Investing in Businesses in Opportunity Zones

Season 1, Episode 4

In Episode 4: Investing in Businesses in Opportunity Zones, Professor Kate Cooney explains the current status of OZ regulation related to business investment and highlights the key questions about these regulations that have slowed down investor action in this area and also the tensions in play around community benefit.  Dr. Cooney leads listeners through a series of models for supporting local entrepreneurs in OZs, including mixed use housing developments with ground floor commercial that might be both amenable to OZ investments and supportive of the growth of local entrepreneurs, a corner store Bodega economic development program yielding real results, impact investment funds focused on helping small and medium size businesses grow along with the regional economy in gentrifying neighborhoods, and an arts based economic development project with business and neighborhood development in its sights. Guests include: Greg Reaves from Mosaic Development Partners in Philadelphia, Joe Evans from The Kresge Foundation, James Johnson Piett from Urbane Development, Aliana Pineiro from the Boston Impact Initiative, Lucas Turner-Owens from the Boston Ujima Project and Jason Price from NXTHVN in New Haven, CT.  Take a listen!


1. For more information on the second round of OZ guidance, related to business investment in the zones, see the EIG summary and statement here

2. To listen to the Opportunity Zone podcast with Jimmy Atkinson cover the second round of OZ guidance on the issue of business investment regulations. Click here:  Episode June 17th, 2019 Operating Business OZ Fund Strategies & Episode April 22nd, 2019 Takeaways from the New OZ Regulations

3. Joe Cortright, CityCommentary, 2017, Constant Change and gentrification here

4. Karen Chapple’s Urban Displacement Project homepage

5. More information on Anchor Based Economic Development from the Democracy Collaborative

6. Mosaic Development Partners

5. The Kresge Foundation 

6. Boston Impact Intiative

7. Boston Ujima Project


*Photo of a Boston Ujima Project community meeting, courtesy of Lucas Turner-Owens.
Episode Transcript: 

Kate Cooney (00:00):

This is CitySCOPE.

Camilo Monge (00:01):

A new podcast from the Inclusive Economic Development Lab at the Yale School of Management.

Lauren Harper (00:05):

Where we learn about what might be possible in our city by talking with others about what is happening in theirs.

Liam Grace-Flood (00:11):

Are we ready?

Paul Bashir:

Let’s go.


 Kate Cooney (00:00:27):

Welcome to episode four, CitySCOPE podcast. This is Kate Cooney and today we are covering the topic of Business Investment through Opportunity Zone Funds. At this point, early in the Opportunity Zone program, the majority of funds being raised are focused on real estate and multifamily real estate in particular. Why is that? Jimmy Atkinson from the Opportunity Zone podcast has been making the argument that because this is a program targeting capital gains, the best use is actually on the business investment side where the returns can be 10X or even a 100X for seed and venture capital investors.

Kate Cooney (00:01:04):

There have been two big questions about the rules for business investment. The first had to do with what it means to have a business that does substantially all of its business inside the zone. The first tranch of regulations that came out in October of 2018 stated that 50% of the zone business gross income had to be from its local zone. This was confusing because it could mean that only retailers selling from inside the zone to local customers such as coffee shops, restaurants, fast food, grocery stores, would be eligible instead of the next Amazons. Under new guidance released in April 2019 the criteria expanded from revenue generation to service transactions and employee location, providing a broader set of ways that businesses could meet this regulation.

Kate Cooney (00:01:56):

The second issue had to do with the 10-year investment time period required to receive what many feel is the most important incentive in the OZ program. The ability to take out all of the appreciation related to that original capital gain investment tax free. That 10-year horizon does not line up with the typical venture capital timeline for investment, which tends to be three to seven years. The April 2019 rules clarified that investors will still get special tax treatment if they’ve held their stake in a fund for at least 10 years, even if the fund doesn’t own the asset for a full decade. It allows for a rolling investment strategy without holding a specific property or investment in a business for 10 years, which for many investors may not be an ideal strategy.

Kate Cooney (00:02:42):

This was welcome news. Let’s get to the elephant in the room - the question of gentrification and displacement. There’s a question in the back of everyone’s mind. While the influx of investment that these Opportunity Zones could unleash actually benefit the people who have called these communities home for generations or just the “top talent”, a term of art for the highly educated young entrepreneurial and tech set who just moved in 18 months ago. For example, some of the first VC/OZ funds are targeting investment in the Brooklyn Naval Yard, a mission driven industrial park that was targeted for redevelopment in 2002 and is now home to over 400 businesses employing more than 9,000 people.

Kate Cooney (00:03:26):

The OZ is also surrounded by some large scale public housing. Write-ups on these new funds in business magazines focus on the tech incubator at the Brooklyn Naval Yard, which is home to 140 tech startups. Will the expansion of these tech incubators have any impact on the lives of those living nearby in the public housing? Are any of the tech incubator entrepreneurs also residents of those buildings? Whether or not gentrification is good or bad for the neighborhood is a point of debate.

Kate Cooney (00:03:53):

In articles in the Atlantic, CityLab and the City Observatory, Joe Cartwright, President and Principal Economist of Impresa, a consulting firm specializing in regional economic analysis, reviews empirical work that shows that in gentrifying neighborhoods, low income households are no more likely to move than those in non-gentrifying places, although there is an increase in involuntary movement among movers. Karen Chapple, Chief Faculty Researcher at the Urban Displacement Project and Professor of City and Regional Planning at UC Berkeley, has long argued that gentrification can be seen as an opportunity as long as there are policies in place to prevent displacement.

Kate Cooney (00:04:32):

However, in recent work by the Urban Displacement Project, just what’s at stake becomes quite clear. Between 2000 and 2015 as housing prices rose, San Francisco lost nearly 3000 of its low income black households primarily from historically black neighborhoods. Median rent rose 30% in one out of every five census tracks in the city. In the Bay Area, a 30% track level increase in median rent paid was associated with a 21% decrease in low income households of color. There was no such relationship between rent increases and losses of low income white households, highlighting just how vulnerable communities of color are to rapid rent increases.

Kate Cooney (00:05:18):

Investing in existing businesses in the community that employ or are run by local residents is one way to tie community benefit to investment goals. The Next City article from 2016 highlights the fact that in Oakland where an influx of new money, wealthier, whiter and higher educated residents are driving up housing and rental prices, minority owned businesses are also growing. One way that Opportunity Zone funds might end up investing in businesses is by investing in real estate assets that develop both housing and commercial space. Greg Reaves from Mosaic Development Partners in Philadelphia designs that commercial space in their mixed use buildings with community entrepreneurs in mind.

Greg Reaves (00:06:04):

In our programs we seek to bring commercial use in almost everything that we do, unless it’s a townhome development or a townhome building. If it’s a building that has more than say 30 apartments, we’ll always want to bring job creation or new business development as a part of that. And so it has to be in an area where we think both people can live and people can work. The commercial spaces are designed for credit rated tenants and noncredit rated tenants and that the widths and depths are critical to defining that. And what we’re finding in Philadelphia is that a lot of small developers are building their properties and having the commercial use as an afterthought. And what happens in that case is that you end up with depths that are 30 feet depths?

Greg Reaves (00:06:50):

Our experience from being commercial shopping center developers is you need typically 60 to 80 foot depths to get accredited small businesses to come in. So whenever we’re doing new developments, we try to make those depths 60 feet deep at a minimum. But if you have a 30-foot depth, you have first floor properties that don’t naturally fit with a commercial sales area or a business design. You end up subsidizing a lot of that business, particularly in the communities where we are. In higher income communities, they don’t typically subsidize them, but they go out of business a lot and they pay rent and you see pretty high turnover in those areas.

Greg Reaves (00:07:28):

In lower income areas, our goal is to try and get these folks in at $10 a square foot, $12 a square foot, not 30, because that at least gives them the ability to build a word of mouth business. Something that’s more stable, something that takes longer to build, but it gives them the ability to have a professional storefront. And so we really do look at the design of the first floor in terms of dictating who we think is most likely to use that business. In every instance, we’ve been able to take a local community person and bring a first time business owner into our developments and subsidize them and get them up and running. And today we have a number of them operating in our properties and we see that growing.

Kate Cooney (00:08:11):

In episode two on Affordable Housing and episode three on Community Land Trusts, we heard about the trend from mixed use buildings that have housing on the top floors but offer retail on the ground floor. Like Greg Reaves, Val Orselli is using the ground floor of the community land trust apartment buildings for commercial space. These commercial rents are shared among all 23 buildings in the community land trust and are used for operating expenses across all of the buildings. The commercial spaces also support entrepreneurs who would otherwise be priced out of the neighborhood.

Val Orselli (00:08:46):

My problem here is commercial displacement because many of our merchants are being driven out of business by skyrocketing rents and there’s a little bit too much of the wrong kind of business. There’s far too many, for example, liquor stores and bars because we have a lot of young people living here. This is a very trendy neighborhood and so there are those displacement pressures there. We’ve lost many of our mom and pop stores. A number of years ago, we actually mounted a major effort, which we tried to make citywide, for commercial rent protection and it got nowhere. We do not rent to chain stores. We rent to individual small stores and they have varied over the years.

Val Orselli (00:09:31):

We had a leather shop at one point, which now has been replaced by a small art gallery. We have a food co-op, we have a place that sells guitars, and the gentleman increased his business at a point that he’s renting out two stores now. One for electric guitars and one for acoustic guitars. We have a restaurant that’s thriving and has excellent Italian food that was started by a family that were tenants here for many years. Like I said, they saved the money and they opened up a business. We have a Mexican arts and crafts store; we have an ice cream store. That’s the kind of business we have here.

Kate Cooney (00:10:12):

Karen DuBois-Walton, President of the Elm City Communities in New Haven has a similar vision. In her case, she’s also thinking about the particular kinds of goods and services that the community would benefit from and looks to plug those kinds of businesses into the commercial retail space available in her buildings.

Karen DuBois-Walton (00:10:29):

We’ve brought in convenience stores and places that were a traditional food desert. We’ve brought in healthcare providers in places that didn’t have easy access and demonstrated poor health outcomes. We’re also looking at cooperative models where perhaps our residents will have some ownership in the business that comes in, learn a skill, have some equity. In some places we’re exploring early childcare because that’s a need and it’s also the kind of barrier that may keep a mom or dad from being able to get back into the workforce.

Kate Cooney (00:10:58):

Karen mentions a childcare provider as one of the possible tenants for the retail space in one of her buildings largely devoted to housing. Mosaic Development Partners just recently finished a building where they did just that. Working with an existing daycare center from the neighborhood, Mosaic helped the owner expand into the retail space in their new building, allowing the entrepreneur to take her business to the next level. One of your buildings features a childcare center. Was that a local entrepreneur and can you tell us about the process of getting him or her ready to move into that bigger space?

Greg Reaves (00:11:34):

Yes. It’s a local entrepreneur who already has a childcare center, a smaller center, about half the size in another section of Philadelphia. She was a star three operator. In Pennsylvania, they have designations in terms of the quality of your operation and the highest would be a star four, but you need outdoor space, you need some intangibles about your building that she didn’t have in her other space that would never get her to that. So she was the highest rated community operator that you could have for the space that she owned. We brought her into a new space in our development that allowed her to double the size and build her business model. And it’s also a woman owned business, which we love and we’ve been giving her support from the beginning.

Greg Reaves (00:12:15):

We’ve subsidized her rent, we’re helping her move her business forward. We’re helping her with the city when she runs into problems, but for the most part she’s also just working hard to make this a success on her own. Both opportunities together, the developer side helping the business and the business side helping themselves, it’s what’s kept her moving and growing.

Kate Cooney (00:12:36):

Working with entrepreneurs who don’t have a lot of access to capital and who do not come from families with wealth or have social networks connected to wealth require specific kinds of strategies. Greg Reaves talks about an approach they have developed at Mosaic. Now, you often subsidize or you sometimes subsidize the commercial side which allows you to bring in community entrepreneurs and give them that runway to grow their business. Where do those subsidies come from? Do they come from that mixed income housing that you have upstairs and are you thinking always about the right mix upstairs to allow you to do some of those subsidies downstairs? Tell us about the economics of all three parts. The low income, affordable, the higher market rate and the commercial.

Greg Reaves (00:13:24):

When we enter into a project in the communities that we have, they come into, in most cases, a qualifying census track and that’s typically a census track where the income levels fall, I’d say somewhere around below 60% of the average median income of a community. They’re at a rate, in many cases where we are, they’re 30% of the average median income. Then we qualify for things for like new market tax credits. We use that money in part of our capital structure to entice commercial users at a subsidized rent to come to our properties. That gives us the ability to bring an 8,000 square foot tenant or a 2,000 square foot tenant at below market rates into this space and hopefully give them the ability to ramp up and be effective over time.

Greg Reaves (00:14:23):

The biggest problem that these unaccredited small businesses have is they don’t have the cash and in some cases they don’t have the network either. And so they need time to build both the network and the cash and one of their biggest payments ends up being the rent structure. If we can give them an $8 rent, $8 per square foot rent, which is amazing to be able to do, and maybe we ramp it up over a period of five years and we get them to $13 which is still amazing, but it actually, because of the way we structured our loan, we still do fine with that. We can charge an $8 to a $13 rent and be okay with it because we built it in from the very beginning.

Greg Reaves (00:15:04):

I think the key is structuring it from the very beginning and you know what you’re looking for with these businesses from the very beginning, and then you structure your residential rents to supplement that.

Kate Cooney (00:15:15):

Are there synergies between the folks in the housing upstairs and the businesses? Do you find that the businesses find a ready market in those residents upstairs? Do some of the residents upstairs get the entrepreneurial bug and end up in your commercial space? Tell us about that relationship between the two.

Greg Reaves (00:15:39):

What’s interesting about our developments is that the residents who come into our communities, they tend to be… they’re mostly entrepreneurial in spirit, although many of them work for other people. So when they hear about us and coming into our communities, we actually end up having about half the residents at some form or another end up in our office and ask us questions about how do they start a business or get into development. Then a small percentage of those we end up putting in business. We’re helping one resident start a coffee shop. We hope to have that up this summer. We’ve helped another resident start a marketing business. We’ve helped another resident work on his… He’s got an electrical contracting business; we’ve supported that fully.

Greg Reaves (00:16:29):

It’s really worked well. What we’ve also had tenants who are not residents recommend residents to us. We have them saying wait, “I have a cousin or an employee who I’d love to live here. I know my shop is here. Do you have any space?” And so it’s worked both ways and that way, and that’s actually really great. It’s gratifying to have people see us as being more than just the landlord and being a part of maybe solutions that they can’t figure out on their own.

Kate Cooney (00:16:56):

Many of the economic development practitioners I speak with identify the work of helping small businesses succeed and grow, particularly in low income neighborhoods as one of the most challenging levers for economic development. We’ve all heard the stats. According to the Bureau of Labor Statistics, 20% of small businesses fail within the first year, 50% by year five, and by year ten, only 35% are still standing. James Johnson-Piett, founding principal and CEO of Urbane Development in Brooklyn, New York shared some of his lessons learned from a program he developed to help entrepreneurs grow in one specific kind of industry, the corner store bodega.,

James Johnson-Piett (00:17:35):

We still have our bodega bootcamps that we run which focuses very much on essentially a rapid training for corner store bodega owners around how do you really fit your systems in a way that allow you to have the technology and the training infrastructure to provide passable products. Because most bodegas that you go into in any random neighborhood, most likely is selling very shelf stable products, mostly junk food, that doesn’t take a ton of resources to sell the products you’re selling. You have to really become a grocer. That’s a whole different industry in a lot of ways. We do these boot camps with business owners where we really help them think through their backend, think their supply chain and really work with them to make the business model, kind of think about more perishable concepts in integrating those things.

Kate Cooney (00:18:32):

Can you tell us one story about someone that you worked with who was working in the more traditional mode of a bodega and changed their model and what happened with their experience, both of their business and the consumer response?

James Johnson-Piett (00:18:48):

Sure. I’ll tell you a good one and a bad one because I think everyone always gives you the great answer and it’s not easy. What I’ll start with is we used to say, if we can be Ted Williams, we’ll be great. So it means we can bat 400. So out of every 10 times we do something, four work; it means six don’t. It’s hard and the space is getting more complicated. I’ve had successes in terms of the business owner really being able to make a lot of money. I’ve had ones that just fell flat in their face and it just absolutely didn’t work. I’ll tell you two stories, one’s Abdu. Abdu is in an East Oakland neighborhood called the San Antonio. He ran what you traditionally would call a convenience store. They don’t really have bodegas per se on the west coast.

James Johnson-Piett (00:19:32):

Before you walk in that store, it did have some basic fruits and vegetables. You found your traditional root vegetables that are easy to buy, they sit on the ground and they don’t really need a lot of work, so they just hang out until someone ends up grabbing them. Some onions and potatoes, things like that. He had some random bananas here and there, but that was about it. He sold typical … chips, cigarettes. In terms of the work we did in Oakland a lot of the stores were actually liquor store conversions because liquor was really the driver. He didn’t have any liquor in his space, but so many of the stores we worked in, in Oakland were that.

James Johnson-Piett (00:20:10):

But Abdu, one thing we talk about with him, was we felt like because he came from Ethiopia, he had a really strong reverence for food, and I think he didn’t see how his store connected to that home experience and a lot of what we worked on was, “Hey, you actually make food for your family. These are the kind of things that other people in your community you want to do. That’s going to be the baseline for you and to be able to get you to understand why are you doing this. Right?” The other big thing for him was, he was getting a lot of the kids who were buying chips and all kinds of crappy junk food. For us it was identifying, all right, where can you get people to buy whole foods and vegetables, cut fruit, smoothies, salads? Moving the food through the value chain.

James Johnson-Piett (00:20:54):

If you’re not moving that tomato, it becomes a salad and if the salad gets messed up, it becomes a soup. There was a way for you to value add before the product ultimately ran out of life cycle. As you move through the life cycle, it gains margin. Today’s whole ripening strawberry becomes tomorrow’s smoothie, and you make some more money on it. We had to figure out, well, who are the people who are going to be able to actually capture that work? In his case, it was the local hospital. He was maybe about three four blocks away from the hospital. So we were like, “Look, you’re going to go old school, you’re going to put some flyers together, you’re going to go over there and tell them you can make them a healthy lunch at 10:00 o’clock so by noon it’s all done and you have a whole army of folks either coming to you or you’re getting someone to deliver it to them.”

James Johnson-Piett (00:21:39):

That was our first point of focus there and then the three o’clock rush with the kids; it was a constant amount of sampling. What kinds of small snacks could we produce out of the space that would really get the kids excited about eating a little bit better than what they were eating before. Right? Again, they weren’t going to stop eating Cheetos, but you want to add a certain element to see if they would move with it. In that case, the intervention was we turned pretty fallow space in his deli into an actual smoothie, soup and kind of sandwich bar where you could make some products. It wasn’t a huge list. Like insome of the other stores we’ve done, got renovated to places and done a bunch of stuff. For him, it was simply getting a meal menu that was simple.

James Johnson-Piett (00:22:24):

You had core ingredients that you could do it around. It’s very fast, casual concept where you’re getting a couple core ingredients and you’re doing around that and building a flavor profile around sauces and spices and things like that that you can vary up, but ultimately you’re still buying the same amount of chicken, and the same amount of rice, the same amount of your core ingredients so you can control the cost. And really it was about the marketing. One of the things that we did that was really great and we partnered with a local nonprofit called the Hope Collaborative.

James Johnson-Piett (00:22:52):

They hosted a chefs’ challenge; so we put out the call to chefs, both professional and amateur throughout Oakland to come up with menu concepts that fit between the three and five-dollar mark for your soups and between the five and seven-dollar mark for your sandwiches and they come up with concepts that are going to be healthy and what you typically would have in other places. The winners came up with these really great simple concepts that we could really market and they were chef made and there was a nice buzz that came off of it. But Abdu just created a menu from that. The aftermath was a stable, self-sustaining section of his business that became viable because of partnerships and support.

James Johnson-Piett (00:23:32):

A real focus on community development and a real personal drive to want to do something different for him along with having an anchor, like a hospital, really be a real revenue driver. Then, just frankly, again, being on trend; moving a little bit away from the, “Let’s have this cornucopia of produce” because that’s fine, but it’s hard to get people to walk into a bodega and say, “Hey, I’m going to buy kohlrabi and bok choy.” Everyone’s known for something, so you got to figure out what your lane is. That was a really good story that worked out well for him. On the flip side, the store that people tend to know us by, we did this over 10 years ago, was a gut-renovated bodega.

James Johnson-Piett (00:24:14):

The guy started out selling again, cigarettes and candy and really a bunch of crap and we just ripped his store apart. We spent over $150,000 on the renovation between the loan fund and his own equity, and two years later he’s killing it, making almost a million dollars, selling produce and juices and full meals and just was a really awesome store. But the thing that people want to hear about with that story is that four years later he sold the business and now I still talk to Juan Carlos, he’s awesome. He sold his businesses, he took the concept from one store and he bought four more stores and since he flipped the bodega into this prepared healthy food model and then got all the business to a point where he said, “Okay, I have this business concept but I’m selling out and I’m going to level up.”

James Johnson-Piett (00:25:02):

He took the money and then he bought a bunch of laundromats. I talked to him maybe about two months ago. He owns five laundromats in the Philadelphia area and he’s making a lot more money than he was making on grocery. Part of the lesson there is like what’s success? If our point is to create models for healthy eating, that’s great and I think there’s opportunity and success stories where that’s happened. And if the model is entrepreneurship development and business growth, business owners figure out how they can make more money. You can have that happen too, and sometimes those things are cross purpose.

James Johnson-Piett (00:25:32):

One of the things that was really interesting about talking to Juan was, I told him, I’m like, ” You have this intellectual property around how you flip these businesses that ended up itself was worth something.” And the next stage of his evolution, entrepreneurially, is to figure out how to build, I think a franchise system because he speaks to his ability to be able to grow something up, whether it’s grocery or from laundromat, or whatever he decided to do, his kind of natural affinity for it. In terms of the food piece of it, you make these investments, but you have to understand what the owner’s motivation is.

James Johnson-Piett (00:26:06):

I think we have this problem where we think that when you invest in a business owner, they’re going to stay static; they’re going to keep doing anything that you wanted them to do, but in reality, if you give a business owner the opportunity to grow, they’re going to move that business in the way that the market’s speaking to them and sometimes that’s a thing that you wanted to create as a partner and other times it could be completely different. I think it’s in all that kind of constellation, you’re talking about 10 to maybe 15% of the things you’re doing, work. The rest of them either don’t work or they don’t work without subsidy, they don’t work without some some sort consistence or resource that keeps them from being completely insolvent.

James Johnson-Piett (00:26:48):

No one’s really going to unlock the silver bullet in making all this stuff just go, but I do think there are some really good frameworks that if you can get the right pieces in place, you can get some good results from them.

Kate Cooney (00:27:01):

This is such a smartly designed business development initiative. It takes existing retail anchors and reprograms them to attract a more upscale clientele in a changing market while still serving the existing market and at the same time provides healthier food options in those corner store anchors for those living in food deserts. Here’s James again about how this investment in corner store markets is actually on trend with changes in the industry more broadly.

James Johnson-Piett (00:27:28):

I think the bigger thing is the industry changing right now and I think the rules both around what it means to compete, and what it means to go to market. And the space is changing and I think this is a tricky space we’re in right now because lots of residents still perceive strictly in places that have been disinvested, they still want the big power center, they want the big 70, 80, 90, 100 thousand square foot supermarket. And you’re just seeing more and more of the industry moving away from that model, or  certainly moving away from it when it comes to the urban context, they’re trying to fit in the smaller spaces, they’re trying to limit their inventory. They’re competing with a much different set of actors now.

James Johnson-Piett (00:28:12):

Whereas 10 years ago it was really, how could you get more localized products in place, how could you create a better store experience and all that stuff still matters, but you’re also playing against convenience in a way that’s never been dealt with before. So if I use my app, I can get ready to eat product, I can get grocery products in the same day, in some cases in the same hour, for Thanksgiving. I utilize Instacart. I was using Whole Foods as my Instacart space and while that helped Whole Foods out, I could have just easily bought it from Amazon or FreshDirect, both of whom don’t have any retail inventory to speak of. They’re all wholesaling and you’re getting the stuff directly from the warehouse. When you change those dynamics, it really impacts how viable a marketplace is.

James Johnson-Piett (00:28:58):

So you’re seeing smaller footprints. If anything, I think the rise of the bodega, the corner store, the central small marketplace, is coming back in a real way, especially in urban communities. I think thinking about smaller footprint, more flexible independent grocery, because people are shopping differently and people are consuming differently. There’s definitely room for smaller independent actors to really thrive. The key to that always comes back to capital. So the smaller players can create a really great retail concept, a really great experience, but oftentimes they’re going to be the ones that are going to really need flexible capital. They’re not going to be credit tenants, or going to the banks to get a big line of credit, is not going to be something they’re going to be able to do.

James Johnson-Piett (00:29:41):

Being creative about, again, from policy perspective or just being able to get some of the banks to be more creative around lending to this new cohort, I think is going to be important.

Kate Cooney (00:29:51):

What might that creative approach to providing capital look like? I’ll give you a hint. It’s not loan funds. Joe Evans, Fund Manager at the Kresge Foundation, explains what they’ve learned from their work in this area and what they hope to see in terms of small business development and OZ funds.

Joe Evans (00:30:08):

At the highest level, what we’re looking for are investments in community identified needs, meeting community priorities and also in opportunities for residents of Opportunity Zones to have living wage jobs to operate and grow their own small businesses. There aren’t a lot of specific examples of that. There aren’t any on the operating business side yet in the Opportunity Zones because regulations like kind of just came out on how those funds might work. But we’ve been doing work for some years in how do you ensure that minority owned businesses can get access to the capital and business advice and TA that they need to be successful? It’s a huge problem.

Joe Evans (00:30:52):

One specific example is in Memphis, the mayor put out an initiative called The 800 Initiative, identified 800 black owned businesses in Memphis that had at least one employee. The percentage of black owned businesses in Memphis is like 80%, but the amount of the sort of revenue that they get is like 2%. Just start, stark differences in the amount of business that flows to them, the amount of capital that’s made available to them, opportunities they have to bid successfully on public projects or projects from large employers. To fight this and sort of help this to enable minority owned businesses get access to capital, for years, all sorts of community development finance providers have set up loan funds to make term debt available to these end businesses. In many cases, that’s not the right tool.

Joe Evans (00:31:44):

And what these businesses need are equity investments where there isn’t an immediate need to make repayments, where there’s a patient investor who’s going to bring a real desire to achieve the growth potential of these businesses and to bring associated technical assistance and business expertise to the table. Debt investors are very different than equity investors and they bring different talents and skills. The caterer who started in her kitchen and has now leased a commercial space and needs the bigger equipment before they can get the bigger contracts that will help them service that investment, today, her only option tends to be term debt from a community focused lender and we’re very hopeful to help kind of crowd in real equity investments and the business advice and TA for these types of businesses to reach their full potential.

Kate Cooney (00:32:38):

Memphis isn’t the only city with a racial gap in terms of business investment. In Boston, we spoke with two funds that like Kresge are experimenting with models for equity investment in local businesses and whose models for investment are also strongly motivated by concern with the racial wealth gap. First, let’s hear from Aliana Pineiro, Director of Metrics at the Boston Impact Initiative.

Aliana Pineiro (00:33:01):

My name is Aliana Pineiro and I am the Director of Impact at the Boston Impact Initiative. The Boston Impact Initiative Fund is a place based fund that is focused on Eastern Massachusetts and we’re really focused on closing the racial wealth gap. White families have in wealth or assets, an average of $247,000 while black families have an average of $8 in accumulated wealth, and Latino families, slightly more than black families. That wealth divide is really what we are hoping to make a difference in our fund. However, that’s not the only lens that we look at when we look at impact in our fund. We’re looking at creating these businesses that are really contributing to sustainability, to equity, and really creating a regenerative economy.

Aliana Pineiro (00:33:54):

If a certain business is really focused on their labor practices but they’re extracting and being extractive of the natural environment, that would not be an investment for us. Similarly, a very green company that’s being extractive of their labor also would not be a play for us. So we really try to operate in that complicated gray area of intersectionality between economic justice, environmental justice, and wealth building.

Kate Cooney (00:34:22):

For a business to receive an investment or a loan from the Boston Impact Fund, what would they expect that five year, seven year journey to look like? What kind of additional support and mentoring and assistance might they receive? Is there a kind of minimum combination of services that you provide or is it really done on a case by case basis?

Aliana Pineiro (00:34:50):

At BII, we engage with our portfolio almost as if we were an equity investor. And what I mean by that is we work very closely with our companies. We provide them with coaching, technical assistance, connections. We deploy social capital; we help companies get connected to larger contracts to get on procurement lists at the large institutions in the Boston area. We provide integrated capital. That means that we offer a small pool of grants, we offer equity, we offer debt. Sometimes we combine these different instruments into a single deal. Sometimes one company will just get a term loan or preferred equity investment.

Aliana Pineiro (00:35:42):

There’s a broad range of what we can do and we can be pretty bespoke about how we deploy our capital, and really the point is to keep the entrepreneur at the center and the business at the center of this relationship and make sure that whatever financing we provide is really working for that business. We are really working to help our companies grow, and grow in a sustainable healthy way that also maximizes the impact that they can have. That is true whether a company gets a $5,000 debt investment, whether they get a $200,000 equity investment. We are quite hands on and that isn’t meant to be a burden to them; it is meant to be helpful to them and we talk to them about this early on and we just say, “We will be involved with you. Is this what you want? And this capital is not for everybody.”

Aliana Pineiro (00:36:52):

We suss that out during the due diligence process, but throughout our, anywhere from one year to a seven-year engagement with the company, we are really working with them closely, both on the impact and the financial side.

Kate Cooney (00:37:07):

You’ve mentioned Wash Cycle a few times in your presentations today and New Haven is exploring opening an industrial laundry. I’m just curious if you could talk about the Wash Cycle business that you’ve become familiar with in Boston through your work.

Aliana Pineiro (00:37:29):

BII made an investment in Wash Cycle last year, in 2018 and it was actually an existing business that was in Washington DC and in Philadelphia. When they decided to open up their Boston location, we were really excited to get in and invest in them. We provided them a loan and also equity financing, so we did a combination there. It’s an example of the integrated capital and this company is a for profit organization that hires people from either that have been homeless, that are transitioning back into the workforce or that have been incarcerated and are transitioning back into the workforce. They are part of the laundry staff and also supervisors and even in management and the laundry service is provided to local hotels. They have a large warehouse out in Chelsea.

Aliana Pineiro (00:38:37):

They have these giant washing machines and sheet and towel folding machines. It’s really quite impressive. But I’d say the most impressive part about this is that they recycle most of their wastewater. They’re not emitting so much waste water as a normal laundry would, but instead recycling and reusing it. And, kind of maybe most interesting thing about this is that they don’t charge a premium to their customers because the customers are paying… they have an allotted budget, certain number of cents per pound. They have figured out how to do this with the model that they have at that rate. It’s a really great example of an alternative that is both inclusive in terms of workforce, that is not as wasteful as a traditional laundry service would be, but can provide the customer with the same rate and the same quality.

Kate Cooney (00:39:40):

Were you able to observe their efforts to contract with those hotels and did you gain any insight to how easy or hard that would be for that kind of a business entering a new city or launching in a city where that kind of relationship doesn’t exist? Maybe they’re using a big regional contractor. What insights did you gain about how easy that is to do and the business case that was made in order to help shift that contract to this local inclusive business?

Aliana Pineiro (00:40:10):

In terms of servicing the contracts that it has now, Wash Cycle was able to ramp up slowly. Part of their strategy was getting an anchor hotel and making sure that they had those main contracts. A hotel chain that had a few locations in Boston and knowing that they would have those anchor contracts to ramp up their production and start their production. Then it was about going to the larger hotel groups and saying, “Just give us 50% of your laundry from one of your hotels and we’ll show you. We can do it on time, we are responsive, the quality is just as high as the national chain, the national service that does it, and on your procurement list, on your vendor list, you can show that you are working with an inclusive business that’s owned by a person of color.”

Aliana Pineiro (00:41:15):

That incrementally and over time has been how they have grown their business in Boston. They are still growing and they face challenges, both business challenges and impact related, HR challenges or quality control challenges. They face those challenges like any other business would, but the key to their success as they’ve seen it in their growth over time has really been about going in and having the relationship with one person or one chain and anchoring it and then building on that in leveraging those relationships.

Kate Cooney (00:41:55):

As we’ve heard from Aliana Pineiro at the Boston Impact Initiative, revolving loan funds, the traditional approach to assisting small business development, are giving way to all kinds of creative approaches to connecting capital with entrepreneurs when they need it at terms that can really move them forward. One group that is getting a lot of attention for their radically different approach to investing is the Boston Ujima Project. Ujima is building an extremely interesting model that combines community organizing and business investing. We asked Lucas Turner-Owens, Fund Manager at Boston Ujima Project, to explain.

Lucas Turner-Owens (00:42:31):

Hi, my name is Lucas Turner-Owens and I’m a Fund Manager at the Boston Ujima Project. The Boston Ujima Project is a cooperative infrastructure modeled after best practices in the solidarity economy where we seek to support the creation of cooperatives, community land trusts, employee stock ownership programs, local businesses that take a high road beyond just being local and minority owned, but look to practice really best in class business practices. We facilitate a lot of that development through democratic engagement with local residents who we believe should be the stewards, the guides and the agents in our work.

Kate Cooney (00:43:10):

Really exciting and interesting part about what you are building is this notion not only that the businesses that you invest in will have this kind of deep commitment to community wealth building and a more equitable distribution of wealth, but also that the decisions about who to invest in will also be led by those communities. Can you talk about the experimenting that you’ve been doing in this space?

Lucas Turner-Owens (00:43:39):

It’s been a nonlinear journey and a complicated journey, and a journey where we allow for experimentation, which I think is really important. I think often communities of color in particular, are required to put their best foot forward and have it be perfect the first time and not allow space for experimentation. So that’s one of our core ethics is actually that that’s important. We were really inspired by the work of friends and peers, but wanted to try something pretty dramatically new where we involved more investors and more decision makers, so we decided to design our own fund.

Lucas Turner-Owens (00:44:14):

In December of 2018, we filed our offering memorandum for the Ujima Fund, which is a nonprofit charitable loan fund where the allocation decisions are, again, made by members, residents of the communities in which we hope to invest, where the investors are also residents of the community we hope to invest in. And, in addition, we bring in investments from foundation partners, from local faith organizations, from anchor institutions, from high net worth individuals, pool all of that money, but leave the decision making to the residents of the three neighborhoods that we’re focused on - Roxbury, Dorchester, and Mattapan - where the racial wealth gap that people site in Boston is played out.

Kate Cooney (00:44:53):

You’ve said the Boston Ujima Project combines a community organizing approach with impact investment to create a democratic decision making process for directing those investments. How exactly does it work?

Lucas Turner-Owens (00:45:05):

We have a pretty interesting linear process that’s unique. We start by asking the question at neighborhood assemblies with grassroots partners to about 200 folks on average. What are the businesses in your neighborhood that you love? What are the businesses you need or the ones you want to see replaced? Going back to this linear train, we ask the question, what are the businesses that you love? We ask those businesses to apply to join our Alliance. Once they’re in it, we try to connect them with resources and if they’re looking for capital at that point, we do due diligence on them, understand more about the company, what it is they’re seeking to achieve, past performance, current pipeline.

Lucas Turner-Owens (00:45:40):

Then we present to our members again in a democratic fashion, this business, this investment opportunity and we need all of our members to participate in that vote. We set a quorum within our offering memorandum that at least 51% of our voting members have to participate in that vote for us to reach a quorum. Of that, the majority need to vote in the affirmative for us to go ahead and invest in that company. And if we hit that threshold, we can then allocate dollars towards that business.

Lucas Turner-Owens (00:46:06):

In the creation of our candidate list, in the assessment of whether these are social enterprises and in the actual allocation, we are really passing off our power and placing it in the hands of folks who will be the ultimate beneficiaries of this work, who need to own this work, who have asked for that opportunity and not been given it, and I think those are the three pieces of our structure that are most unique.

Kate Cooney (00:46:29):

I think one of the really cool things about that model is that it really centers the expertise that people in their own communities have about the kind of businesses that they like, the businesses that are extractive and bad actors and the kind of businesses they need. And I’ve heard your model described as market analysis in action because once people do that work of reflecting on which businesses they love and which businesses they need and the fund does the work of investing in those businesses, those same community members likely are more apt to shop at those businesses because they’ve already identified them as things that they love or things that they need.

Lucas Turner-Owens (00:47:17):

That’s exactly right. Part of our thesis is that, in asking the question to residents, to consumers in a neighborhood, what businesses do you need that aren’t here? What businesses would you like to see replaced that are currently extractive and could be replaced with a better model? We are proving some of the addressable market within that neighborhood. We are also incentivizing consumer purchasing by offering consumer loyalty programs at our retail facing businesses so that members of Ujima can load money onto a card and for every 90 cents they put on that card, they get a dollar of redeemable value at a retail business.

Lucas Turner-Owens (00:47:52):

Both of those things incentivize that shopping and we think prove the demand and the interest for these new businesses that we’re trying to launch. That is a piece of our strategy focused on businesses that folks need and want to replace. The other piece of our strategy is in the support of businesses that are existing in neighborhoods that are rapidly gentrifying, that are largely under a million dollars in revenue and could grow.

Kate Cooney (00:48:14):

How do you get 200 people to show up to a community meeting?

Lucas Turner-Owens (00:48:19):

We have to make it fun. We have to make it fun. So what we do is we have music, we have great great food, we have childcare, we most importantly though partner with folks who have deep relationships in the neighborhoods that we’re trying to reach. Look to grassroots partners, you come from these neighborhoods, you’ve been organizing these neighborhoods on a particular topic, let’s say it’s housing justice or environmental justice or generally economic justice. We would love the chance to partner with you and have an event to bring out your folks to our discussion because really, there’s a lot of overlap there. And when we have events, they’re as successful as our relationships are with those partners and our relationships generally in the community.

Lucas Turner-Owens (00:48:57):

But then once they get there, they could just as easily turn around and leave, so there has to be some element of celebration, excitement, possibility and fun in what we’re doing so that it’s not a dry discussion about interest rates and how collateralized these loans are, but it’s a discussion about the possibility of investing in a company so that it can grow and the possibility of ownership of a neighborhood that is changing without much input of local residents.

Kate Cooney (00:49:25):

Point taken about how dry the conversation can be when focused on interest rates and loan collateral, but I do want to pause and emphasize exactly what Ujima is doing in this regard because it is in many ways the linchpin to the work.

Lucas Turner-Owens (00:49:39):

I’m excited that we have a series of products that we want to begin offering to businesses in our first round of investments this summer. On the debt side, we’re thinking of two products, a traditional amortizing term loan, which is pretty standard, but our interest rates are not. Our interest rates are anywhere from 5 to 8%, which is much lower than you’d find at a traditional lender, and in many cases we’re lending to folks who would struggle to get access to capital at a larger financial institution. The more exciting product though is a royalty financing instrument.

Lucas Turner-Owens (00:50:12):

This is debt that behaves more like equity in that we are repaid as the business sees increased success, increased revenue or increased profit, as a result of our investment. Very specifically, we’ll look at their financials for the last two or three years, understand how much their revenue they saw in a given month, and if in the following year after our investment, they do not make more than they made the year before, we actually aren’t repaid. Our repayment is not due in that given month. Let’s say they made $50,000 in April in 2018; if in April 2019 they make the same amount of money, they don’t owe us. But if they make $60,000, we might ask in the term sheet at the outset for 10% of that new revenue.

Lucas Turner-Owens (00:50:56):

It could also be structured as a percentage of new profit, which is a little better for us, a little harder for the business. In either sense, the idea is if we haven’t actually been additive, if you haven’t actually grown your business, then you don’t owe us back. Our role is to do that. If we haven’t done that, then we’ve failed. It certainly isn’t just your fault. And that’s the benefit of a really flexible product, especially for a seasonal business that might see fluctuating revenue. On the equity side, we’re thinking about traditional equity investments where we purchase a number of shares in the company, but this is equity that acts a little bit like debt in the sense that our liquidity event is not going to be an IPO.

Lucas Turner-Owens (00:51:33):

It’s not going to be a moment where a business that did a million dollars last year is bought for a hundred million dollars by Facebook or Google or some other large company. What we are often saying is, let’s agree that in seven or eight years you will buy back the shares that we just bought from you at an agreed upon new valuation. Maybe it’s 110% of what we paid for it seven years prior. In many ways that’s equity that acts a little bit like a balloon payment. The benefit for the business is that they’re only paying dividends in that interim before that final payment is due, so they have a lot of flexibility to use that capital and put it to work and see if they can generate some big gains for their business.

Lucas Turner-Owens (00:52:14):

The final product is a convertible note that’s an investment that begins as debt and with a certain trigger becomes equity. Where again, we leave at some sort of finite point in time.

Kate Cooney (00:52:24):

I asked Lucas about the type of investors that the Ujima Fund targets and what the return expectations are for their investors. In the impact investing space, the financial returns expectations are said to be on a continuum from what is sometimes called concessionary capital below market returns to risk adjusted market rate returns.

Lucas Turner-Owens (00:52:45):

One thing that’s really about the Ujima Fund is that we have tried structuring it to make it accessible to a wide number of folks, some of whom may have never invested in a fund like this before, some of whom invest in either their 401k or in a series of funds and are seeking market rate returns. I just want to quickly speak to the investor who might be seeking market rate returns in considering the Ujima Fund. Often what we hear in the impact investing space is that investments in products like ours, that can only return 3% at most, like a fixed income product would, are concessionary, in that they don’t produce 8% or 10% or what’s more expected that the market could produce.

Lucas Turner-Owens (00:53:30):

And I just want to challenge that fundamental notion of what is a concessionary return. When you’re talking about an index of companies, some of which don’t pay labor adequately, some of which remove labor entirely and see profits rise, there’s a concession that’s happening there as well. There’s a concession on the value of labor. In real estate funds that can see 22% returns that create new rental units, the concession is to the stock of affordable housing. More market rate housing is coming; your cash flow per square foot is going up. Maintaining profitability at that level that allows for the dividends on public securities is hard and the company is often cutting corners in the process.

Lucas Turner-Owens (00:54:18):

What we are proposing is that we shouldn’t view that as our benchmark, we shouldn’t view that as our milestone. I guess the point I’m trying to make is that there are concessions when you seek market returns. For an investor who is not looking at Wall Street and is just excited about this, 3% on a hundred dollars is not life changing, wealth building money. Hopefully though, the experience of being a part of this, being a decision maker in this fund and in this project, actually has a rippling effect in how you think about other elements of your life.

Kate Cooney (00:54:51):

Earlier, Aliana from the Boston Impact Initiative talked about an industrial laundry business that is entering the Boston market by building connections with hotel chains. There are also large anchor institutions such as hospitals and universities in Boston, just like there are in new Haven and in many cities. We asked both Aliana and Lucas about their experiences building on-ramps into the anchor supply chains as a lever for helping the businesses they work with expand. First, Aliana.

Aliana Pineiro (00:55:23):

In Boston we have these large anchor institutions. There are the hospitals, we have universities, and other arts institutions. They have this supplier dollar spend and there has been pressure just outside, public pressure in some cases, there is pressure from government regulation to diversify some of that spending. There are programs in Boston; the Chamber of Commerce has a program called the Pacesetters, which connects these anchor institutions. The Red Sox is one of them, Northeastern University, a couple of the hospitals connects them to businesses that are owned by people of color. That connection helps those people and those businesses get contracts.

Aliana Pineiro (00:56:22):

I would say that we work closely with the Pacesetters office. We’re actually having an office hours next week where the head of Pacesetters is coming to our office to speak to our entrepreneurs about procurement and strategies to get bigger and better contracts from these institutions.

Kate Cooney (00:56:42):

Lucas Turner from the Boston Ujima Project also spoke about this approach to business development through anchor purchasing. Anchor based economic development is a hot topic. Folks like Ted Howard at The Democracy Collaborative have really given us an inspirational demonstration of what could be possible with the Evergreen Cooperative model that they’ve stood up in Cleveland. It strikes many of us that the ability to break into that supply chain purchasing, which can be quite consolidated with large vendors to move some of that toward a local business is very challenging. Can you tell us about the climate for that in Boston and some of the conversations that you’ve had and successes?

Lucas Turner-Owens (00:57:32):

One story that comes to mind that I think illustrates both the challenge and the opportunity with anchor organizing is a recent series of meetings that I helped to facilitate between a large hospital in Boston and the 26 social enterprises within the Ujima Business Alliance. We started with relationship; we basically used a relationship that one of our co-founders had with the folks in community affairs department at this hospital. We then asked if that team could get us in touch with the head of supply chain at the hospital. This is a large hospital that spends over a billion dollars a year. We met with the head of the administration of supply chain at the hospital and the head of supplier diversity.

Lucas Turner-Owens (00:58:09):

They were excited, particularly about a certain number of sectors in which they were not happy with their current vendors and were looking to shift some of their spend. We then brought back 15 members of the Business Alliance who actually met that need, who were positioned to actually fulfill that need, and we had each of them pitch and present for about three minutes on what their business could offer this hospital. Five of them were asked to come back to meet with the head of food and environmental services. And from that, one of them has already secured a contract; the others are currently in contract negotiation.

Lucas Turner-Owens (00:58:43):

Traditionally, hospitals purchase through Group Purchasing Organizations. Those GPOs then route that money towards very large vendors - like Cisco is a major food vendor - and they’d have great programs; I’m sure they look for sub vendors who work in local communities, but a lot of times that money doesn’t end up back in the community in which that large hospital is located. Some of our largest hospitals are located on the periphery of the neighborhoods that we seek to serve, neighborhoods where poverty levels are much higher than the rest of Boston. What we essentially said is these relationships either get built through GPOs or they get built in pickup lines at private schools or on golf courses.

Lucas Turner-Owens (00:59:23):

What if we could circumvent the GPO and build relationships ourselves with some of these folks in supply chain so they can have pilot programs with some of our businesses? Maybe they can’t shift $5 million to a caterer, but maybe they can shift a hundred thousand dollars to a caterer, build trust, and then eventually refer that caterer onto another department head and another department head. That’s our short-term strategy. Our long-term strategy is to actually have our vendors listed on what’s called an s2 Agreement with this General Purchasing Organization so that that can be an allowable local vendor that the GPO themselves can divert money towards.

Kate Cooney (00:59:57):

Supply chains often have targets around green purchasing and local contracting is not as common, although that is a growing phenomenon and the anchors that you’ve worked with, are there local incentives or even targets around local or minority owned or female owned contractors that they have to answer to in terms of their supply chain?

Lucas Turner-Owens (01:00:24):

I think the work of folks like Ted Howard and the team at The Democracy Collaborative have set the stage for this conversation such that CEOs of large anchor organizations have already in many cases made a pledge to shift up to 10 or 15% of their addressable spend to local vendors or to determine of all of their spending what is addressable to local vendors. Maybe it’s higher than that. What we often hear though at the supply chain level is that it’s tough to identify vendors that can meet all the needs that the hospital has in terms of reporting and insurance. Here’s a common problem.

Lucas Turner-Owens (01:00:58):

19 of our 26 businesses are owned by women of color. I think three of them are certified with the State of Massachusetts as minority business enterprises or women owned business enterprises. The hospital needs to report on that so that they can hit their metrics. They’re less inclined to work with a company that’s run by a woman of color because it doesn’t show up on the state’s stamp as a business that’s run by a woman of color. Our role as an intermediary is to make an easy on-ramp for that business so that they can get certified if they’re interested in that contract and to express to the anchor that they can build the relationship now, but in many cases we’re fighting against the presumption that these businesses don’t exist.

Lucas Turner-Owens (01:01:36):

In truth, they do exist, there are lots of them and they haven’t identified or there’s a small, in the case of certification, a small hindrance to them getting adopted by the anchor.

Kate Cooney (01:01:47):

There’s an old Standells song about Boston and its famous river [music/words to Dirty Water], but I couldn’t help but wonder as I spoke with Lucas and Aliana if there wasn’t something in the water up there - a concentration of new money, young people moving from lucrative tech careers or consulting or finance into impact investing, older money looking for impact, some critical mass that might make replication of these models in a different city difficult. So I asked Aliana, as you have watched the Boston Impact Fund over your time there, I wonder if you could reflect on the ingredients in the broader ecosystem that really makes the work that you do possible or easier.

Aliana Pineiro (01:02:37):

For us at BII, we’ve found that there’s a few different ingredients that are making us successful so far and that we feel like make the work we do slightly easier. One of them is the network that we have in terms of our advisors, our board, our investment committee, and really just all the people that we talk to all the time about one, the work that we’re doing and the input that we get in order to make that work resonate better with investors, in order to make the investments work better for the businesses, and really make a difference for our ultimate goal of closing the racial wealth divide within Boston.

Aliana Pineiro (01:03:21):

The network of people that we have around us is diverse. There are people of color, there are people with lots of different backgrounds, backgrounds in finance, legal backgrounds, angel investing backgrounds, backgrounds in activism. So we have…  we’re connected with several organizations in Boston like the Center for Economic Development, CED, City Life/Vida Urbana, which is a housing advocacy group, and others, other foundations, older foundations and philanthropists in the city as well. I would say that that network that has many varying expertise in many different areas and also varying opinions.

Aliana Pineiro (01:04:08):

Not everybody who sits at our table agrees, and I think that’s where the richness of our philosophy and impact thesis comes in, is that we can talk about these difficult issues around race, around white supremacy, around systemic racism, and talk about what are the businesses that we can invest in, what are the types of businesses that we should invest in that can start to tackle that problem? And wthout having all those various actors at the table, it’s harder to have that conversation. I think that’s where the strength for BII comes.

Kate Cooney (01:04:42):

Before we sign off today, I want to highlight one last model. It is the kind of real estate development project that could be scaled in a subset of low income neighborhoods across the US. It’s an art based incubator that has neighborhood revitalization as a core principle and it’s right here in New Haven, Connecticut.

Jason Price (01:05:00):

My name is Jason Price. I am the Co-founder and Chairman of the Board of NXTHVN. I joined NXTHVN roughly three years ago having met Titus Kaphar who’s a painter and visual artist and activist in the neighborhood.

Kate Cooney (01:05:14):

In case you don’t know, Titus Kaphar is a recent recipient of the MacArthur Genius Award. His work has been featured in the National Portrait Gallery and is now part of the permanent collections of the Brooklyn Museum, the Yale University Art Gallery and the Museum of Modern Art. Titus recently moved to New Haven from New York city where he lived after getting his MFA from Yale University.

Jason Price (01:05:36):

Titus had this vision of creating NXTHVN, which is an arts incubator for emerging artists. I think what’s ambitious about what he was trying to create is he was trying to buy a building, gentrify a building, and do that in a neighborhood that hasn’t seen a lot of investment in the New Haven area.

Paul Bashir (01:05:54):

Hi Jason. My name is Paul.

Kate Cooney (01:05:56):

That’s Paul Bashir, a student in my class and recent recipient of a Master’s Degree in Global Business and Society from the Yale School of Management.

Paul Bashir (01:06:04):

One burning question for me would be, how did you go about finding that old manufacturing plant in Dixwell? How was the process behind that? What were the obstacles you faced?

Jason Price (01:06:14):

Titus lives in that neighborhood and pretty much every day he would travel that path and drive by this old, dilapidated warehouse facility, which ultimately is about 40,000 square feet, but it’s really made up of four different buildings that are sort of combined into one structure. Titus is a visionary and he said, “Wouldn’t this be a great place for NXTHVN?” A lot of people thought he was crazy and wanted him to focus on painting, but that’s how we found the location. Buying the location was difficult in the sense that unfortunately this was a building that was caught up in some legal dispute, but once we got through that after about a year and a half and acquired the building, that helped us gain a lot of momentum.

Jason Price (01:07:04):

The city got behind us and they gave us some capital to help remediate the building. There’s some asbestos and other environmental issues that we had to take care of. Once you gain that momentum, it became easier to raise additional capital to then hire the architect. We hired a marquee architect and architectural firm in Deborah Berke Partners. They’re very well known for adapting this sort of space. It made it easier for us to then speak to a number of Titus’s collectors and other family offices in the area that had an interest in helping to improve those neighborhoods.

Paul Bashir (01:07:37):

You mentioned a model, could you talk a little bit about NXTHVN, how the model works? The mission of the entire institution, what’s the big vision behind the project?

Jason Price (01:07:47):

NXTHVN is a real estate project with several different components and each one of those components serves a purpose with our ultimate strategy. The strategy is to have the space that allows emerging artists to spend time working in that space, creating their art. Then we pair that with a curriculum that we’re coming up with to help them accelerate their art career. One thing that’s important to note is that these emerging artists are high level artists who are already successful. A lot of them are already gallery ready, but what Titus would say is, “Even artists at that level coming out of MFA programs need the space and time to really understand the business aspect of the arts world.” He wanted to create that space to do that.

Jason Price (01:08:31):

The ultimate goal was hopefully they stay in New Haven and they make this their home and we create a professional arts industry; so there’s space for that, their studios. There’s also a black box theater, which is a small neighborhood theater for performance space and the idea is that we’re actually bringing commerce and presentations to that particular neighborhood and sort of an outside in. It allows us to invite people who aren’t normally in that neighborhood and also live in that neighborhood to come in and see these sorts of presentations. We also have a gallery for displaying the art. Same concept there. The idea is that it’s open to the public and that you expose the particular neighborhood, this low income neighborhood to high art.

Jason Price (01:09:13):

We have a membership space. Our objective is to have this be a space for makers to come and collaborate and innovate and hopefully again, plant roots in the New Haven area. We actually have space for an apprenticeship program, which we’re very, very proud of. This apprenticeship program is for mostly high school students of that neighborhood. It’s mostly black and brown people, but really it’s about creating this pathway to the arts and helping those students understand that there definitely is an avenue to the arts beyond having to go at it on your own. That program is all about connecting high school students who are interested in the arts with our actual artists so that they can work in those studios and stretch canvas with them and gesso canvas and really just do what a professional artist does in that space.

Jason Price (01:10:06):

It’s a competitive program whereby these students submit a portfolio, and at that age it doesn’t have to be professional portfolio, but their drawings or their writings or their scribblings. And then we narrow that to a smaller subset of applicants. Then we bring them in for an interview and then we pay them above minimum wage and expect them to spend two to three hours in the studio with the artists after school. The one time I really saw Titus shed a tear was the day the apprentices showed up and were working for the first time with those artists. And then we have a Live Workspace.

Jason Price (01:10:49):

The Live Workspace is this idea when visiting artists come to the New Haven area to work with the Yale University Art Gallery or the British Art Museum, this is a place where they can live comfortably, make work comfortably, collaborate comfortably, and maybe show work in a space that’s a bit of an alternative to the traditional spaces that have been here in New Haven. Ultimately, we’ve been very thoughtful about how these spaces work together, in a way that helps sort of bridge the communities. Then also, it’s a beacon that will attract people from outside of New Haven to New Haven, such as galleries, collectors, etc.

Paul Bashir (01:11:30):

Cool. Interesting. We now talked about your journey, we talked about NXTHVN right now, let’s talk a little bit about the future. Do you see here also as potential scaling opportunity for NXTHVN?

Jason Price (01:11:43):

We do see scaling opportunities for NXTHVN. We don’t want to get ahead of ourselves; our main goal is to make sure that NXTHVN New Haven is very, very successful and we’ve been very careful to scale the business up. Right now, our first class of fellows is in place and they’re making great art and the response has been really really good. But all those other components that I’ve mentioned, we’ve not yet scaled those up by design. We have thoughts and we’ve raised some money to do so, but our objective is to make sure that when we do something and when we launch it or open it to the public, it’s very, very high quality.

Jason Price (01:12:26):

However, once we’re able to do that in maybe 18 months, two years, I think we’ll be in a space where we can look up and begin to say, “These sorts of models can work in other places.” We’re in third, fourth generation space, dilapidated space. There’s space like that all over the country in second tier and third tier cities. In some ways the City of New Haven is our partner and there’s a lot of cities that we could partner with. Yeah, we have our eye on it, but it’s not our focus today.

Paul Bashir (01:12:57):

In a very ideal world, what’s your 10 years’ goal? If everything goes perfect, where should you stand in 10 years?

Jason Price (01:13:07):

For NXTHVN, number one is I want to look back or look at ourselves in 10 years and say, “The quality of what we are doing at that point is among the best in the world.” So if you’re an emerging artist and you’re looking for development to help you get from your MFA or being very successful and talented to a professional artist practice, the number one institution that should come to mind should be NXTHVN. That’s the number one goal and that it doesn’t necessarily have to be in New Haven. It could be NXTHVN Los Angeles or NXTHVN Munich or NXTHVN… There’s all these places around the world that are trying to solve the exact same problems.

Jason Price (01:14:10):

So if in 10 years, we can be a solution to those problems and help be a good citizen in the community and help to generate commerce and activity and activate communities that haven’t been activated for whatever reason, then I will be over the moon.

Kate Cooney (01:14:28):

It’s a compelling vision and a great value proposition for the neighborhood and the artists. For the artist, you get to be part of a curated cohort, handpicked by a committee, put together and chaired by the artist Titus Kaphar. This provides a highly visible platform for the artists to show their work, a nine-month fellowship to focus on it full time and ongoing workshops on handling the business side of an art career. For the neighborhood, the promise is gentrification as an opportunity. Opportunities for high school students to connect with successful artists of color and obtain a view into the worlds they inhabit.

Kate Cooney (01:15:06):

Opportunity for local businesses to provide food and services to the artists relocating to the neighborhood, and opportunities for the rehabilitation and reuse of old abandoned industrial properties for new life as cultural anchors that can connect neighborhoods in new ways. Business development in low income communities when done well, involves the community from the get go and provides beloved businesses with the resources needed to scale up, bringing with it jobs, financial stability and community pride. When done poorly, the businesses don’t serve or hire the community residents and foster an us versus them mentality that can be counterproductive.

Kate Cooney (01:15:47):

Hopefully, after today’s episode you’ve learned a bit about what works and how you can be a force for positive business development within your community. Thanks for listening. Join us next time for episode five where we explore food halls. Yum.


Lauren Harper (18:49):

This podcast was recorded in studios at the Yale School of Management, the Yale Broadcast Studio and the Poorvu Center for Teaching and Learning.

Liam Grace-Flood (18:56):

Created by Kate Cooney and the students of the Spring 2019 Inclusive Economic Development Lab class.

Kate Cooney (19:03):

Special thanks to everyone at the Yale SOM studio and Media Control Center: Froilan Cruz, Abraham Texidor, Donny Bristol, Enoc Reyes, and Jessica Rogers.

Kate Cooney (19:12):

And at the Poorvu Center for Teaching and Learning: Brian Pauze and John Harford.

Paul Bashir (19:18):

Audio engineering and production by Ryan McEvoy and Kate Cooney.

Kate Cooney (19:22):

Music from the album, Elm City Trees, composed and performed by the artist, K. Dub. For more information and show notes, visit our website at

Camilo Monge (19:36):

Thank you for listening.