Scaling Investments, Scaling Impact
Asset Servicing for Place-Based Funds
Launched in 2019, The Neighborhood Impact Investment Fund (“NIIF”) delivers capital and promotes inclusive, equitable growth in Baltimore’s historically disinvested neighborhoods. Initially capitalized with a $51.7 million loan from Baltimore City, NIIF supports communities by providing loans and investments that accelerate economic growth, catalyze business activity, deliver needed services, and create greater economic opportunity for residents.
As a place-based fund, NIIF targets investments to specific Eligible Neighborhoods defined by Baltimore City that have suffered for decades from a lack of investment, segregation, and racial discrimination. LOCUS Impact Investing services NIIF’s growing and diverse investment portfolio, enabling them to maintain a lean staff and invest only in the infrastructure they need to scale community impact. In return, our partnership with NIIF helps LOCUS to advance our goal of helping more mission-aligned capital flow into communities.
LOCUS had the opportunity to speak with NIIF President and CEO Mark Kaufman and NIIF Chief Lending Officer Lori Glass about the process of bringing The Neighborhood Impact Investment Fund to fruition:
To begin, how did NIIF get started? How would you describe what you do today?
MARK KAUFMAN: The history of NIIF is deeply tied to the history of the city itself. Baltimore has a long, unfortunate history of racial segregation and discrimination. We have the dubious distinction of being the first city to have a segregated housing ordinance. The problems aren’t unique to Baltimore City, but it’s a legacy that we must grapple with every day.
In that context, we have seen long-term disinvestment in communities outside of our city’s downtown core and waterfront areas and, most notably, communities of color. Frankly for decades, capital was just not flowing into these places, and three years ago, City leadership decided that there was a need for a focused, intentional effort to make capital available to people who were underserved by existing institutions. That’s where NIIF came into the picture.
Technically, we got our start in a creative transaction where the City monetized owned assets - in this case, public parking garages. Baltimore pulled capital out of these physical assets and, in turn, loaned those funds to a new public-private partnership with a mission to deliver capital to defined neighborhoods that have suffered from disinvestment and structural racism. It wasn’t about specifically creating a community development financial institution, or CDFI. The goal was to create a flexible, place-based resource that is independent but operates in alignment with the city to deliver capital to disinvested communities, accelerate equitable growth, and leverage outside funds in ways a municipality can’t. That’s been our focus since day one.
LORI GLASS: Placed-based work is a part of our DNA. It was vital that NIIF be strategically centered on the neighborhoods we serve. Because we all come from the CDFI space, we’re cognizant of the need to leverage existing networks to get things done. In an alternate universe, where NIIF’s fundamentals were closer to, say, a venture fund, we wouldn’t have as good a grounding on the existing financial landscape. Our roots mean we do our best to fit in with capital ecosystems in Baltimore instead of jumping in and supplanting the important, local work already being done. That’s been consistent since the beginning.
What specific types of capital support does NIIF provide? How does your team channel capital to where it needs to go?
KAUFMAN: As Lori mentioned, we are a place-based fund which impacts our strategy. You can fix a particular product, or you can fix it in a particular place; but in our experience, you can’t do both.
And since neighborhoods have different needs, different characteristics, and so forth, we choose to be product flexible. There’s no one-size financial solution that fits all. As a result, our transactions and loan products are pretty varied. Already, we’ve done everything from supporting the acquisition of existing commercial and residential properties to financing the ground-up development of community facilities.
To maximize our impact, we also try to provide capital that complements other lenders and community resources. We want to be multiplying the distance dollars can go while completing the goals the communities themselves are undertaking.
This results in lending that is both customized and collaborative. We have touchpoints with stakeholders at multiple stops in the development cycle, and we rely a lot on our excellent loan committee to make sure we can deliver. More mature CDFIs serving larger markets can rely on established products and precedent transactions. We need to be committed to meeting the market – borrowers and partner lenders alike – where the need is.
To date, we have committed over $30 million. Roughly half of that is housing-related, and the remainder is either community facilities, mixed-use, intermediary loans to other CDFIs, etc. And again, these products are at all stages – from predevelopment to term financing.
Can you paint a picture of the communities and stakeholders you serve?
KAUFMAN: Let’s start with the people we serve. Our fund serves a market of Eligible Neighborhoods encompassing about two-thirds of the city, almost everything in Baltimore except the downtown core and the waterfront. These neighborhoods are about 85% nonwhite, and 90% of the city’s African American population lives in NIIF’s footprint, a testimony to how segregated Baltimore still is.
And the inequity is staggering – higher unemployment, poorer health outcomes, lower wealth, and clearly, lack of access to capital.
To break out where we are further, NIIF operates in alignment with Baltimore City and its community development strategy, which articulates four impact investing areas, neighborhood clusters with anchors, and other factors that make them the focus of near-term public efforts. In our short history, we have now supported transactions in all of the four areas. We try our best to prioritize our activities in the same arenas as our stakeholders. This only works if everyone is pulling at the same time.
NIIF has a unique relationship with Baltimore City. Can you describe the contours of that relationship and how it helps NIIF meet its goals?
KAUFMAN: We have formal links to the City as our lender, including three seats for City officials on our board which currently numbers 13, but it’s the informal elements that make the relationship work. We carry out an extensive dialogue with Baltimore City’s Department of Housing and Community Development, as well as their state counterparts, where we compare notes about what’s happening on the ground and how best to keep the momentum moving forward. These talks are invaluable because community development projects can be complicated, and public sector involvement, while critical, makes them more. They might not be multi-billion-dollar infrastructure transactions, but they generally involve complex capital stacks with multiple partners all talking to each other at once.
NIIF’s relationships create a space for us to help facilitate communication and to ensure everyone is on the same page. When a new hurdle appears, a lack of clarity on whether the City owns a title, for example, we can convey the nature of the holdup between the City and the developer. Where we might not be in a position to solve a problem, but we can at least get it on the table and help to keep it there so everyone moves forward together.
Symbolically too, the relationship is important. The $50 million commitment the City made in launching NIIF is a significant statement about Baltimore’s focus on equitable neighborhood development. Our collaboration, I hope, helps send a message to the development side of the equation that the City and our neighborhoods are open for business; it’s safe for developers to get in the water. And to the mission side that there’s another resource trying to help.
We don’t have a profit interest; our only goal is to move things forward. That galvanizing activity is one of the most important things NIIF does, and the links we have to the City support that work.
Through strategic investments, NIIF invests in non-bank, mission-oriented lenders in market sectors the fund is less equipped to serve on its own. Can you describe those partnerships?
KAUFMAN: As a new fund, we have tried to be realistic in recognizing our strengths and weaknesses as we work to meet our mission. We have a significant advantage in terms of flexible capital and transaction structuring in directly deploying capital for large-scale, impactful projects. Then there are those transactions NIIF is less equipped for with limited infrastructure. For example, small business loans and small construction projects are difficult to scale and require a large workforce. Yet these are critical needs.
NIIF tries to identify partners to support who can fill those gaps, typically mission-focused lenders or intermediary organizations. During PPP, for example, we provided 0% capital to one of the nation’s largest small-business CDFIs to entice them to focus on small PPP loans in Baltimore City. We also provided capital for a new fund to serve small developers in renovating row houses for affordable homeownership.
Operating in communities that have been excluded from access to traditional finance requires a certain amount of trust-building. How does NIIF tackle that?
GLASS: Trust-building is the cornerstone of developing a true partnership. NIIF goes to great lengths to make sure our stakeholders know that partnership is a core part of our strategy. Our outreach, person-to-person meetings, really anything we do in communities, all of it centers on that aspect of our work. Before the pandemic, we spent days running from one meeting to another, some in large groups, others one-on-one. CDFIs can be very effective bridges to the people we want to serve, so NIIF has made a point of creating touchpoints with and between those institutions. We want to be a source of collaboration – using our flexibility to collaborate, not replace – to expand activity and build the capacity of the city’s capital ecosystem. In addition to promoting organized activity between CDFIs, NIIF works with their borrowers to make connections, creating an overall environment of trust where all actors in this space feel they can talk to us. This enables us to work across multiple sectors and arenas, from philanthropy to the policy sphere, all of which are predicated on trust throughout the city.
What can capital providers like NIIF do to ensure that development is equitable? How does equity fit in NIIF’s work in general?
GLASS: NIIF has a positive culture for incorporating racial equity, diversity, and inclusion in all of our activities both externally and internally. Beyond lending to diverse stakeholders, we make a point of having diverse staff, board, and contractors that reflect Baltimore. It’s baked into our culture where, in our everyday conversations, discussions of race and equity aren’t something we shy away from. Even our underwriting packages include impact worksheets where points and final scores are influenced by racial equity, diversity, and inclusion. We use underwriting guidelines that reduce barriers for people of color so that we have higher participation while making a point of tracking the participation of minority and women-led businesses.
KAUFMAN: These conversations don’t end either. Change won’t happen without intentionality, and equity concerns need to be at the forefront every day. For example, what products do we offer? What costs are involved? As I mentioned, we recently helped to launch a pilot loan fund designed to support small, undercapitalized developers who are often nonwhite. That program offers loans to borrowers with lower credit qualifications and shifts fees to the back end when the home is sold versus up front to reduce the need for wealth, which can serve as a barrier to entry. None of this is to say NIIF has cracked the code, but it is something we need to prioritize. Otherwise, nothing will be done about persistent inequities across the capital ecosystem.
NIIF received its CDFI certification last year. How will this designation affect your work going into 2022?
KAUFMAN: Becoming a certified CDFI is important on many levels. First, it clarifies and cements our status for stakeholders. While our unique relationship with Baltimore City is core to NIIF, NIIF is not a city agency, and being a CDFI helps underscore both our independence and our mission.
At the same time, we are now officially part of the network of CDFIs working to meet community needs locally, regionally, and nationally. NIIF is committed to collaboration and being part of this network is an important component of that strategy. This can include partnering in transactions to meet a larger need or in launching new initiatives. As part of a peer network, we can draw on experience from around the country. There’s no need to reinvent the wheel; you’re never alone in this space.
Finally, certification as a CDFI gives us potential access to funding – both public programs operated by the CDFI Fund and private or philanthropic support in the future which we can leverage to meet our mission.
About the Interviewees
Mark Kaufman, President and CEO
Mark Kaufman is the CEO of the Neighborhood Impact Investment Fund. A lifelong Baltimorean, Mark was most recently Executive Vice President at City First Bank, a Community Development Financial Institution with a 25-year history of providing mission-oriented capital in DC, Maryland and Virginia, and President of the bank’s non-profit holding company. Previously, he served as Counselor to the Deputy Treasury Secretary in the Obama Administration with responsibility for domestic finance issues for three years and as Maryland’s Commissioner of Financial Regulation for five years in the wake of the financial crisis. At the conclusion of his service, he was named Maryland’s Consumer Advocate of the Year by the Maryland Consumer Rights Coalition. In addition to his work in government, Mark has over 15 years of finance experience as an investment banker in Baltimore, with Alex. Brown & Sons and various successor entities. He is a Trustee and Director of the Enoch Pratt Free Library, a board member of the Jacob K Javits Foundation and a member of the Affordable Housing Advisory Council of the Federal Home Loan Bank of Atlanta.
Lori Glass, Chief Lending Officer
Lori Glass is the Chief Lending Officer of the Neighborhood Impact Investment Fund. She has over 20 years of experience in impact investing and program development. Prior to joining NIIF, she was selected to build a new program at the Primary Care Development Corporation, a CDFI specializing in healthcare lending. There she launched a program funded by New York State created to increase access to primary and behavioral health care in underserved markets. From 2013-2016, she served as CEO for Appalachia Community Capital, a start-up loan fund established to leverage grant capital, foundation PRIs and bank lending to support under-invested communities. From 2003-2011 she worked at the Reinvestment Fund, where she was a member of the management team, led key efforts to launch the healthy foods financing program, and worked as a local market director. Lori serves as board member of the National Housing Trust Community Development Fund where she serves on the Loan Committee.
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