New St. Louis Fed Tool Dives Deep into Community Investment

By

Michael C. Eggleston

It might come as a surprise to learn the following:

  • The New Markets Tax Credit (NMTC) program was critical to financing New Orleans’ recovery after Hurricane Katrina. In the five years preceding Hurricane Katrina, New Orleans received nearly the same amount of NMTC investment as did Tulsa, Okla. (See Figure 1.) In the five years post-Katrina, New Orleans received $1.2 billion in NMTC investment while Tulsa received $68 million. (See Figure 2.)
  • Arkansas, Illinois, Mississippi and Missouri had among the lowest average interest rates in the nation on small-business loans originated by Community Development Financial Institutions (CDFIs) in 2015. (See Figure 3.)
  • Wisconsin is a national leader in NMTC and CDFI investment into nonmetro, rural communities.
  • El Paso, Texas, leads all metros for CDFI consumer lending.

You can dive deeper into these and other stories through the St. Louis Fed’s new Community Investment Explorer (CIE), an interactive tool. CIE aggregates over 500,000 transactions from three programs that drive investment into underserved communities—the Low-Income Housing Tax Credit (LIHTC), CDFI and NMTC programs. Collectively, these programs are responsible for several billion dollars of investment into underserved communities each year. The investments support a range of activities, from affordable housing to commercial real estate development, consumer and business lending, and more.

The CIE was built to show geographic comparisons and trends over time in a way that is easily customizable. For example, some users will view the full range of investment activity; others, only business and commercial real estate loans. Some users will be interested in LIHTC data only related to developments that are new construction; others will want to see the entire range of construction types. Data can be customized for time (only one or two particular years or all available years) and geography (e.g., state-level comparisons, metropolitan statistical area (MSA) comparisons, non-MSA comparisons). Within each geography type, the user may select as many or as few locations to analyze as desired.

Affordable Housing

The CIE shows how prevalent government loans and subsidies are in the development of affordable housing that utilizes the LIHTC program, which would be of interest to public officials, affordable housing developers, policymakers and tax credit investors. Subsidy, beyond tax credits, is often necessary to build affordable housing. The CIE shows exactly what type of subsidies in different markets tend to fill financing gaps that allow deals to close and, therefore, affordable housing to be built. Also, the ability to see when a subsidy is most needed can be helpful to public officials and policymakers as they take into consideration funding levels for various programs. Likewise, the CIE provides stakeholders with a good understanding of how often, in which markets, and when FHA and USDA loans are utilized to finance affordable housing.

In addition to analyzing data from LIHTC transactions, those in the affordable housing field can determine the degree to which CDFIs are engaged in financing affordable housing. The CDFI dataset allows users to see not only the total amount of CDFI investment into affordable housing, but also the terms of the investments. This information could be valuable for developers, who are responsible for arranging the financing to build affordable housing. A developer can focus solely on CDFI-financed affordable housing transactions and drill down to particular locations and years. From there, the developer can learn the average interest rate, the typical guarantee, if any, that is required, the typical lien position and more. Equally as important, affordable housing developers will perhaps have a stronger understanding of the opportunity to partner with CDFIs to finance affordable housing developments in the future.

Commercial Real Estate

Commercial real estate developers, community development entities, commercial real estate owners, policymakers and economic developers who are focused on and/or operating in underserved areas will find particular value in the NMTC and CDFI datasets. As previously noted, the CDFI dataset has a rich amount of information on the investment amount and terms of commercial real estate transactions. While the NMTC dataset doesn’t have the same level of detail on deal terms, it does show how much investment supported commercial real estate development in underserved areas. Furthermore, the dataset shows how much of the total project cost was reliant on NMTC financing. As a result, stakeholders will perhaps have a better understanding of the opportunity and impact of the CDFI and NMTC programs as they relate to financing commercial real estate development in underserved areas.

Small Business and Consumer

Finally, the CDFI and NMTC programs both finance the operations of small businesses and consumers in underserved areas. Therefore, business owners in particular will find value in learning how much each program invests in small business, the terms of the investments (in the case of CDFI), and where and when those investments are taking place. As for consumers, they now have access to the amount and terms of consumer lending by CDFIs across the U.S. Consumers and small-business owners can use this information, find a list of certified CDFIs from the Treasury Department’s website and then contact CDFIs in their market to discuss how their business or personal finance needs can be met.

The CIE contains a vast amount of information on community development investment. Several different types of organizations can benefit from the ability to aggregate and customize the data to meet their needs. By making this information more accessible, we hope that it becomes more efficient to raise and deploy capital in underserved communities—for affordable housing, commercial real estate development, small businesses or consumer lending.

For more information, contact Mike Eggleston at michael.c.eggleston@stls.frb.org.

Michael Eggleston is a senior community development specialist at the Federal Reserve Bank of St. Louis.