Editor’s Note: This story was originally published by The Providence Post, a publication of the Providence Preservation Society.
A new investment fund hopes to drive community-centric real estate development to keep the wealth generated by projects local, rather than seeing it be siphoned out of state.
The Rhode Island Community Investment Cooperative, created by the non-profit organization Local Return, the initiative has a structure that is the first of its kind. Its Diversified Community Investment Fund (DCIF) allows anyone — including unaccredited investors — to invest in this community fund to support local real estate projects. Lower-income investors, who proportionately take the biggest risk when it comes to contributing to the fund, will see the highest rate of return.
The complex administrative and fiscal structure of the fund has taken years to develop, according to Jessica David, one of the founders of the RI Community Investment Cooperative and a board member of Local Return.
“Because this is new, it’s so hard to do. You have to be so innovative,” David said. “At the same time, really the idea is so old and basic — people pulling their resources to support the collective.”
At least 60% of the fund has to be invested in real estate.
This focus on real estate partly “grew out of the pandemic and seeing how many businesses and individuals were in precarious positions with the real estate that they had,” Josh Daly, another co-founder of the fund and Local Return board member, said. “Absentee landlords, certainly landlords who are not deeply committed to or rooted in the community, didn’t particularly care whether small businesses could pay the rent.”
“If [only] the local community had the ability to help own that real estate, help those businesses own it or own it themselves,” he said. “We could be the landlord that cares [about] more than just the financial bottom line, but also [about] the community vitality.”
Daly said that the types of projects the fund will hopefully support are similar to older patterns of development — think triple deckers, multi-families with a shop on the first floor, or accessory dwelling units (ADUs), more affectionately known as granny flats. “It’s architectural forms and forms of development that are much more aligned with what was allowable generations ago, and has generally become more difficult with zoning regulations in more recent decades.”
Organizers of the fund hope the initiative will bolster smaller developers, allow local residents to break into real estate projects for the first time, and open up local investment opportunities to a wide range of community members.
Daly and David, along with Raul Figueroa and Lisa Raiola, were the founding board members of Local Return, which officially formed in 2021. They wanted to focus on building community wealth through investment and ownership. After some time, the group realized that they would need a new kind of financial infrastructure to support this mission. “We need vehicles for people to be able to invest, and that’s for everyone, not just super wealthy people who have more financial tools at their disposal,” David said. “That led us down the path of creating this pooled investment fund.”
David emphasized the importance of a continuum of community capital. “You need everything from grants to what we’re doing, to [Community Development Financial Institutions] to traditional banks, and other kinds of equity investors,” she said. “You need different structures — we just need more of them to be locally focused, not extractive and exploitative, or pulling money and talent and resources out of Rhode Island.”
Nuts & Bolts: How Does the Community Investment Cooperative Work?
Even though the mission of the fund — building local wealth through real estate and investing opportunities — isn’t that complicated, the mechanism that allows it to function took about three years to sort out.
Christopher Miller, CEO of the National Coalition for Community Capital (also known as NC3), has been working in community development for decades. Miller explained that the structures which currently exist and regulate investing do not make it easy for individuals to make investments at the local level.
“Our goal is to separate communities from that challenge,” Miller said, explaining that the bureaucratic headache can be handled by the investment fund, lowering the bar to entry for residents.
NC3 has been developing and supporting community investment funds (CIF) nationally since 2016. Currently, the two CIF structures they have devised are the Diversified Community Investment Fund (which is the structure for the Rhode Island fund) and the Aligned Community Investment Fund.
Diversified Community Investment Fund
- Primarily invested in real estate
- Investments can also go into local businesses, projects, and other securities
- Capital can be raised in a wide variety of ways, including from community and unaccredited investors
- DCIF can distribute profit generated to its community investors
“The Investment Company Act of 1940 basically puts a lot of restrictions on who can invest and how, and it makes it very difficult for local investment,” David said. “I’m oversimplifying here, but it drives us all to Wall Street, because those are [investing] vehicles that are approved and vetted, and they’re professionally managed. And so it means all of our money that we’re investing is going out of state to make rich people richer, I would say. If you want to invest your money locally, it’s [nearly] impossible.”
But with the DCIF, communities can “raise and deploy investments with real estate comprising at least 60% of the fund’s assets,” according to NC3.
To create the Rhode Island Community Investment Cooperative’s DCIF, “I think we’ve taken all of the hardest choices to make this happen,” Daly said with a chuckle.
“Because the majority of the funds are invested in real estate, it allows both accredited and non accredited investors to invest in the fund,” he continued. From the beginning, their mission was to “have ordinary Rhode Islanders invest in the fund and see a return.”
Determining how to include unaccredited investors was a huge bureaucratic and legal tangle to sort out. Brian Beckon, a securities attorney and a founding board member for NC3, “is likely the preeminent attorney in the country in this space,” Miller said. Beckham was tasked with sorting out a fund structure that would work with Local Return’s mission in mind. “So he did, and it is the Diversified Community Investment Fund that Jessica has used in Rhode Island.”
Now the Rhode Island Community Investment Cooperative is seeking to raise $3.5 million for their fund. The fund has three types of investors: Neighborhood members (Series A), Community members (Series B), and Sponsor members (Series C). Dividends are paid at the discretion of the board.
Series A
Neighbor Member
- $500 minimum investment
- Proportionately highest rate of return on investment
- For low-income Rhode Islanders or 501(c) organizations
- 100% return on dividends
Series b
Community Member
- $2,500 minimum investment
- Open to any resident of Rhode Island
- 85% return on dividends
Series C
Sponsor Member
- 5,000 minimum investment for individuals, $25,000 minimum for institutions
- Open to any accredited individual or institutional investor
- 70% return on dividends
Series A members are low-income and get the highest rate of return, David explained. “So when the cooperative makes dividends, they’ll get 100% of the dividends,” she said. “So it’s the lowest investment level, highest rate of return.”
Series B members have a $2,500 minimum investment and 85% return of dividends, while Series C includes accredited investors, 70% return on a $5,000 minimum investment for individuals and $25,000 for institutions.
“We tried to flip that typical, risk-return [paradigm], because we felt like folks who are low-income are taking proportionately the greatest risk financially,” David said. “They are people who tend to live in the communities that we’re prioritizing for investment, so they have more at stake in that way too.”
So far, the group has fundraised roughly $290,000.
Ward 3 Councilor Sue AnderBois was an early community-level investor in the fund. She was extremely supportive of the push to make investing and wealth-building more accessible to community members. With investing, “it’s happening with large Wall Street [companies], and they’re not investing in [local businesses like] Frog and Toad,” she said. “Really small scale investments can make a huge impact for local folks.”
It’s extremely difficult for individuals on their own to make an investment like the fund will allow, AnderBois said, emphasizing how “groundbreaking it is that Jessica and her team figured this out on behalf of people.”
“I’m not some wealthy tycoon,” AnderBois said. “I don’t have a lot of personal wealth, but this is accessible, and it’s something I can do. I wouldn’t have had the time or ability to have a wealth manager or something. And so I think that is really groundbreaking, too.”
Increasing Local Ownership, Equipping Residents
As fundraising for the investment fund got underway, the team realized the importance of creating an entire ecosystem for the generation of community wealth. Since this is a new type of funding opportunity, “people aren’t just sitting there with this perfect project, ready to go,” David said. “We started realizing we need to do some work around building what that pipeline of potential investments looks like, particularly because we made this decision to focus on real estate and there’s a fair amount in Rhode Island happening around small business, access to capital.”
Jumpstart Germantown, a community development program that originated in Philadelphia, provides a primer on local real estate development through a curriculum which includes training, mentorship, and more. Local Return used the Jumpstart curriculum as the basis for their newest program to equip local residents with the basics on real estate. Its inaugural cohort completed the program this June.
“It is about building wealth through real estate. It is about providing access and opportunity to people who you know have not had it otherwise, would not have it otherwise,” David said. “It’s also about neighborhood revitalization and the idea that residents are people who know neighborhoods, who have commitments there, who have relationships there, and know what is needed.”
Local Return just graduated its first 14-person cohort of the Jumpstart program in Providence, and they hope to continue growing and running the program. Community engagement, strengthening social ties, and considering what neighbors owe one another is central to the training program.
Daly has a master’s degree in ethics, and David is currently working on a master’s degree at Harvard Divinity School.
The communities in Rhode Island that people want to live in have some commonalities, David said. “Where people know each other, where you feel good walking down the street, and that it’s not all about how everything looks,” David said. “But I do think that the built environment is important. I think the natural environment is important. So for me, it’s about how all of these things work together to create places where people can live and thrive and meet people beyond their immediate circle.”
“I think it’s really important for us to keep wealth and grow wealth in our communities,” AnderBois said. “Home buying, home ownership — that’s one way that people really generate wealth and pass wealth across generations. I can talk about my neighborhood a little bit, like Camp Street. We’ve seen a lot of folks get pushed out, and that neighborhood, for a long time, has been a historically African American neighborhood.”
“We’ve seen city policies like, in the 60s, 70s, intentionally pushed people out, and people lost a lot of wealth and entrepreneurship,” she continued. “A program like this that helps keep the wealth in our communities is so important.”
Daly said that he hopes the development which will come from the fund will represent a sort of “living preservation.”
“Sometimes there can be a sense that there’s competing claims for preservationists versus development,” he explained, but that their programs reach for a middle ground through adding gentle density — triple deckers, ADUs, and more. And inherently, Daly said, increasing local ownership encourages residents to stake a claim in their own neighborhoods.
It’s preserving or re-establishing local ownership … that is preservationist, in my mind, because then you’re also making something that’s more vital,” Daly said. “You’re making something that’s more resilient.”
Katy Pickens is the Planning & Preservation Writer at Providence Preservation Society (PPS). Read more of her work here.
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