Presented By: JPMorgan Chase
How JPMorgan Chase Partners With CDFIs to Advance Racial Equity Throughout The U.S.
Future Of Affordable Housing brought to you by JPMorgan Chase
As part of the firm’s $30 billion Racial Equity Commitment, including $14 billion for the creation and preservation of affordable housing, JPMorgan Chase (JPM) works extensively with Community Development Financial Institutions (CDFIs) that ensure this assistance makes the maximum possible impact in the communities it serves. Partner Insights spoke with Jessel Amin, executive director, Community Development Banking at JPMorgan Chase, to discuss how CDFIs factor into the firm’s essential racial equity work.
Commercial Observer: How much does JPMorgan Chase invest in CDFIs?
Jessel Amin: JPMorgan Chase has been working with CDFIs for over two decades, and we’ve invested over $2 billion in them thus far. CDFIs help extend our reach into underserved communities and affect change through supporting development of housing, community facilities, and small businesses that contribute to thriving neighborhoods, such as grocery stores, day care centers, schools and health clinics. This financing also incentivizes and drives funding, helping to create jobs and address important economic and social inequities in under-resourced areas. As part of the firm’s $30 billion Racial Equity Commitment, Community Development Banking has increased its commitment to lending to CDFIs by more than 30 percent annually over the next five years.
Please share some examples of how these CDFI investments help support minority developers.
To truly address the historic disinvestment in communities of color, we must start with an intentional focus on investment with Black, Hispanic and Latino development partners so they are better equipped to compete, serve and benefit the residents and neighborhoods in their communities. In 2020, Enterprise Community Partners launched Equitable Path Forward (EPF), a $3.5 billion initiative to counter racial inequities rooted in housing. Through EPF, Enterprise is investing $350 million, including a $55 million loan fund that provides flexible capital in the form of unsecured low-cost and working capital and predevelopment financing to historically marginalized developers of color. The $55 million fund is capitalized with $5 million in equity from Enterprise and $50 million in debt. We were proud to provide the fund with an anchor investment of $40 million in debt financing. The fund is projected to reach around 25 developers of color and leverage more than $500 million in total development costs. And in a transaction that recently closed, Century Housing, a mission-driven CDFI that supports quality affordable home development throughout California, announced the launch of the Century Emerging Developers program, a Special Purpose Credit Program specifically targeting minority- and women-owned affordable housing developers. This program is being funded by our dedicated facility for $15 million.
What are some of the challenges minority developers face that make JPMorgan Chase’s investments so critical?
One significant challenge is less access to capital from friends and family. We see a need for more access to early stage, equity-like capital, which allows them to pursue larger projects and support bids for tax credit projects, which are really important for developers. In addition, we see a huge need for training, networking, and mentoring. Less experienced developers oftentimes have to partner with more seasoned developers to be able to go after the larger projects, which means that their development fees are squeezed. We want to build up the capacity of these developers to pursue these projects alone.
What do you look for in CDFI collaborators?
We lend to CDFIs that meet our very selective credit profile: high-capacity CDFIs with strong leadership, and track records of strong asset performance through multiple economic cycles. Beyond that, we’re looking for CDFIs that are focused on promoting systemic change and investing in the infrastructure of the CDFI space — specifically, CDFIs that have an explicit focus on capacity building, such as supporting the infrastructure of smaller CDFIs or reaching minority developers. We are looking for partnerships with CDFIs that have a national breadth and local depth to their work. They are engaged in communities, working where they have boots on the ground. We’re also really excited about working with CDFIs that bring an innovative lens to their work. They can be pioneers in how we think about structuring credit, their business model, tech and data, for example.
How have both inflation and increasing interest rates affected how CDFIs operate, and how does JPMorgan Chase help them deal with these factors?
We know that economic downturns disproportionately affect low-income communities, so the work of CDFIs is more important than ever. Historically, CDFIs have had strong asset performance through economic cycles, and we continue to anticipate strong performance in today’s environment. In a rising interest rate environment, it is difficult for CDFIs to absorb the higher cost of capital. That’s because profitability margins in underinvested communities are narrow, and it is difficult to pass along higher borrowing costs while serving community needs. As such, the CDFIs’ spreads and operating margins are compressed, and they become increasingly reliant on mission-oriented capital versus market-rate capital. We offer a wide array of products and services to serve the diverse and evolving needs of our CDFI clients — these products and services span from equity and credit solutions to Treasury management solutions. To meet today’s challenge, we are working collaboratively with our CDFI partners to design products that creatively solve challenges around draw schedules, amortization schedules, prepayment penalties and fees.
Are there any government policies in place assisting these efforts? Are there any policies JPMorgan Chase would like to see in place to further assist these efforts?
The CDFI Fund, which is administered by the U.S. Department of the Treasury, offers grants and equity, and does awards for technical assistance for CDFIs. Some of these programs include the Financial Assistance Program, New Markets Tax Credit, Capital Magnet Fund, and the Bond Guarantee Program. The goal of this program is really around investing federal dollars alongside private capital to help more mission-driven organizations create market-based approaches to working on community development issues. Historically, the CDFI Fund has had really strong bipartisan support, and we’ve seen an uptick in support for CDFIs since the onset of the pandemic. Over the past two years, the Department of the Treasury has directed more than $15 billion in investments and tax credits to community lenders. The pandemic really put a spotlight on the importance of CDFIs in our financial system. Vice President Kamala Harris and Treasury Secretary Janet Yellen announced the Department of the Treasury had made over $8 billion in investments in 162 CDFIs through the Emergency Capital Investment Program. These funds help to support the efforts of financial institutions to provide loans, grants and other assistance to small and minority-owned businesses that have been struggling with the impact of the COVID-19 pandemic. Also, the Department of the Treasury announced a bond guarantee of $355 million — the largest round we’ve ever seen for that program. This source of capital provides the most flexible and long-term capital to CDFIs. This year also saw the launch of the Economic Opportunity Coalition, which brings together private sector partners in community development to provide advisory services and financial commitments to CDFIs. We’ve also seen the launch of the first-ever racial equity committee from the Department of the Treasury. Lots of CDFI leaders are participating in these committees, and I assume this trend is here to stay.
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