Good Growth: Driving a New Community-Ownership Paradigm in Cleveland

by Fund member Ricardo León, Executive Director for Metro West Community Development Corporation, originally published at johnsoncenter.org.

Can growth ever be good for low-income neighborhoods?

Across the country, residents of such neighborhoods very rarely reap the benefits of growth in their community. Indeed, an influx of new resources and development often results in an adverse impact, like displacement. But residents also can’t benefit if there isn’t any growth at all.

In Cleveland, the Fund for Our Economic Future funding collaborative, of which I’m a board member, and my organization, Metro West Community Development Organization, are trying to forge a new growth paradigm through real estate ownership. The focus of our efforts is predominantly Black and Latinx neighborhoods that have been systematically shut out of wealth-generating opportunities, beginning with the Clark-Fulton neighborhood on the city’s near west side.

With the net worth of a white family being, on average, nearly 10 times greater than that of a Black family in the U.S. (as of 2016), the racial wealth gap is a real and urgent issue, with significant ramifications for individuals and the overall economy (McIntosh et al., 2020). A number of factors contribute to the disparity (Aliprantis & Carroll, 2019). Among them are low levels of local ownership and significant undervaluation of assets in communities of color. The harm to these communities is compounded by the exclusion of residents from development decisions in their neighborhoods, leading to gentrification and disenfranchisement from the political process and significantly undercutting opportunities to benefit from future growth.

On the flip side, greater community ownership can lead to much more than just dollars and cents. It has the potential to empower residents, give them a greater voice over investment decisions that impact their community, and provide hope that ever-present structural inequities can be overcome. The problem is that real estate ownership in low-income communities largely remains a farfetched dream that is rarely realized.

While the concept of community-based ownership is not new, successful examples are somewhat limited, with well-intentioned efforts often thwarted by lack of resident awareness or buy-in, financial constraints, or mismanagement. But there are community-focused investing and wealth-building models emerging across the country in places like Portland, Oregon (Community Investment Trust), and the Echo Park neighborhood of Los Angeles (Neighborhood Investment Company) that have the potential to put equitable economic development at the forefront.

In the emerging post-COVID world, when a “land grab is imminent” due to an expected wave of foreclosures and reduced community assets, well-designed and executed community-investment models are needed now more than ever, writes Elwood Hopkins, presidential fellow at the Kresge Foundation (2021, p. 34). “Will working families and people of color finally get their fair share?” (Hopkins, 2021, p. 34).

Working closely with a number of local and national experts, we’re seeking to understand what’s feasible and what’s needed to create a tool for residents to increase their wealth and decision-making authority over the future direction of the neighborhood. For us, the process to design the tool is just as important as the tool itself.

When a family doesn’t have the opportunity to build wealth — to accumulate savings or invest in the stock market or real estate or other assets that hold value — they are prevented from fully participating in the economy, unable, for instance, to manage an unexpected job loss or access training or education to get a better job. All of this is a strain on economic growth.

The Place

The Clark-Fulton neighborhood was originally settled in the late 1800s by European immigrants from Germany, Slovenia, Czechoslovakia, Poland, and Italy due to an abundance of jobs at numerous local breweries and the neighboring stockyards. As brewery and stockyard operations declined in the 1960s, the neighborhood saw a parallel decline in population. However, around this same time, Clark-Fulton experienced its first wave of Puerto Rican migration. The neighborhood saw a large demographic shift in the 1980s with a second wave of Puerto Rican migrants and its first wave of African American residents. Clark-Fulton saw its third wave of resident migration from Puerto Rico after the devastation of Hurricane Maria in 2017 (Metro West; Case Western Reserve University, 2019).

Home to roughly 10,000 residents, Clark-Fulton today has the densest population of Latinx residents in the state of Ohio. The population of the neighborhood is approximately 50% Latinx, 30% white, and 17% black (Progress Index Cleveland, 2019). Median household income for the area is about $23,000, with approximately 44% of residents living below the poverty line (Progress Index Cleveland, 2019).

The Opportunity

Historically, Clark-Fulton has suffered from the same ailments as many other urban core neighborhoods across the country: disinvestment, lack of resources, and disjointed local leadership. However, recent investment commitments—totaling upwards of a billion dollars—in Cleveland’s near west side are driving rapid change in Clark-Fulton:

  • The MetroHealth System, one of the city’s three major health systems and the neighborhood’s anchor institution, has committed $1 billion to a campus transformation (2019);
  • JPMorgan Chase has committed $5 million in investment in three Cleveland neighborhoods, of which Clark-Fulton is one, over three years Grzelewski, 2019);
  • The Cleveland Mayor’s Neighborhood Transformation Initiative, a multifaceted investment strategy spearheaded by the current administration, has identified Clark-Fulton as one of four neighborhoods for strategic investment (city of Cleveland, n.d.); and
  • The FHAct50 Building Opportunity Fund, an affordable housing pilot program, is bringing $3 million in low-income housing tax credits to the neighborhood (Ohio Housing Finance Agency, n.d.).

The Idea

For the first time in decades, Clark-Fulton, the neighborhood where I have lived most of my life and which I work in service to as the head of the local community development corporation, is on the cusp of groundbreaking transformation. But recent increased attention and large-scale institutional investments have brought with them a wave of speculative investment. “We buy houses for cash” signs litter the neighborhood and commercial spaces are being bought up by out-of-state investors on a near daily basis. Suddenly, landlords who over the years have invested very little in their properties are raising rents. Rightfully, residents are worried, uncertain if there is a place for them in Clark-Fulton’s future. It’s the role of my organization to ensure that there is.

But these issues are big and complex — more so than any one organization can handle. Historically in Cleveland, as is the case, I’m sure, in other parts of the country, community development and economic development have operated in their own silos. But that dynamic is beginning to change. Originally established in 2004 as a vehicle for traditional philanthropy to advance inclusive economic development grantmaking, the Fund for Our Economic Future has evolved over the years and today is comprised of individuals representing philanthropy, higher education, business, government, and civic and community-based organizations. I’m a part of that evolution, having joined the board last year through a purposeful expansion to include more diverse voices. With its influential network of civic leaders, the Fund is able to convene stakeholders across many spectrums.

Shortly after I was elected to the board, Fund colleagues and I started batting around ideas for how we could ensure that Clark-Fulton’s current residents actively share in their neighborhood’s growth. That’s when the community investment fund (CIF) concept began to take root.

The term “community investment fund” encompasses various legal structures which allow for the aggregation of capital from residents to cooperatively purchase assets in their neighborhood. They include but are not limited to community real estate investment trusts (REITS), pooled income funds, charitable loan funds, and qualified Opportunity Zone funds.

The National Coalition for Community Capital, an organization dedicated to the formation of community-centered investment vehicles, partnered with the Solidago Foundation to publish a handbook that characterizes community-friendly investment funds as those that help to empower residents of virtually any economic class to invest in their community and build wealth through a cycle of investment, growth, profit, and reinvestment (Beckon et al., 2020).

“We agreed early on that the end product, whatever the legal structure, must meet rigorous investment standards and be grounded in the unique needs of resident investors and the neighborhood in which they live.”

We agreed early on that the end product, whatever the legal structure, must meet rigorous investment standards and be grounded in the unique needs of resident investors and the neighborhood in which they live. Beyond creating opportunities for resident investors, we also want to consider how to enable residents to participate in the development trajectory of the neighborhood, ensuring a balance of affordable and market-rate development.

The Design

Over the coming six months, the Fund and Metro West are leading a comprehensive process to assess the feasibility of a community investment fund for the Clark-Fulton neighborhood and determine what’s needed for successful implementation. With funding support from the Fund and the Kresge Foundation, we’ve enlisted the help of several experts to conduct this design phase, including the team behind Nico Echo Park in Los Angeles as well as Seventh Hill, the firm that worked with residents in a nearby part of Cleveland on recommendations to develop that neighborhood into a walkable, transit-supportive, mixed-use corridor.

The design phase focuses on the following:

  • Defining a Structure – The legal structure of a CIF is based on a variety of factors including investment type, targeted return, risk, tax implication, fund objectives, etc. This work includes defining goals and identifying the appropriate legal structure.
  • Building a Coalition of Stakeholders – Innovation will not be accomplished in a vacuum. Success will require a team of diverse and dedicated partners who employ their capital, resources, time, and talents in the implementation.
  • Engaging the Community – The core tenet of this work is addressing a market failure that prevents non-accredited investors from meaningfully participating in the investment economy and combating the structural racism that limits access to such opportunity for people of color. Resident engagement is required to understand needs, interest, and ability to participate.
  • Analyzing Market Opportunities – Return on Investment (ROI) for participants will be predicated on the acquisition, appreciation, and sale of real estate assets within the CIF. Proper due diligence, market analysis, site assessments, and financial projections will dictate the CIF’s transactions.

The Vision

Our vision is this: Every Northeast Ohio resident has the opportunity to own a part of their neighborhood’s growth. To achieve that vision, we’ve set out with an ambitious goal: Cleveland has the most assets under community ownership, per capita, of any place in the country. The partnership between the Fund and Metro West is a critical component in getting there.

“Our vision is this: Every Northeast Ohio resident has the opportunity to own a part of their neighborhood’s growth. To achieve that vision, we’ve set out with an ambitious goal: Cleveland has the most assets under community ownership, per capita, of any place in the country.”

For community investment funds to have a chance at success, says Kresge’s Hopkins, “low-income communities need intermediaries or bridge structures that meet people where they are and enable them to make investments they can afford in places where they live” (2021, p. 34). The Fund is able to serve this role, bringing critical resources, networks, and expertise together and giving organizations like Metro West the space and ability to put innovative ideas into practice. Metro West, on the other hand, brings with it the deep understanding and trust of the community and gives the Fund greater standing within the neighborhood.

If successful, both organizations can use the outcomes to advance our missions. Metro West will have the opportunity to deliver a powerful wealth-building tool to its residents, while the Fund can take this proof of concept to expand democratic ownership models across the region.

As this process moves forward, the partners fully understand we may learn that conditions for a CIF are not right or community appetite is not there. The hope, of course, is that by deliberately bridging community and economic development spheres, undertaking a thoughtful design process, and deeply engaging a wide swath of stakeholders who will be critical to such a fund getting off the ground, we improve its chances of success. And we move closer to a world in which residents of neighborhoods that need growth the most have more tools at their disposal for benefiting from it.

 

Sara McCarthy is the Fund's Director of Communications.