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Village Capital is enlarging NEO footprint Nonprofit, which has been vital to Cleveland since its 1992 launch, is aiming to help neighboring cities By JEREMY NOBILE jnobile@crain.com
Village Capital Corp. quietly has driven catalytic change in Greater Cleveland for more than 20 years. And while the nonprofit’s predominant focus always will be on the city of Cleveland, it’s increasingly looking to how it might spur revitalization in other neighboring communities in Northeast Ohio. With the housing market finally stabilizing years removed from the Great Recession, Village Capital, the real-estate minded financing subsidiary of Cleveland’s Neighborhood Progress Inc., wants to expand its footprint with new funding partners and lending opportunities in Cleveland’s suburbs and throughout Northeast Ohio, said Linda Warren, president of Village Capital and senior vice president of placemaking for Neighborhood Progress. Village Capital is a certified community development financial insti-
tution — one of only a few such groups in the state. Dione Alexander, senior vice president of lending, described Village Capital, founded in 1992, as a “non-bank bank.” The U.S. Treasury is to community development funds like Village Capital as the Federal Reserve is to banks. The institution provides loan capital to underserved communities predominantly for real estate projects with potential for spurring catalytic transformations, but the funding sources are many and varied, from the Gund and Cleveland foundations to US Bank, Huntington Bank and private donors. Their money often is applied as part of financing packages — commonly called “baklava” financing because of the various layers — to cover projects’ shortfalls or leverage other available dollars, especially in complicated public-private partnerships. Every dollar Village Capital invests attracts at least $10 more, Alexander said.
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when it created Prism in 2011. Through Prism, Magnet started helping manufacturers create new strategies, break into new markets and hire employees — on top of the product development work Magnet already was doing. The result? The first 10 companies that went through Prism say they created about 200 jobs specifically because of the program, according to data collected by Magnet, which gets paid if the company achieves those goals. Now, JumpStart and Magnet aim to create more jobs at other companies. Magnet will take the lead with manufacturers, and JumpStart will manage the rest. But in most cases they’ll work together.
That has fluctuated over the years, from about $8 during the recession to nearly $20 prior to it. Leveraging was higher pre-recession, as the nonprofit served as more of a secondary source of capital than a primary one. Village Capital, which has about $18 million in total assets, is finalizing details for its 2014 report to the community. But in fiscal year 2013, Village Capital financed nine projects, including five low-income tax credit partnerships involving 183 units of scattered site lease purchase housing. Village Capital also was the lead lender on Phase I of the Uptown Project in University Circle, a $45.1 million project for which Village Capital financed $8.2 million and kicked in nearly $750,000 of its own money. Typically, Village Capital’s loans are less than $1 million. The group is headquartered in a building it helped revitalize beginning in the mid-2000s — the historic St. Luke’s Hospital on Shaker Boulevard. The building now includes 139 units of senior apartments, the Intergenerational School (a K-8 charter school) and offices for other nonprofits.
A couple recent contributions are helping fuel some of Village Capital’s coffers and, by extension, its goals. That includes a $1.3 million award earlier this year from the Community Development Institution Fund of the U.S. Treasury, which will be injected into projects for Cleveland’s neighborhoods. “We’re doing multiple projects across city neighborhoods where we can make an impact,” Warren said. “We’re all about community, and we’ll invest here to spur other development.” A separate $1.5 million has come in from the Raymond John Wean Foundation of Warren, underscoring Village Capital’s efforts in establishing new partnerships in order to grow its footprint. That money is being used for similar real estate projects in Mahoning Valley. Recently, Village Capital loaned $900,000 to the Tech Belt Energy Innovation Center in Warren to support the renovation of the center’s business incubator focused on tech and energy companies. And just this month, VCC approved lending $630,000 to the Youngstown Business Incubator as part of a $5.6 mil-
lion project there. “The reason we’re expanding our footprint … is we are unique because there aren’t many CDFIs (community development financial institutions) nationally, and fewer are in Ohio,” Alexander said. “It’s pretty exciting. I think we’re filling this niche in the capital continuum.” During the recession, when bank and private capital dried up, Village Capital was a primary lender for mortgage financing. But as the housing market recovers, Village Capital is considering additional opportunities. “It’s not that we’re getting away from housing, but we’re seeing the housing market stabilize,” Warren said. “We’re also seeing banks interested in lending into that market again whereas five years ago they’d shy away from it.” She said those other opportunities might also include financing of facility projects, referring to grocery stores, schools, health clinics and nonprofit headquarters. “We’ve always done non-housing, too,” Warren said. “But in 2015, we will be looking at more of those.”
New JumpStart fund will loan cash to small businesses The two Cleveland-based organizations bring different skills to the table, said Ethan Karp, who directs the Prism program. Magnet knows manufacturing and has experience helping more than 40 established companies through Prism. Meanwhile, JumpStart has expertise in technology, recruiting and raising capital. “It really is leveraging the talents of both groups,” Karp said. And they’ll often bring in other organizations or outside consultants when they need other skills. Like Prism, the scale-up program will only require companies to pay for the services they receive if they actually grow. The pay-for-performance system helps “open doors the free market
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JumpStart now has a new source of funding for small businesses — be they startups or established companies. The Cleveland-based nonprofit has raised $1.7 million for a new loan fund that will disproportionately target businesses in low-income parts of the region. JumpStart aims to get the federal government to certify the fund as a Community Development Financial Institution, which could help it raise more money. Starting in January, the fund plans to start making loans of about $300,000 to small businesses that can’t get loans from banks. That includes loans backed by the U.S. Small Business Administration, which are designed to encourage banks to finance small businesses that don’t meet normal lending requirements. Is that too risky? Michael Jeans, president of the loan fund, says no. The fund will avoid taking big risks because it will get to know the companies better than a bank normally would. Jeans also said that it will charge a slightly higher interest rate than most banks. Plus, he and his colleague, chief credit officer Jeff Clawson, each have spent more than 20 years working in finance. “We will find opportunities,” Jeans said. JumpStart contributed $1 million to the loan fund. The rest of the money came from the Cleveland Foundation, the Fund for Our Economic Future and the U.S. Department of the Treasury. — Chuck Soder won’t open,” Karp said. Companies in the scale-up program are modestly profitable at best, so they often can’t afford to hire a big management consulting firm like McKinsey & Co. or Deloitte, according to Karp, who worked at McKinsey before joining Magnet this past March. “There’s no way one of these scale-ups is going to hire a Deloitte,” he said. Private equity firms play a similar role in the economy: Many of them buy underperforming companies and help them improve their performance. But the companies in the scaleup program aren’t likely to catch their attention, according to Bill Mulligan, a managing partner at
Primus, a private equity firm in Mayfield Heights. To be eligible for the program, companies can’t generate more than $20 million in sales annually. “Many of these companies are small and probably under the radar of most private equity groups,” said Mulligan, who led the Regional Competitiveness Council’s working group focused on the scale-up program. The program won’t impact JumpStart’s existing programs for startups, Leach said. And it won’t use any money that JumpStart has received from state programs designed to spur entrepreneurship. JumpStart was designed to help startups, but Deborah Hoover said she thinks it has the flexibility to
switch gears and help established companies in industries it hasn’t worked with before. Hoover is CEO of the Burton D. Morgan Foundation and chair of the Fund for Our Economic Future — the organizations that paid for the pilot. Hoover added that the scale-up program “has the potential to create jobs at a faster pace” than programs that target startups. The program likely would need more funding if it is to go beyond the pilot, said Karp, of Magnet. It’s unclear whether payments from companies that receive services could eventually sustain the entire program, but it is a possibility, he added. “There is a world in which it is self-sustaining,” he said.
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