New St. Louis Fed Tool Dives Deep into Community Investment
By Mike Eggleston, Federal Reserve Bank of St. Louis
The Community Investment Explorer, an interactive tool released by the Federal Reserve Bank of St. Louis, aids affordable housing developers and policymakers in examining investments in affordable housing.
The Federal Reserve Bank of St. Louis recently launched the Community Investment Explorer (CIE), an interactive tool that aggregates over 500,000 transactions from three programs that drive investment into underserved communities—the Low Income Housing Tax Credit (LIHTC), Community Development Financial Institutions (CDFI) and New Markets Tax Credit (NMTC) programs. Collectively, these programs are responsible for several billion dollars of investment into underserved communities each year. The investments support a range of activities, from affordable housing to commercial real estate development, consumer and business lending, and more.
The CIE was built to show geographic comparisons and trends over time in a way that is easily customizable. For example, some users will view the full range of investment activity; others, only business and commercial real estate loans. Some users will be interested in LIHTC data only related to developments that are new construction; others will want to see the entire range of construction types. Data can be customized for time (only one or two particular years or all available years) and geography (e.g., state-level comparisons, MSA comparisons, non-MSA comparisons). Within each geography type, the user may select as many or as few locations to analyze as desired.
A variety of organizations and sectors will be interested in utilizing the tool, including affordable housing developers, commercial real estate developers, banks and other tax credit investors, CDFIs, public officials, policymakers, economic development agencies (including chambers of commerce), small-business owners and consumers. Different individuals and organizations will use the tool in different ways.
The CIE shows how prevalent government loans and subsidies are in the development of affordable housing that utilizes the LIHTC program, which would be of interest to public officials, affordable housing developers, policymakers and tax credit investors. Subsidy, beyond tax credits, is often necessary to build affordable housing. The CIE shows exactly what type of subsidies in different markets tend to fill financing gaps that allow deals to close and, therefore, affordable housing to be built. Also, the ability to see when a subsidy is most needed can be helpful to public officials and policymakers as they take into consideration funding levels for various programs. Likewise, the CIE provides stakeholders with a good understanding of how often, in which markets, and when FHA and USDA loans are utilized to finance affordable housing.
In addition to analyzing data from LIHTC transactions, those in the affordable housing field can determine the degree to which CDFIs are engaged in financing affordable housing. The CDFI dataset allows users to see not only the total amount of CDFI investment into affordable housing, but also the terms of the investments. This information could be very valuable for developers, who are responsible for arranging the financing to build affordable housing. A developer can focus solely on CDFI-financed affordable housing transactions and drill down to a particular location(s) and year(s). From there, the developer can learn the average interest rate, the typical guarantee, if any, that is required, the typical lien position and more. Equally as important, affordable housing developers will perhaps have a stronger understanding of the opportunity to partner with CDFIs to finance affordable housing developments in the future.
Commercial Real Estate
Commercial real estate developers, community development entities, commercial real estate owners, policymakers and economic developers who are focused on and/or operating in underserved areas will find particular value in the NMTC and CDFI datasets. As previously noted, the CDFI dataset has a rich amount of information on the investment amount and terms of commercial real estate transactions. While the NMTC dataset doesn’t have the same level of detail on deal terms, it does show how much investment supported commercial real estate development in underserved areas. Further, the dataset shows how much of the total project cost was reliant on NMTC financing. As a result, stakeholders will perhaps have a better understanding of the opportunity and impact of the CDFI and NMTC programs as they relate to financing commercial real estate development in underserved areas.
Small Business and Consumer
Finally, the CDFI and NMTC programs both finance the operations of small businesses in underserved areas. Therefore, business owners in particular will find value in learning how much each program invests in small business, the terms of the investments (in the case of CDFI), and where and when those investments are taking place. As for consumers, they now have access to the amount and terms of consumer lending by CDFIs across the U.S. Consumers and small-business owners can use this information, find a list of certified CDFIs from the Treasury Department’s website and then contact CDFIs in their market to discuss how their business or personal finance needs can be met.
The CIE contains a vast amount of information on community development investment. Several different types of organizations can benefit from the ability to aggregate and customize the data to meet their needs. By making this information more accessible, we hope that it becomes more efficient path to raise and deploy capital in underserved communities—for affordable housing, commercial real estate development, small businesses or consumer lending.
For more information, contact Mike Eggleston at Michael.firstname.lastname@example.org