West L.A. Firm Helps Take Stakes in Communities

0

When it opens at the end of the year, the L.A. Job Corps Center of the YWCA of Greater Los Angeles will provide housing, meals, job training and other social services for hundreds of at-risk youth around downtown Los Angeles.

That may be easy compared to the contortions the non-profit went through to get its $77 million building financed.

The seven-story, 154,000-square-foot facility faced escalating construction costs, a tight federal budget and an uncertain economy – all of which prompted the YWCA to seek some creative financing through a local company called Strategic Development Solutions.

The West L.A. financing and consulting firm spent three years cobbling together some $12 million from foundations and public sources to help complete the project.

“Most of the projects we help fund are extremely complex. They don’t come together quickly, often are private-public partnerships and nearly always have more than typical risk,” said founder Debbie La Franchi, who worked in the administration of Los Angeles Mayor Richard Riordan to bring economic development to South Los Angeles.

SDS helps non-profits and businesses create unusual financing packages for their projects. The money can come from government or foundation grants, as well as specialized private investor funds that seek to promote economic opportunity in distressed communities or to improve the environment while giving investors a reasonable return.

At a time when traditional capital project financing for non-profits continues to be in short supply, the expertise of La Franchi and her 12-person team is in demand.

Recent projects range from rehabbing a historic building in Portland, Ore., into the headquarters for a humanitarian group; building a mixed-use housing facility for the homeless in San Antonio; and assisting the Michigan Habitat for Humanity increase the number of homes its local affiliates can build by developing a program that will move existing mortgages to the secondary market.

“Selling those mortgages and getting capital back to our local affiliates for them to reinvest can be an incredible game-changer for us,” said Sandy Pearson, director of Michigan Habitat for Humanity.

Multiple Bottom Lines

La Franchi cut her teeth on non-profit financing as part of Rebuild LA, a Riordan administration initiative to invest in low-income neighborhoods after the 1992 L.A. riots. She was assistant deputy mayor for economic development and later the first chief executive of what became Genesis LA Economic Growth Corp., which provides market-driven financing for community projects.

She left Genesis in 2001 to form SDS, which early on focused on creating specialized private-equity funds attractive to financial institutions, pension funds and other investors wanting to demonstrate that at least some of their investing and lending generated community and environmental benefits. That could be as simple as steering investments to projects in low-income communities to adding the complexity of building on contaminated sites that have been cleaned up.

In the case of the L.A. YWCA project, the funding package that SDS assembled included grants from the Department of Commerce’s Economic Development Administration, the Federal Home Loan Bank of San Francisco’s Affordable Housing Program and the California Endowment. The YWCA, at La Franchi’s urging, later attracted funding through a special Treasury new markets tax credit program that gives investors federal tax credits if they finance projects in low-income communities that otherwise wouldn’t be funded.

“SDS knew to communicate our vision, and how to temper the words to where the (funder) feels compelled to finance it,” said YWCA Executive Director Faye Washington.

But even though the services of SDS are in more demand than ever, the financial crisis took its toll. SDS had pledges for close to $2 billion for separate private-equity funds when the crisis hit. La Franchi said she saw the writing on the wall and disbanded the funds.

“The market has only just started to return,” she said.

Now, SDS is helping clients write more grant applications, and has been qualified by the Treasury, along with its Boston investment partner, to run a new markets tax credit fund. The programs are attractive to investors because the credits can be taken over seven years and typically reduce the cost of a project by about one-third. SDS and its partner have $167 million in tax credits to hand out.

SDS takes an equity interest in its funds, which augment its revenues from consulting and service fees.

Meanwhile, La Franchi has earned an international reputation as an expert on creating social investment funds that tap the private sector. She recently returned from speaking at an international conference in Sao Paulo, Brazil, and most recently has been spending much of her time trying to find wealthy African investors for a South Carolina non-profit that has developed low-cost, simple homes for African communities.

“The interest internationally has been an unexpected, but very exciting source of projects for us. I still want to do more projects in my own backyard though,” said La Franchi, who added she has potential L.A.-area projects in the pipeline.

No posts to display