Nonprofits combine with for-profit community-oriented developers for more firepower
Maggie Parker, founder of Innovan Neighborhoods, has developed a roundtable that provides support to underrepresented groups in real estate development.
JAKE DEAN
By Plamedie Ifasso – Staff Writer, Dallas Business Journal
Dec 4, 2023
A Dallas-based real estate development firm has settled on a unique way to invest long-term in people committed to revitalizing neighborhoods.
Innovan Neighborhoods LLC in mid-October began the second round of what it calls a community developers roundtable. It is meant to support developers already working on community-oriented projects, accelerate their growth and minimize hurdles. Many of the participants in the second cohort are working on single-family developments and focused on scaling up from building a couple of homes a year.
"There's always a lot of conversation that we need more affordable housing," Innovan Neighborhoods founder and Managing Partner Maggie Parker said. "Who is actually going to do the work? It's really hard. You're putting together all these different capital sources. You have to navigate this in addition to whatever the traditional market standards are. I think we underestimate the additional toll that it takes on people to do community-oriented work."
There are seven for-profit developers in the second round of Innovan's roundtable. Launched in 2022 in collaboration with BCL of Texas, the two-year pilot aims to create and support more affordable housing projects and serves as a networking, funding and learning opportunity for diverse nonprofit organizations and for-profit community-oriented developers. Innovan completed its first cohort June 1 with a mix of 15 nonprofit and for-profit participants and increased the collective member pipeline of affordable units by 112.
The roundtable will have 10 sessions throughout nine months and feature monthly half-day training sessions with guest speakers, networking opportunities and access to resources including a $1 million pre-development fund, staff training resources, professional coaching and a CPA/tax consultant retainer.
During the second round of the initiative, Innovan plans to connect the group to its CPA/tax consultant retainers and is actively working to revamp its pre-development fund.
When the firm launched the roundtable, interest rates on construction lending were about 5%, and it targeted a rate of 6% for its fund. But with rates now in the 8% to 9% range, developers are rethinking the type of financing they want on their projects.
"Usually, your pre-development dollars are really high interest rate," Parker said. "It made sense when construction lending was at a lower interest rate. Now, construction lending is much higher, so people are getting weary about getting into new deals. When you have people getting worried about getting some new deals, and mortgage rates are high, then it also makes it more difficult for your buyer. With all the changes in interest rates, it changes how people assess the type of financing they want on their projects."
The organization is exploring establishing a guaranty fund. The maximum amount Innovan can lend in its pre-development fund is $100,000, and while that is a good fund size for cohort members who are working on smaller single-family developments, it wasn’t enough for some participants in the initial cohort.
The firm plans to work with a third-party consultant and roundtable alumni to build an effective fund.
“With a guaranty pool fund, we can aggregate capital that allows people to use this as a guarantee on their projects, which would allow them to access more capital from a lender than what we could even do in a traditional fund,” Parker said.
Titan & Associates Inc. President and CEO Kwame Ellis, one of the developers participating in the second cohort, initially wasn’t sure what he wanted to get out of the roundtable. He joined on the advice of a cousin and business partner.
Titan & Associates has a pipeline of 25 homes it's building in the next 18 to 24 months, with 10 currently in production and three completed. Much of the company’s funding comes from the owners or private money, so Ellis thought the roundtable would be a resource to find more banking relationships.
"I'm getting more than that because there are other resources outside of banking," Ellis said. "As you scale, are your taxes set up? Is your CPA lined up properly to scale with you? Are you getting all the breaks that you need to be getting? [Maggie Parker] has it set up where you got coaching and individuals that are way more experienced than you and can say, 'Have you considered this? Did you know about this?'"
As the organization completes the second year of its pilot, it will connect with alumni to see what a long-term version of the roundtable could look like and explore ways other markets can adapt it outside of Dallas.
“We're having some conversations with a statewide organization to say, 'How do we work with groups that are not in the major markets?,'” Parker said. “They may not be in Dallas, Houston or Austin. They may be in some of the second-tier markets. How can they learn from each other across the state? When we think about this thing long term, how do we revamp the resources that we have? How do we revamp the fund?”
SouthFair Community Development Corp. Executive Director Annie Evans didn’t expect the social media attention that came after she completed the first cohort of the roundtable.
Established in 1991, SouthFair is currently in the pre-development stage for Townhomes at Malcolm’s Point, a 21-unit townhome community offering both affordable and market-rate housing, and Malcolm’s Point Retail.
As the leader of the agency, Evans felt like being part of the roundtable was part of her duty of to advance SouthFair and a great way to meet builders who could partner with the organization. Another cohort participant will build SouthFair's new townhome development after Evans invited him to submit a bid, and she’s discussing collaborating on another development project with a separate member.
“You make these connections, and when you do things like get a grant, you see those folks coming to support,” Evans said. “You constantly get others that want to connect with you on LinkedIn. For SouthFair being a nonprofit, that’s exposure. Exposure is important for any organization or company. For a nonprofit, a small one at that, sometimes it gets tough. There’s a lot of nonprofits and competition out there."
