Partners (Fall 2001)
Partners (Fall 2001)
The most difficult part of many endeavors is getting started. Often, nonprofit organizations that want to sponsor affordable housing and real-estate based community economic development projects see their plans falter for lack of funds to cover initial expenses. To encourage member institutions to increase their participation in eligible projects, the Federal Home Loan Bank of Atlanta (FHLBA) has created a new $1 million Predevelopment Fund that allows them to provide up to $100,000 per project for certain start-up expenses.
“The Bank expects that these funds will encourage members to form partnerships with other public and private institutions throughout the district as well as help provide needed housing, services and jobs to these communities,” says President and CEO Ray Christman. Members will be in a better position to provide construction and permanent financing to projects that have used the Predevelopment Fund because the project will be able to demonstrate that it is feasible, marketable and financially sound.
To minimize risk, Predevelopment Fund money is disbursed as recoverable grants to FHLBA member institutions, which will in turn disburse the funds as grants, recoverable at completion of construction and/or through permanent financing. If the grant is used to acquire property that is subsequently sold, the proceeds of the sale must be applied to repayment. The maximum $100,000 grant amount may not exceed 75 percent of the total eligible predevelopment expenses.
Upon recovery, the funds roll back into the Predevelopment Fund, making it a revolving source of capital. However, if the project never receives construction or permanent financing and does not go forward—through no fault of the sponsor—the grant will not be recovered. If the FHLBA determines that the sponsoring organization has not made a good faith effort to complete the project, the grant will be recovered.
FHLBA’s intent is to enable member financial institutions to assist projects that may qualify for its Affordable Housing Program (AHP) and its Economic Development and Growth Enhancement (EDGE) program. AHP is a competitive program that provides subsidized funding for single- and multi-family households with 80 percent or less of area median income. The FHLBA allocates 10 percent of its net profits annually for AHP.
EDGE makes it possible for the FHLBA to lend money to members at subsidized interest rates, for eligible projects such as childcare centers, healthcare facilities, recreational facilities, small business incubators, micro-loan funds, grocery stores, job training facilities, community centers and businesses that create jobs that pay livable wages and offer benefits.
Exclusive Nonprofit Sponsorship
Because they typically don’t have the equity or the resources to cover start-up costs, nonprofit organizations are the exclusive recipients of Predevelop-ment Fund grants. But they must demonstrate a strong track record or have a guarantee from a public entity, and their projects must be located in the FHLBA’s district. Nonprofits that want to apply for Predevelopment Fund grants must have successfully completed at least two real estate development projects within the last five years. Those who don’t have that level of experience may qualify if they can demonstrate that the development team can provide organizational and financial management expertise. To determine the feasibility of a housing or economic development project, applicants will have to demonstrate both their development capacity and the financial feasibility of the project.
Grants from the Predevelopment Fund should leverage funding from other sources; they are not intended to be the exclusive source of funding for the full range of predevelopment expenses. “A Predevelopment Fund grant can be used to get other community partners to put up matching funds when they’re interested in what the nonprofit is doing, but can’t put up all the soft, or up-front money themselves,” says Arthur Campbell, vice president of economic development in the Community Investment Services (CIS) division.
The Predevelopment Fund represents an innovative approach to utilizing resources to jump-start viable projects in economically distressed communities. When used in conjunction with other development finance tools, it can help generate transformational economic activity—the kind of activity that improves the quality of life for local residents.
Further information and applications for the Predevelopment Fund are available on FHBLA’s website at www.fhlbatl.com.