and to invest in opportunities for individuals, families and communities to thrive. Building on its strengths, and once again responding to market needs, GLCF, in partnership with Michigan Economic Development Corporation (MEDC) is embarking on a new venture: Develop Michigan (DMI). The entity is a Development Finance Organization (DFO) that provides additional sources of capital for large-scale development projects that promote economic growth and job creation in the state of Michigan. Although commercial real estate is a critical economic driver, securing financing through conventional sources is difficult at best in current times. DMI strives to provide this critical capital by providing Senior Debt Finance and Mezzanine Capital to developers to make high-impact projects viable, while delivering risk-adjusted market returns to investors. Some of the types of projects targeted include housing, mixed-use developments, office, industrial and retail. Twenty years ago, Mark McDaniel couldn’t have anticipated where GLCF is today. He couldn’t have known his team would create an economic impact in excess of $2.7 billion (and counting). Today, GLCF is not only a model for community development financing in the Midwest. Organizations from across the country have recruited GLCF to guide them on engaging in the same types of double- and triple-bottom line activities. With wages stagnating, people facing long-term unemployment, the demand for affordable housing rapidly increasing, and public resources dwindling, the need for the services GLCF provides has never been greater. With the broad range of economic development tools at its disposal and a most impressive track record, GLCF is well positioned to lead the charge in creating innovative ways to fund community economic development.
GREAT LAKES CAPITAL FUND
MUTUAL MERGER
A PA RTNERS H IP
BEYOND HOUSING BY SUSAN FRANK, VICE PRESIDENT & MANAGING DIRECTOR, BUSINESS DEVELOPMENT DELAWARE COMMUNITY INVESTMENT CORPORATION
DCIC has always embraced a business model that relies on partnerships that can only be achieved by being part of a community. Throughout our 20-year history, DCIC has demonstrated its deep commitment to Delaware by supporting a wide range of housing and community development activities touching all parts of the state, and by being willing to support partners as they grow and adapt. Our decision to join with Great Lakes Capital Fund centered not only on our mutual desire to expand our mission, but our similar approach to working in our markets. A cornerstone of GLCF’s approach has been to grow only in areas where there is a deep knowledge of the market and those who live and work there. As DCIC and GLCF mature as an organization and
work to expand our products and impact, maintaining a local presence and deep relationships with our partners will remain the foundation of our strategy. Our shared strategy is unique when compared with other organizations that attempt to provide capital without a local presence. In 2014, as we launch new equity and loan funds to support affordable housing development, acquisition and preservation, it is a given that we must have competitive products and a swift execution. What makes us unique is that we are committed to the communities we serve, and are true partners for the long term. Whether we are joining with a new nonprofit or one of our largest for profit developers, our goal is to develop a common vision for the property and its residents, and meet or exceed the objectives of all on the lending and development teams. At the early stages of a project, we will help
with strategy, deal structuring and predevelopment funding. During construction and as a transaction progresses, we work to quickly resolve unforeseen issues to avoid delays. If a property experiences difficulty, we remain flexible and will do what it takes achieve stabilization. Finally, we are a committed partner at the end of the tax credit compliance period when investors exit the transaction. We have a history of seeking a reasonable approach to dispositions and view the exit as part of a long-term partnership with the developer. Our commitment to the community and our partners goes beyond just housing. Our local presence enables us to leverage our resources and knowledge to improve neighborhoods and support community facilities. DCIC has supported financing for charter schools, community centers, day care facilities, medical centers and arts venues in underserved communities, demonstrating
our ability to respond to needs from a broad range of partners. Currently, we are working in some of Delaware’s poorest neighborhoods to help move community-based planning efforts to the next stage of action and address housing, workforce development, education and social service needs. Similarly, GLCF has reinvested in the communities they serve by providing critical support for non-housing activities. GLCF has provided leadership training and mentorship to many individuals, including residents of the communities they helped create. Newly launched programs provide exciting opportunities and require a heightened level of collaboration. We have joined municipal leaders, the private sector and other nonprofits to support the implementation of the State of Delaware’s Downtown Development Districts Act of 2014, which was enacted to create healthy and vibrant downtowns by spurring private capital investment, stimulating job growth, improving housing conditions and strengthening neighborhoods. In Michigan, Develop Michigan, Inc. was recently launched by GLCF and many local partners to respond to the void in economic development financing and spur investment in impactful real estate projects, particularly those in low-income communities. We are reviewing ways to replicate this innovative program here in Delaware, particularly in support of downtown areas. Partnership also means being willing to support others as they focus on their own growth. The DCIC – GLCF merger had a lot to do with capacity building – it gave DCIC access to best-in-class infrastructure and diversified products and services, and GLCF access to people and market knowledge in the Mid-Atlantic region. Recognizing that in today’s competitive marketplace we all need to continually learn and improve our skills, we are reinvigorating efforts to build the strength of our partners, as well as our own staff. As a result of the merger, a new Delaware Strategic Fund was created to support important, but challenging, new ventures initiated by our partAVENUES TO AFFORDABILITY
Our local presence enables us to leverage our resources and knowledge to improve neighborhoods and support community facilities. ners. A Capacity Building Initiative is being developed that will focus resources on building the technical skills of nonprofits and other local partners serving people or communities in need. We are working with a Wilmington-based CDC to develop and implement a funding strategy that will enable the CDC to hire staff to manage a comprehensive, community-based revitalization effort on the Eastside of Wilmington. Significant support is provided on an ongoing basis to the Delaware Housing Coalition as it implements a new strategic plan to better galvanize support for our neediest citizens. Finally, a Mid-Atlantic version of
GLCF’s “University of Affordable Housing” is under development for 2015 to supplement training activities already supported by DCIC. This annual education conference covers a wide array of topics including Year 15, market analysis, compliance, management, loan execution, product training and marketing. The partnerships we have formed are the key to the success we have achieved, as well as our future growth. We hope our partners consider DCIC/GLCF an extension of their team as they set their strategy, and look forward to working together for the next 20 years.
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DCIC HISTORY
GLCF JOINS A LONGSTANDING PARTNERSHIP with NORTHEAST BANKS BY CHRISTINA STANLEY, VICE PRESIDENT, ORIGINATION AND OPERATIONS DELAWARE COMMUNITY INVESTMENT CORPORATION
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y joining with the Delaware Community Investment Corporation (DCIC), GLCF became part of a unique and longstanding community investment partnership between banks active in Delaware and throughout the northeast region. The combined organization has an opportunity to expand this partnership to include banks in Maryland, Pennsylvania and New Jersey. The roots of DCIC run deep with a history of collaboration and innovation. Incorporated in 1989 through the joint efforts of representatives of several local financial institutions, housing advocates and government officials to address the affordable housing needs in Delaware, DCIC’s existence, like other fundamental community development initiatives, is attributable to the Community Reinvestment Act of 1977 and the Tax Reform Act of 1986. DCIC originally operated as an informal loan pool with participating banks performing the underwriting and lending functions until it was reconstituted in 1993 as a multi-bank community development corporation. Initially, DCIC consisted of six banks committing $5.3 million to a loan pool. The initial members were full service banks able to provide the resources needed on an ad hoc basis to address
1977 The Community Reinvestment Act passed by Congress
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1986 Low Income Housing Tax Credit established by the Tax Reform Act of 1986
1989 Delaware Community Investment Corporation incorporated CRA Act revised
the low demand for capital. As the demands for long term capital increased with the broader utilization of the Low Income Housing Tax Credit program, the initial participants explored ways to expand its capacity to serve the community. During DCIC’s infancy, revisions to the Community Reinvestment Act of 1977 were initiated. With the increased CRA demands, several Delaware banks established the Delaware Community Reinvestment Initiative Consortium (DCRIC) to determine the best collaborative method to address Community Reinvestment Act obligations and to provide investment opportunities for limited purpose banks chartered in Delaware. Under the initial DCIC informal pool structure, limited purpose banks were unable to participate. In 1992, the members of DCRIC joined DCIC under its existing informal loan pool structure with the mutual understanding that the organization would need to change in order to respond to the growing capital needs of the community while providing avenues for Delaware’s diverse banking industry. In order to facilitate the development of a centralized coordinating entity, the organization began evaluating various organizational structures nationally. Through this collaboration, the group reorganized DCIC
1990
1993
1994
Delaware Community Reinvestment Initiative Consortium (DCRIC) and Delaware Community Investment Corporation (DCIC) collaborated to reconstitute DCIC
DCIC was restructured as a multi-bank CDC
1st Equity Fund formed
GREAT LAKES CAPITAL FUND
in 1993 as a multibank community development corporation to provide effective, efficient, and flexible financing for affordable housing. The restructuring of DCIC resulted in an innovative organization driven by collaboration. This new partnership allowed for the building upon DCIC’s record of success while facilitating expansion through the diversification of the DCIC programs to provide for investment in Low Income Housing Tax Credits, lending for community facilities, funding for special needs housing, and financing for mixed-use development in decaying urban areas. As a shared risk model, DCIC was able to offer products and services that financial institutions typically could not do on their own either due to regulations or operational structures. Furthermore, this activity allowed for the financial institutions to meet their CRA requirements in an effective and efficient manner. DCIC provided the opportunity for all types of financial institutions to participate in a collective manner to strengthen the community while providing qualifying CRA opportunities. Throughout its history, DCIC had specialized in community development lending and investment. DCIC became skilled in facilitating these activities. The organizational strength was attributable to the commitment and continued support of its partners. Over the first 25 years of its life, DCIC has invested $450 million to strengthen Delaware’s communities. With the changing financial institution landscape, DCIC focused on identifying improved and resourceful ways to maximize the value it could provide its member banks and while providing attractive capital to its customers. In the spirit of collaboration shown since its infancy, DCIC sought partnership with GLCF in 2013 in order to meet these needs. Like the initial reconstitution of DCIC, joining forces with GLCF has allowed DCIC to build upon the past while expanding its reach and continuing to promote collaboration. In GLCF, DCIC found a partner that shares its collaborative approach to working with banks and investors. In fact, GLCF had used DCIC as its model during its initial growth
1995
1996
1999
DCIC engages with the National Association of State and Local Equity Funds (NASLEF)
1st Community Investment Loan Fund
DCIC certified as a Community Development Financial Institution (CDFI)
AVENUES TO AFFORDABILITY
1st Urban Renewal Loan Fund
“By working with DCIC, WSFS Bank has been able to demonstrate responsiveness to the credit needs of our community by participating in the offer of innovative and flexible products and services to provide affordable housing and economic revitalization throughout Delaware.” — Michael Skipper, VP, Community Development, WSFS Bank period, and has formed a number of community bank tax credit funds in midwestern states. Certified as Community Development Financial Institution (CDFI) through the CDFI Fund, part of the US Department of Treasury, since 1999, DCIC continues to serve as a vehicle for community development while maintaining accountability to its target market. With the added strength of GLCF, DCIC looks forward to continuing to be on the ground level working closely with its partners to address community needs and participation in CRA qualified community development lending and investment, and expanding this collaborative approach to include banks in Maryland, Pennsylvania and New Jersey. CHRISTINA STANLEY IS THE VICE PRESIDENT OF ORIGINATION AND OPERATIONS FOR THE DELAWARE COMMUNITY INVESTMENT CORPORATION. SHE CAN BE REACHED AT 302-655-1420.
2002 New Markets Tax Credit Program allocation
2013
2014
DCIC recertified as a CDFI
DCIC expanded its programs and services while addressing the CRA needs of its financial partners
DCIC joinED forces with Great Lakes Capital Fund (GLCF)
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STATISTICS
SUCCESS FACTORS IN
NONPROFIT MERGERS BY BRIAN PITTMAN, RESEARCH SCIENTIST WILDER RESEARCH, AMHERST H. WILDER FOUNDATION
J
oining two or more nonprofit organizations through merger is a complex and sometimes arduous process that requires the successful negotiation of a wide range of relationships and sensitivities, as well as clarity about the ultimate social good that one is striving to achieve by combining services. In 2012, Wilder Research released the report Success Factors in Nonprofit Mergers after three years of research into why nonprofit organizations merge and what makes those mergers successful. After conducting an extensive literature review to help operationalize known success factors related to nonprofit mergers, Wilder Research conducted more than 200 interviews with stakeholders connected to 41 mergers in the state of Minnesota between January 1999 and June 2010. The findings from this research are extensive and unique in the field of nonprofit mergers. This article provides a glimpse into those findings, including why nonprofits merge, what makes those mergers successful, and what happens after mergers. Why do nonprofits merge? Understanding the reasons behind mergers is a fundamental step in understanding what makes them successful. The reasons and motivations stakeholders describe for pursuing a merger for their
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organization give essential insights into how mergers come to be, how they are conducted, and their ultimate potential for success. a combination of strategic and survival motivations Wilder’s research shows that, at the most basic level, nonprofits generally have two motivations to merge. While there is often nuance in these motivations, nonprofit organizations usually pursue mergers for a mix of reasons related to improving their strategic position and ensuring their long-term organizational survival. Strategically, organizations in the study pursued the mergers to increase or enhance service delivery (93%), because the organization had a strategic vision that included merger (66%), or to improve what was already regarded as a reasonably solid financial status (61%). In terms of survival, motivations for merger included an interest in increasing long-term financial viability or solvency for at least one pre-merger organization (93%), a chance to save services that would otherwise be lost (75%), or a way to avoid imminent financial crisis (37%). Overall, in about half of the mergers studied, the decision to merge was balanced between these survival and strategy motivations; relatively few mergers could
be classified as having strategy-only or survival-only motivations. executive director and board ARE crucial in the pursuit The presence of a leader committed to merger or the recent departure or retirement of an executive director can significantly influence an organization’s approach to merger. In 95 percent of the mergers studied, there was evidence that if not for one of the executive directors, the merger would never have happened. In addition, for 80 percent of the mergers, at least one of the pre-merger organizations had an executive who left recently or was preparing to leave soon (through transitions or retirements). Typically, an organization’s board of directors also has significant influence on both the decision to move forward with merger planning and with the approach that will best suit the organization. In 61 percent of the mergers studied, having a board member from at least one of the pre-merger organizations pushing for merger was a primary reason for moving forward. In 46 percent of the mergers, a board member was identified as a “champion” of the merger, that is to say they provided the catalyst or a spark to make sure the merger happened. In 78 percent of the mergers the decision to merge had
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strong and broad support from board members. Desire to expand can also drive merger While not necessarily a core motivation for why nonprofit organizations pursue merger, the desire to reach new markets, expand services, or expand their donor base were reported as primary goals for the merger in many of the pre-merger organizations. Just over half (56%) of the mergers sought to expand services to new markets or populations. About one-quarter (29%) sought to expand the types of services offered to consumers. Forty-one percent of mergers reported the merger was motivated in part by a desire to expand their donor base.
How are nonprofit mergers conducted? Mergers involve a variety of tasks that typically include: establishing goals; identifying organizational participants; pursuing due diligence related to fiscal, legal, and administrative matters; engaging consultants and stakeholders; and integrating organizational structures or systems. This study looked at the extent to which each of these tasks is considered and completed in pursuing the goal of a successful merger, and results clearly show that this is most often a structured and systematic process. For example, the majority of mergers have an agreed-upon and clearly defined process (78%) and have specified one or more outcome goals related to the merger (63%). Furthermore, four out of five of the mergers
studied were completed according to a time frame set forth in the planning process. Due diligence is important The concept of due diligence is a vital aspect of the merger process and the phrase appears often in the language of those who plan and execute mergers. Due diligence in this context includes the identification or mitigation of risk in an attempt to increase the potential for success, and includes opportunities for organizations to examine financial and legal information about each other (76% of mergers did this), and giving leaders time to develop relationships and negotiate the merger process (68%). Most mergers (78%) pointed to financial due diligence as one of the most important aspects of
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STATISTICS
the merger process, and as one nonprofit executive noted, “The process of ‘due diligence’ set up a really strong relationship among the leaders, which facilitated a relationship of trust and understanding.” Having external expertise and perspective is helpful Almost all (85%) of the mergers studied enlisted the help of an external consultant to assist in guiding the merger process, and much of the time these consultants were involved in functions that were instrumental in the completion of the merger. In more than half (57%) of the mergers the consultant performed tasks that the organization’s staff or board members could not have done on their own. Further showing the value of consultation in the merger process, stakeholders from half of the mergers that included a con-
sultant reported that the consultant was central to the success of the merger, and stakeholders from almost all of the mergers (96%) would involve a consultant if they were involved in another merger. In general, consultants were thought to have three distinct and valuable roles in the process: facilitation of processes, expertise and knowledge, and an external third party perspective. Consultants especially added value as experts, including the specialized knowledge they could bring regarding organizational structure and function, finances, and legal matters. Consultants were also seen to have value as facilitators and third-party observers who could take a more objective view of the issues being faced by the organizations considering a merger. In a few cases, consultants served in a more specialized role, serving as an
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interim executive director. In these circumstances, consultants become leaders within the organization to manage change, assess current issues, and engage boards in considering a range of possible actions, including restructuring, reorganization, and merger. Overall, it appears that consultants help to steady the process of merger because of the experience they bring and the reassurances that they can give during difficult transitions. They also appear to be important in helping organizations take the appropriate steps at the appropriate times, and in avoiding or at least mitigating pitfalls that can come from limited experience with such major structural changes. Governance and operations receive more attention than culture As organizations engage in the merging process, they tend to put considerably more emphasis on integrating the governance and operations of the organizations than on integrating the organizational cultures. In fact, almost all of the mergers had a plan for how the board and governance structure would be affected by the merger (93%) and how the operations of the two organizations would be combined (90%), but relatively few (17%) had a plan to integrate the cultures of the merging organizations. Therefore, it is no surprise that almost two-thirds (63%) of organizations said there were morale issues in the months following the merger that caused serious problems or distracted staff from the business of making the new organization successful. Upon reflection, respondents often felt that it would have been useful to pay more attention to culture and to involve more staff below the executive leadership level in the merging process.
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Involving organizational stakeholders is central to the merger process Overall, the importance of involving key organizational stakeholders such as organization executives, board members, leadership and administrative staff, clients, funders, and the public-at-large is crucial to the success of any merger process. Most (88%) mergers had at least one executive from the pre-merger organizations who was committed to strategic restructuring. In open-ended comments, stakeholders for 22 mergers said that the merger would likely not have happened without the commitment of the boards of directors. However, while non-administrative staff members were kept informed about the progress of merger (78%), they were not usually included in merger planning and processes (29%). Finally, in about onequarter of the mergers funders had the opportunity to provide input or received regular updates on the merger. What makes a merger successful? The primary goal of Wilder’s research was to increase the understanding of what makes mergers successful and identify factors that lead to that success. While it is often expected that mergers can strengthen financial and organizational stability, improve the image of an organization, and preserve or expand services, not all mergers resulted in improvements to these success metrics. The study was, however, able to establish clear relationships between a variety of aspects of the merger process and the health and well-being of the post-merger organization. A summary of these relationships is presented below. Details regarding how the analyses were conducted can be found in the full report (www.wilder.org/ redirects/NonprofitMergers.html).
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STATISTICS
Executive leadership support strengthens organizations The research finds that there is a clear relationship between the presence of strong working relationships among executives prior to a merger and the preservation of services following a merger. A strong working relationship among executives prior to the merger is also positively associated with greater financial stability and improved post-merger integration when the merger is complete. When an executive is a champion for the merger there is a greater likelihood that the organization’s image, reputation, or level of public support will improve following the merger. These results suggest that attention should be paid to the executive leadership participation in a merger and that funders or other stakeholders must take the presence or absence of these leadership characteristics into account when considering how and when to best support the pursuit of a merger. Board involvement improves the post-merger image of the organization When the board of each pre-merger organization was integrally involved in the merger process, stakeholders from the merged entity were more likely to report that the organization had improved its image, reputation, or public support in the three years following the merger. Openended comments indicate that boards are seldom unanimous in their willingness to consider merger and it is often the financial position of the organization that motivates board members to urge consideration of such an option. Therefore, it may be useful to educate board members with evidence-based information regarding nonprofit mergers so that they will be informed by the best available knowledge and resources.
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Shared vision of benefits improves cultural integration When organizations were able to identify potential mutual gains that could be realized in the merger there was greater likelihood that staff would integrate well into the new organization and be better aligned with the needs of the new organization and those whom it intended to serve. This finding suggests that similarity of (though not necessarily identical) focus is likely to be important, but that it is not the only consideration when looking at the compatibility of two or more agencies as potential merger partners. Involvement of staff improves outcomes One finding of particular interest is the fact that the communication with, buy-in from, and involvement of non-administrative staff prior to merger are all associated with a significant number of positive outcomes following merger. Specifically, financial stability, service quality or expansion, organizational reputation, and the alignment of staffing with client needs, are all positively associated with one or more elements of communication with and involvement of non-administrative staff. This is a compelling finding because most often it is the executive leadership and board members who are most deeply involved in the actual planning and execution of a merger, and merger processes often focus more on operational or structural integration than cultural integration. Nonetheless, this study indicates that careful attention to how other staff members are informed, involved, and brought along during the process of a merger is likely to yield significant beneficial results when the merger is concluded. Funder involvement plays key roles in important outcomes Similar to the findings regarding the involvement of non-administrative staff,
funder involvement is also positively associated with important beneficial merger outcomes. The participation of funders is one of the few measures that predicted the preservation of services following a merger. Funder involvement is also associated with improved financial stability and the better alignment of staff with the needs of the organization and its clients. Based on this, it is safe to conclude that funder involvement, particularly input into the plan and process of merger, can result in outcomes that would be widely regarded as beneficial to the community, including organizational stability and service preservation. What does this all mean? Merger is among the most extreme and integrative forms of organizational transformation and it can have many consequences for the nonprofit organizations involved. Nonetheless, this type of transformation holds great potential and promise as a means for nonprofits to excel in their missions and serve their communities. This research shows that, although merger is a lengthy and intensive process, significant organizational benefits and community good can be achieved through the careful consideration and exploration of merger. However, to realize these benefits, organizations that are pursuing merger need to be mindful of the stakeholders involved and the processes used when conducting the merger. The content in this article is derived from a full research report, Success Factors in Nonprofit Mergers, which was the result of a joint effort between Wilder Research and MAP for Nonprofits. To see the full report visit www. wilderreserch.org. Financial support for the project was provided by Greater Twin Cities United Way, Wells Fargo Foundation Minnesota, The Huss Foundation, and the Jay & Rose Phillips Family Foundation of Minnesota.
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DCIC’s partnership with GLCF will benefit our customers and partners by providing access to a wider array of products and services that can be employed throughout the project life cycle. Bringing these new capabilities to the Delaware market was one of the main drivers of the decision by DCIC to join GLCF. The package of products and services available have been uniquely and specifically developed by GLCF to equip community leaders, developers, owners, and property management groups with the tools needed to maximize their impact in GLCF’s target markets. As an extension of the GLCF team, DCIC is able to bring these tools to our local partners in the Mid-Atlantic region. Below are additional resources now available to our partners.
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Lending Products Over the past 20 years, DCIC has provided support for over 150 affordable housing and community development projects through our Housing Loan Funds, Equity Funds, Urban Renewal Loan Funds, and Community Investment Loan Funds. We have retained our prior capabilities, but now offer additional tools that can be used to facilitate various stages of development such as: • Predevelopment lending for Low Income Housing Tax Credit projects – Lending for non-LIHTC opportunities will be considered on a case by case basis. We will take risk early in the life cycle of worthwhile transactions. • Acquisition lending for individual properties or portfolios to fund real estate procurement – We can help our partners acquire and hold properties while they work to imple-
•
•
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ment a development or long-term financing plan. Additional permanent loan financing options – In addition to the DCIC Housing Loan Fund, we are also offering the following loan products to accommodate long term financing needs where our Housing Loan Fund executions do not work. Fannie Mae loans – GLCF’s lending subsidiary, Capital Fund Services, is an approved Fannie Mae lender and can provide a variety of loan products to finance affordable housing transactions. Federal Housing Administration (FHA) loans – Capital Fund Services has an alliance with a national FHA originator/servicer, and we have the ability to offer our customers FHA multifamily financing options. Private investor funded loans –
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Capital Fund Services also can originate affordable housing loans for a major social purpose investor. Tax Credit Investing DCIC will continue to be an investor in Low Income Housing Tax Credits, and other tax credits. GLCF’s best-in-class tax credit investing team has enabled DCIC to provide added value to our investors, which results in more attractive capital for our customers. Benefits to investors include a deeper underwriting and modeling team, dedicated compliance monitoring staff, excellent investor reporting with the ability to meet the unique needs of individual investors. Both our investors and developer customers will benefit from an experienced team that can manage the disposition process at the end of the LIHTC compliance period. New Market Tax Credits (NMTC) GLCF brings to the table a dedicated and experienced NMTC team. To date GLCF has invested $74 million in development projects through the NMTC program and has been awarded $35 million in the 2014 allocation. In addition, we manage a large NMTC portfolio for a major investor. Service footprint for GLCF’s NMTC entity will be expanded to include Delaware and surrounding states.
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Additional Services and Opportunities • Building Blocks (BB) is a non-profit subsidiary of GLCF that was established to help our partners preserve affordable housing, and create new housing. BB partners with other affordable housing developers to execute transactions that have financial resource constraints or to prevent affordable housing conversion to market rate. • Capital Fund Title Services (CFTS) provides escrow, insurance, and other services related to real estate transactions. CFTS is lead by a staff AVENUES TO AFFORDABILITY
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with over 25 years of experience in the title services industry. CFTS was established by GLCF in response to a series of challenging closings due to poor title services. By establishing CFTS, we have been able to ensure a smooth closing process. • Consulting Services and technical assistance to developer and sponsors on: o Planning Facilitation (strategic plans, community plans, neighborhood revitalization plans) o Resource Development (LIHTC allocation applications, financial packaging) o Housing Development (site selection and land control, project underwriting feasibility, construction management, leasing and compliance asset management) o LIHTC and NMTC Property Management (asset management services, compliance services) • Conferences and workshops with a rich and informative agenda focusing on the examination of current industry issues and enhancement of the skills and expertise of industry practitioners. For example, GLCF’s University of Affordable Housing two day conference, lead by industry experts, offers a comprehensive agenda including topics such as Year 15, the Rental Assistance Demonstration program, loan execution, property maintenance troubleshooting and repair, board oversight and governance, and compliance. The University of Affordable Housing provides panels sessions that are beneficial to developers/owners, property management, maintenance, asset managers, bankers, and more. GLCF will be providing similar educational programs in the Delaware area and is planning a one day marketing/maintenance program for your property managers and maintenance personnel.
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ADVERTISER INDEX Associated Management Company...........................................19
McCartney & Company, P.C.....................................................21
Blystone & Bailey.....................................................................23
Medallion Management, Inc.....................................................17
Chesapeake Community Advisors, Inc.....................................23
MHT Housing, Inc.....................................................................2
Clark Hill.................................................................................24
Michigan State Housing Development Authority......................28
Community Economic Development Association of Michigan......17
O’Brien Construction Company, Inc.........................................11
Dauby O’Conner & Zaleski......................................................24
Occupancy Solutions................................................................21
Fourmidable.............................................................................27
Plante Moran............................................................................19
G. Fisher Construction.............................................................18
PM Environmental...................................................................10
Ginosko Development Company................................................ 4
Property Management Association of Michigan........................21
KMG Prestige...........................................................................19
Rohde Construction.................................................................25
Loomis, Ewert, Parsley, Davis & Gotting, P.C............................26
Vogt Santer Insights..................................................................17
Love Funding...........................................................................13
Wolverine Building Group.......................................................... 9
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