In severely distressed neighborhoods, private investment is sorely needed to improve properties, increase public safety, create jobs, and enliven city blocks and community life.  Entrepreneurial investors and developers may see opportunities, but the usual set of affordable housing subsidies may not always be well suited.  Where the goal is to stimulate private investment and revitalization, imposing affordability restrictions that restrict the potential upside value of redeveloped properties can lead profit-minded developers to take their dollars elsewhere.

The Housing Initiative Clinic has partnered with a nonprofit organization to develop a structure to overcome these barriers, to achieve the nonprofit’s goal of accessing private developer dollars to redevelop dilapidated homes in distressed communities.  The nonprofit identifies a local entrepreneur with a line of credit or other available rehab funds.  The nonprofit acquires a distressed property through its connections with government agencies, housing court disposition processes, and banks’ REO inventories.  The nonprofit and partner together decide on a budget and rehabilitation scope, and the property is redeveloped using the partner’s funds.  After inspection by the authorities to verify completion and code compliance, the newly refurbished home is sold at a profit – a modest one given housing prices in struggling communities -- to a homebuyer.  

A crucial part of the arrangement is the partner’s agreement to hire low income, unemployed, or underemployed youth and neighborhood residents for a significant part of the rehab work.  The nonprofit participates in the identification, training, and support of the new workers, and connects them with services as needed.  The nonprofit tracks the workers’ progress and helps connect them with future employment opportunities.  Overall, the structure is a four-way win:  governmental and lending agencies move distressed properties out of their inventory; neighborhood residents gain valuable work training and experience to help put them on a path towards full employment; the community benefits from a revitalized property and increased homeownership; and the local entrepreneur developer makes a profit.

The Housing Initiative Clinic’s services have been essential in designing and implementing this structure.  The Clinic worked with the nonprofit client on several one-off rehab projects, some using traditional government funding sources and some involving a partnership with a private developer.  From there, the Clinic worked with the nonprofit on a form of redevelopment agreement for the nonprofit to use in working with developers selected to rehab receivership properties for which the nonprofit was the court-appointed trustee.  The next step was the drafting of a redevelopment agreement template for private, non-court-supervised transactions.  Last, the Clinic worked on the drafting and refinement over time of the client’s intake and marketing policies and materials.  These are the documents used to explain the program and perform due diligence on the local entrepreneurs who are recruited to participate.  In the last several months, the Clinic has worked on closings for four properties using this model, with more in the pipeline as the program gains traction.  At each step along the way, Clinic students counseled the client on program design and documentation, drafted the relevant agreements, and negotiated the terms of the various redevelopment agreements with the nonprofits’ partners.  Equally significantly, the students have participated in the development of a model to address a problem with the existing legal and programmatic structures for subsidizing investment in distressed communities.