40willotherscor.pdf

40 Carolinaplanning

Stacey Ponticelloisa Master's landidateintheDepartment )fCity and Regional Plan-ning at the University of Morth Carolina at Chapel

-lill.

Jorman Acker received a Master'sDegreeinCityand

RegionalPlanningandaJuris )octorate Degreefrom the JniversityofNorthCarolina

tChapelHill in1985.Heis urrentlyworkingasan at-arney at the law firm,

jraham and Jones, in laleigh and is practicing ommercial real estate.

morethanjusthousing

Will

Others

_Jump

on

the

Rouse

Bandwagon

This

Time?

Stacey Ponticello

Norman

Acker

This articlefocuses

on

the EnterpriseFoundation, a unique organization dedicated to the expansion of the

low-income

housing supply in central cities. Its uniqueness lies primarily in its private sector "roots."

The

authorexaminestheFoundation'sgoals, organizationalstructure,

and

methods

ofoperations. Included

in thisdiscussionisalso an insetexplaining the interaction between theEnterpriseFoundation (EF)

and

the Enterprise

Development

Corporation (EDC), a private

development

corporation. In addition, thissection

provides an analysis ofthe financial

and

legalstructure _ofa successful

EDC

projectin Norfolk, Virginia.

The

entry of privatesectoractorsintothe

domain

of

urban

revitalization isnota

new

phenomenon.

For the past ten years, the public

and

private sec-tors havejoined forces inredeveloping the central

citiesof

many

largemetropolitanareas.Private sec-tor participation, however, has

been

conditional.

That

is, ithasbeen confinedto profit

making

ven-tures,

which

tendtobelarge-scale

commercial

pro-jects.

Low-income

housing efforts,

on

the other hand, havebeeninitiatedprimarily

from

withinthe public sector arena.

One

noticeable exceptionistheEnterprise

Foun-dation, anon-profitfoundation funded

by

its

profit-making

subsidiary, theEnterprise

Development

Cor-poration.

These two

organizations are the creation of

James

Rouse, innovative developer, trendsetter

and

founderof the

Rouse

Company. The

Founda-tion'sobjectiveistolendfinancial

and

construction

assistance to

urban

neighborhood

groups

throughout the country.

The

creation of the EnterpriseFoundation is im-portantfora

number

ofreasons. First, itreflectsa trend of private sector involvement in

low-income

housing

and

secondly,itusesinnovativeapproaches

tofinance

and

organize

neighborhood

efforts.

From

boththeperspectiveofplanners

and

Enterprisestaff

members,

theFoundation's

most

impressive feature

is itscreation of a successful

model

for

improving

and

expandingthehousingstock for the

poor

and

providingessential

human

services

and

employment

training in

low-income

urban

neighborhoods.

Financing

the

Foundation

In 1982theEnterpriseFoundation

was

establish-ed with a million-dollar contribution

from James

Rouse

and

a million-dollargrant

from

theAtlantic RichfieldCorporation.

Although

thestartingbudget

was meager

relativetothesizeabletasks

on

its agen-da, the Foundation

was formed

with

an

extensive

and

creative financing

scheme

in mind.

At

the

same

timethat theEnterpriseFoundation

was

created,

Rouse

established the Enterprise

De-velopment

Corporation,aprofit-makingrealestate

development

firm

owned

by

the Foundation. This corporation

was

designed toeventually finance the

Foundation

and

make

the EnterpriseFoundation a self-sufficientunit.Until the

Development

Corpora-tion's profit

margin

was

large

enough

to

accom-modate

the financialneedsoftheFoundation, Rouse intendedtosolicitfinancial

commitments from

cor-porations

and

private individuals.

Thusfar, the

Development

Corporation has been unabletofully finance theFoundation, althoughit forecasts cashflows tothe Foundationinexcess of

one

million dollarsannually

by

thelate1980s, with

estimates of ten million dollars in the 1990s.

The

bulkof theFoundation's currentsourceoffundsis

throughgrant

money.

Commitments

supportingthe Enterprise Foundation

now

total $17.4 million,

The

biggestandmostsuccessfulofEDC'sprojectstodateisWatersideinNorfolk, Virginia.Waterside con-sists of80,000 squarefeetof retail spacewhich supports115 specialtymerchantsand restauranteurs. Ithas alargeopenarea nexttothewaterfront,a6.5acrecitypark,a marina,anda625spaceparkinggarage adjoining the marketplace. Foodsalesalone inJune, 1983wereclose to $2.3 million, and theproject expects at least six millionvisitors a year, spendingcloseto $25 million.

The

legalandfinancialstructure of the Watersideproject issomewhatcomplex. At onelevel, theproject isa"jointventure"between theCityofNorfolkandWatersideAssociates.Althoughthis isaprimeexample

of a "public-private partnership," thelegalrelationshipisnot apartnershipatall. Rather, there aretwo inde-pendentparties

bound

togetherprimarilybyalease,aloancontractandothermiscellaneous agreements.The

legalpartnershipsbetweenWaterfrontEnterprises(asubsidiary ofHarveyLindsay

&

Company)

andNorfolk Marketplace, Inc.(asubsidiary ofEDC).Thispartnership operatesunderthe

name

ofWatersideAssociation.

TheCityofNorfolk,throughtheNorfolkRedevelopmentand HousingAuthorityandother agencies, pro-videda $9.8 milliondirect loan toWaterside Associates. Additionally, it arrangedfor a loan ofupto $5.4 millionfrom aconsortium ofbanks tobe channelled throughthe

NRHA.

Thecityalso paid $2.34million outright forsite acquisitionanddemolition for theWaterside tract andtheaccompanyinggarageproperty,

and$1.25million tobuild thefoundationfor otherrelatedimprovementstothearea.Alltold, thecityspent $33.23 million on allaspects of this project, $14 million of whichwasa loan at

12%

interest.

WatersideAssociateshad noupfront investmentexcept for time,expertise,overheadandotherunaccounted

developmentexpenses.Thepartnershipdidhaveacontingentliability, however. Iftheprojecthadcost

more

than$15.2 milliontobuild. WatersideAssociateswouldhavehadto'lend" the excess

money

to theproject,

andwouldonlybepaidbackfromprojectincomeafteralloperatingexpensesanddebtservicehadbeencovered.

Although thecity invested a great deal of

money

in this project, itspotential rewardsaregreat as well. Ifthe projectissuccessful, thecity willreceiveanextra$25millionintaxesover30years. Thistax increase will

come

from anincreaseinsales,foodandbeverageandpropertytaxes.Additionally, thecity willbe paid

backits$9.8 million loanat

12%

interest, orabout$1.2 millionperyear, andanother$0.5 million topay

back theloanfrom theconsortium.

When

the projectachievesapositivecash flow, thecity willalsoobtain

50%

ofthenetcashflow(estimatedtobe $48millionover30years).Inadditiontothese financial

renumera-tions,thecityhas already obtainednational presscoverage(increasingitsattractiveness forconventionsand

tourism), amenities foritsresidents, and impetusforother revitalization effortsin

downtown

Norfolk. WatersideAssociates,iftheprojectissuccessful, willreceive

management

feesformanagingtheprojectand

$225,000 ayear as an "incentivefee"for taking the developmentrisk. If it had paidanyexcess costs these

would be returned toit, andit will alsoearn an estimated$48 million over 30 years in net cash flow.

By

combining thecorporate structurewiththe fact thatithadlittledirectfinancialinvestmentin the pro-ject,

EDC

wasabletoachieveverylimitedliability.NotonlyistheEnterpriseFoundation notliableforany

failureson thepart of

EDC,

but

EDC

itselfformed a subsidiaryto handletheWaterside project so thatits other projects in othercities wouldnot bejeopardizedifWaterside failed.

EDC

tookadvantageof the taxcodebyavoidingdoubletaxation ofcorporate earningsand bypassingsome

of the tax benefits on toHarvey Lindsay and

Company

through thelimited partnership. Thefirst of these taxadvantagescame from thefact thatalthough

EDC

isataxable corporation, thedividends itpaysto the EnterpriseFoundationarenottaxed, sincetheFoundation isanon-taxableentity.Thesecond taxadvantage

comes fromthefactthat real estatedevelopmentoftenhastaxablelossesassociatedwithitintheinitialyears.

Theselossescanbeattractive taxsheltersifonehasotherincome whichneeds ashelter, which

may

be one

reason

EDC

enteredintoapartnershipwithHarveyLindsayandCompany, inordertopasssomeof the tax advantages along to them in exchangeforvaluable consideration.

The

Philosophy Behind

the Enterprise

Model

of Revitalization

The

primary

goal of the Enterprise Foundation,

as stated inits1984

Annual

Report, is"to help the

very

poor

helpthemselves todecent, livable

hous-ing,

and

out ofpoverty

and dependence

into self-sufficiency". It plans to accomplish this goal

by

building a national

network

ofnon-profit

neighbor-hood

groups.

The

Enterprise Foundationisnot in-terested insimplyperformingthepaternalistictask

of allocating fundsto the

neighborhood

groups it

deems

worthy.Instead,itviewsitsroleas"partner" to these local groups.

In1985 the Foundation

expanded

the Enterprise

Network

to27 groupsin15cities.

The Network

now

includes:

Oakland,

California; Denver, Colorado; Chicago, Illinois;

Omaha,

Nebraska; Detroit,

Michigan; Cleveland, Ohio; Pittsburgh,

Penn-sylvania; Philadelphia, Pennsylvania; Baltimore,

Maryland; Lynchburg, Virginia;Dallas, Texas;

42 Carolinaplanning

neighborhood group involvement

Before

folk, Virginia; Wilmington, Delaware; Boston,

Massachusetts;

and

Washington, D.C.

The

Enter-prise Foundation

employs

a staff of field officers

who

areeachassignedtofourcities.This organiza-tional policyallows each officer todevelop a rap-portwithneighborhood group

members

and

to pro-cure

an

understandingof thespecial

problems

and

constraints of a particular locality.

The

partnership

approach

of the field officers

toward the

neighborhood

groups is especially

im-portantin lightoftheEnterprise Foundation's strong belief in helping thesegroups help themselves. In

an

interview, Enterprise Foundation President,

Ed

Quinn,

stated that hebelieved

many

public

hous-ingefforts

had

failedprimarilybecauseof a lack of

community

input.

Without

community

involve-ment, there can be

no

sense of responsibility for,

or

commitment

toward, maintainingthe

improve-ments

made

by

a

neighborhood

group. This kind

of

detachment

from

housing projects inevitably leads to failure, regardless of

who

initiates the project.

The

Enterprise Foundation's

commitment

to

neighborhood

involvement

and

itspartnership-style relationshipwith

neighborhood

groupsisreflected in

one

oftheEnterprise's

primary

objectives:"touse theeffective

work

of

neighborhood

groupsin

pro-viding

human

servicesfor thevery poor."

The

im-portanceof

neighborhood

involvementinthe Enter-prise revitalization process canbe seen even

more

clearlyinitscriteriafor

neighborhood group

selec-tion into the Enterprise

Network.

The

neighborhood

groups

must meet

the follow-ingrequirements: maintaina strong

neighborhood

base;

work

withthevery poor; involve residentsin

the housing

development

process; use volunteers; raise funds

from

their

own

commitments;

assist

residents in the

management

and

maintenance of theirproperties;provideservicessuchas job train-ing

and

placement, healthservices, childcare, ear-ly education,

and

recreation; receive institutional

backing

from

astableorganizationinthe

communi-ty;

and

seek to prevent displacement.

Inaddition tothecriteriarequiringorganizations todemonstratetheir levelof

community

participa-tion,theEnterpriseFoundationbelieves thatitisalso

importantforthese

neighborhood

groupstobe

in-volvedinprovidingavarietyof

human

services, in

additionto housing.

Although

assistance

from

the Enterprise Foundation is

mainly

directed toward

housing, Foundation officials believe that the

absence of a comprehensive

approach

to urban

revitalization decreases ahousing project's chance

forsuccess.

To

thisend, the EnterpriseFoundation

establishedjobplacementcentersinfourcities last

year

—

Oakland,

Chicago, Detroit

and

Philadel-phia.

The

originalplacementcenter,

which

islocated in Washington,

D.C,

jubileeJobs, placed 558

un-employed

people last year.

The

Enterprise

Mission

The

EnterpriseFoundationperceives the

two

big-gest road blocks to providing decent, affordable

housingfor

low income

householdsas(1) thecost ofconstruction

and

(2) the cost of financing.

Several

methods

ofreducingthecostof financing

Enterprise Foundation. ESIC's

main

function is to raise funds for the Foundation.

Some

of its

fund-raising activities include the following:

(1) theequity syndications of properties

owned

by

non-profit

neighborhood

groups.

The

equity in-terestsofthesenon-income-producingproperties are soldtoindividualsinterested in taxshelters.

Under

thissyndicated

form

ofownership,

ESIC

oftenacts asco-generalpartnerinconjunction withthe

neigh-borhood

group,

and

equity investors maintain a limited partnerstatus.

The

general partners retain fullcontrol of the properties

and

bearfull liability

for theproject.

The

limitedpartners receive

any

of the tax savings generated

by

these properties.

(2) the

development

offinancialpackages

which

maximize

the use of available public

and

private funds.

Most

finished packages include Enterprise grants,

Housing and

Urban

Development

(HUD)

grants,syndications, corporate donations,

and

com-mercial

bank

loans.

(3) the recentinitiationof a

campaign

encourag-inginvestorstolend loansat

low

interestrates.This

effort helps

ESIC

establish a reliable, predictable source ofverylow-interestloans for

neighborhood

groups, enabling

them

to acquire

and

rehabilitate property.These groupsoften acquiretaxdelinquent or

abandoned

housing as well as housingheld

by

thecity for sale at a public auction.

Obtaining commercial

bank

loans usually

re-quires

some

negotiation

on

the part of Enterprise

officials,butEnterpriseFoundationfieldofficersare often successful in elicitingcreative financing sug-gestions

from bank

officials. Forexample, in

Lynch-burg, Virginia, theEnterpriseFoundationdeposited

$180,000intheUnitedVirginia

Bank

at

6%

interest as collateral fora loan to beissued to a

neighbor-hood

group.

With

thistypeof creditenhancement,

the

bank

granted

100%

financingfor20

new

homes. To addressthe

problem

ofhighconstructionfees faced

by

many

neighborhoodgroups, theEnterprise

Foundation organized the Rehabilitation

Work

Group

(RWG)

chargedwithfinding

ways

of reduc-ing the construction costs of rehabilitation.

The

RWG

consistsof ten

members

who

have

substan-tialexperienceinhousingconstruction.In1983, the

RWG

staffstudiedthe cost-savingconstruction

tech-niques of a

group

in

New

York City. This

group

organized tenants to restore badly deteriorated buildingsthat theCity

had

seized for tax

delinquen-cy.

With

sweatequity

and

small grants

from

the ci-ty, this

New

York

group

made

unitsfit

and

liveable

at costs as

low

as

$2500

per unit.

Other

RWG

activitesinclude: (1)preparing guide-linesfor acceptable livability standards that avoid

costly structuralchanges, inappropriateforlow-cost rehabilitation; (2) assisting

neighborhood

groups through cost evaluations prior to purchase; (3)

negotiatingbidswithsmall contractorsthatpermit

theuse of volunteer laborers

and

neighborhood con-struction crews

when

possible;

and

(4) helping

neighborhood

groupsdraftrehabilitationplans

and

specifications

which

allow these groups to act as their

own

general contractors.

continuedonpage 50

innovative construction approaches

50 Carolinaplanning

is therealimit?

themodel'spurpose

continuedfrompage 43

The

Foundation's

Role

as

Model

"How many

more

U.S. cities

and neighborhood

groups is the Enterprise Foundation capable of assisting?"

was

a question posed to

Ed

Quinn

dur-ing

an

interview conductedfor this article.

He

ex-plained that theFoundation

would

continueto

ex-pand, butthat,of course, thescopeof the

problem

istoo large for

any

singleorganization or

founda-tiontohandle.

The

EnterpriseFoundationisstriving to produce a successful revitalization

model

for others to follow as well.

The

EnterpriseFoundation

model

offers

methods

forfinancing

and

implementing

low-income

hous-ingrevitalization projects.

With

a successful

model

available, it is

more

likely that benefactors

from

both the private

and

publicsectors will

become

in-volved in the revitalization procress.

It

would

be naiveto thinkthat allprivate sector benefactors

would

choose to undertake

"Rousian-scaled"

human

services projects since

most

en-trepreneurs,

by

definition, are self-motivated

in-dividuals interested in

maximizing

profit. Rouse's

motivation for

working

with the

poor

stems primarily

from

his religious convictions

and

therefore might be unique.

On

a

more

optimistic note, itisconceivablethatthe existenceofthis

model

might encourage

some

large-scale developers to

dedicate staff time to local non-profit groups for

such business-related reasons as public

and

com-munity

relations. It

may

still induce

some

other technically-oriented professionals, with

an

interest in social issues, to provide pro

bono

assistance. Finally, havingcompleted

many

projects,

neighbor-hood

groupsareableto

approach

benefactorswith

specific requests that include a time frame.

Pro-fessionals are

more

apt to respond to such time-specific requests.

In sum, the Enterprise Foundation should be

credited foritscreation of a

model

to guidethe ef-forts of private individuals, local firms,

corpora-tions,

and government

agencies interested in par-ticipating in the

urban

housing revitalization

pro-cess.It

must

alsobe

acknowledged

as aunique

and

veryworthwhilesocial institution

by

itself.

By

vir-tue ofits

name

and

association with

James

Rouse,

the Foundation has already aided

and

legitimized

many

hard-working

neighborhood

groups,

and

its

continuedprosperitywillhelp secure these tenuous,

but

much-needed

human

service organizations in thefuture.

r

pv-continuedfrompage28

older areasa sense ofopportunitythat isbest

ex-pressed

by

the idea of a"service richneighborhood.'

The

resources, the

women

and

men

and

their

homes

are there.

The

viabilityof

home-based

ser-vices has

been proven

by

children's

day

care

and

theirpotential for

growth

suggested

by

the

bed and

breakfast

movement.

The

growth

of "systems" is

showing

the

way

to

overcome

many

of theproblems

of

home-based

services, including quality control.

The

variety of

home-based

serviceshasalreadybeen

indicated

by

individual

examples

in

many

parts of the country.

The

challenge is

whether

ornot land

use planners

and

others canbroker the release of

people

and

housing as service providers,

and on

what

scale, for

what

variety of services.

At

this point,itappearsthatalarge part of thatbrokering

will focus initially

on

the

growth

of systems of

home-based

providers.

Those

systems will offer

many

older

women

the opportunity for career

growth

building

on

theirexistingbaseof caregiver

skills.

The

use ofsystemsforsatellitingwillalso of-fersocial service providers

an

opportunity for

ex-pansion during a time ofcutbacks.

NOTES

1. TheMontgomeryJournal, April6, 1983.

REFERENCES

Newsday, Monday, March14, 1984.

Bryant and Russell, "A Portrait of the American Worker,"

AmericanDemographics, March, 1984.

U.S.BureauoftheCensus,"AnAgingSociety,"Current Population ReportsSpecial StudiesSeries, p. 23, No.128, 1983.

TheMontgomeryJournal, April 6, 1983.

Brant Robey,ed.,"OnDemographics,"American Demographics, Vol. 6,No.4, p. 11,April 1984.

NBC

News, "Women, Work and Babies," with Jane Pauley,

March 16, 1985.

AppliedManagementSciences,"AStudyofNeeds andResources forChildDay CareinMontgomery County," Sept. 1983.

M.Grant,MontgomeryCountyDivision ofFamilyand Youth Services, personal conversation, February, 1983.

Conversation withPatWilson, March, 1984.

Conversations with Ruth Kuetmeyer and Katherine Hatle, Madison, Wisconsin, October16, 1984.