GRCF backs foreclosure rehabs with loaned funds
The Grand Rapids Community Foundation’s largest program-related investment ever is making $2 million from its endowment available for loans to help developers fix up foreclosed houses.
The money, which is being administered by Great Lakes Capital Fund and its subsidiary, Capital Fund Services, is meant to help local nonprofits and for-profit businesses acquire foreclosed homes for rehabilitation under the federal Neighborhood Stabilization Program.
The program investment differs from a grant because it is a loan from the foundation’s endowment that will be repaid within three years with interest, explained GRCF Program Director Laurie Craft.
“Our investments are permanently endowed, but we can make a loan from our endowment, and particularly in a market like we have right now, it’s one more way we can invest in the community,” Craft said.
The GRCF loan extends the impact of the federal program, she added. The city of Grand Rapids last year received $6.2 million and Kent County received $3.9 million under first-round funding. Congress approved the $3.92 billion federal program for rehabilitation of dwellings prior to the Obama Administration. The county has applied for second round funding (see related story).
“This is an opportunity for us to invest in the community and kind of stretch the funds that the city has available through the Neighborhood Stabilization Program so they can actually do more rehabilitation of homes,” Craft said. The GRCF funding could expand the total number of homes by 20 to 30, she added.
Lighthouse Communities Executive Director Jeremy DeRoo said his nonprofit recently closed on its first acquisition with the GRCF-funded loan through Capital Fund Services on Giddings Street SE. It’s the first Neighborhood Stabilization Program-funded and GRCF-loan-funded property for the nonprofit. “Right now, it is the biggest that is going on,” DeRoo said.
“Often, foreclosed properties are purchased by investors, and so as a result, if you have a lot of foreclosures in a neighborhood, you have a decrease in your homeownership rate,” DeRoo said. “The program is really designed to address that issue by converting these properties back into owner-occupied houses.”
DeRoo said that in order to maximize the impact of the federal company, the city is requiring that 20 percent of funding for the project come from outside sources. That’s where the loan from the GRCF endowment to CFS comes in.
Craft said that as the loan money is repaid, part of it will return to the GRCF and the remainder will be recycled into new loans.
The Neighborhood Stabilization Program originally was intended to help developers purchased multiple contiguous properties within the designated zones, chosen for their rates of foreclosures and subprime mortgages. But Craft said competition from speculators has made that goal more difficult, and instead developers approved to participate in the Neighborhood Stabilization Program are working with individual properties.
Great Lakes Capital Fund is a nonprofit that invests in affordable multi-family housing projects in Michigan, Indiana, Wisconsin and Illinois through the low-income housing tax credit program, said Beth Hunter, mortgage specialist. Although the Grand Rapids loan program is much smaller than the multi-million dollar projects the fund usually supports, it meets the organization’s goals of affordable housing and improving neighborhoods, she said.
“We felt the developers for these properties would be more interested in rehabilitating them if there was acquisition money available,” Hunter said. “Conventional lenders sometimes do not want to invest in that type of property in that type of area.”
She said Capital Fund Services currently has eight or nine applications from other developers.
CFS also is participating in the National Community Stabilization Trust, which alerts the lenders as foreclosed properties become available in Grand Rapids, Hunter said. Another Great Lakes Capital Fund subsidiary, Building Blocks, purchases the property from NCST and sells it to the developer. GRCF loan funds are available for those properties, she added.
“It’s a pilot program in Grand Rapids,” Hunter said. “We hope to expand it to other areas in Michigan, and hopefully, perhaps, Wisconsin, Illinois and Indiana also. We’re very, very excited about it. We think it’s a great tool for improving neighborhoods.”
Another developer working in the program is Kitson Builders, which has been involved in home construction in the Grand Rapids area for decades.
“The program is not a money-making proposition,” said Lee Kitson. Instead, he sees it as a way to keep the company working at a time when new home construction starts have plunged in Michigan. “From our standpoint, it’s something that needs to be done. I think it’s a good program.”