Building Mixed Income Neighborhoods
Home ownership has been a core driver of middle class wealth creation in the US. Unfortunately, deep legacies of racial and class inequality have kept this opportunity inaccessible to too many.
Nowhere is this wealthy inequity more evident than in our cities, where huge resource and class disparities often exist between and even within neighborhoods. Everyone wants their neighborhood to be clean, safe, and provide good access to jobs and social services. However, as historically low-income neighborhoods are developed and attract more affluent residents, legacy residents often face rising rents and displacement. Unable to enter into home ownership, these communities are also excluded from the economic gains of re-development.
Trust Neighborhoods is blazing the trail for a new stewardship model, designed to not only protect affordability intergenerationally and support the emergence of mixed-income neighborhoods, but also ensure community members participate in value created through re-development.
The good news is— it’s already working.
We’ve been supporting theTrust Neighborhoods team in developing a replicable model for community ownership - the Mixed-Income Neighborhood Trust (MINT). With two MINT pilots funded and underway in Kansas City and Tulsa, we’re testing a new model for intergenerational community asset control that leverages private capital to create stabilized housing and enable local reinvestment.
The Move to Community Ownership
We began working with Kavya, David, and Jason from the Trust Neighborhoods team when they were in the early days of implementing their vision.
From the outset, the team knew that they wanted to build a real-estate investment model that stabilized rents and included community voice. In discussing their desire to truly center local residents’ interests in a long-term, protected way, we landed on what the Trust Neighborhoods team now describes as, “a remarkably straightforward legal structure: put a trust on it.”
Employing a Purpose Trust allows us to remove housing units from the speculative market and protect long-term affordability. The trust also serves as a vehicle for community governance. The team ultimately opted for a community-first governance approach, in which community members defined the purpose of the trust and hold 100% voting control over the assets. We also helped them realize their vision through a community-led design process, which we recently completed in the pilot Lykins Neighborhood in Kansas City, MO.
The first MINT pilot in Kansas City
In 2020, the Trust Neighborhoods team began supporting the Lykins Neighborhood Association in Kansas City to incorporate their own MINT. The team describes the location of this first pilot,
“The Lykins neighborhood is an old streetcar suburb near the revitalized downtown that faces economic challenges and fears of displacement. Its residents earn less than the city average, with a median income of approximately $26,000. They are mostly Latino or Hispanic, with a sizable population of refugees from Southeast Asian and East African countries. A little over half are renters.”
Partnering with community
The community in Lykins was already well-organized around a number of exciting revitalization and development projects, but were missing a tool to preserve affordability for renters and businesses ahead of the incoming rise in property values.
In partnership with Trust Neighborhoods, the Lykins Neighborhood Association spearheaded a new resident task force and partnership approach to designing, defining the purpose of, and legally executing their first MINT. Within six months, they had secured the equity to begin acquiring properties.
Through a series of interviews and facilitated workshops, the task force defined the purpose of the trust, established governance design that includes the key stakeholders groups they felt were essential to the long-term stewardship of the trust, and set expectations for the operating board of the LLC. They were also responsible for identifying the first generation of trust stewardship committee members.
MINT in practice - Community reinvestment, investor return
The Lykins Mixed Income Neighborhood Trust (MINT) will buy and hold housing units to be co-governed and stewarded by the community:
A Purpose Trust holds 100% of the voting control of a real-estate holding LLC. Trust purpose is defined by community and control by relevant stakeholders as defined by the community.
Non-voting economic rights from the LLC are distributed to limited partners (investors);
The LLC’s operating agreement splits available cash flow between distributions to investors and a special reserve that is deployed for charitable uses consistent with the trust’s explicit purpose (i.e., for the benefit of the neighborhood). This means investors only receive economic benefit if the neighborhood receives benefit as well.
The MINT holds a portfolio of real estate assets that support Lykins neighborhood goals like rent stabilization, social services, and eliminating predatory landlords. The MINT also provides a risk-adjusted return for patient capital providers after a predefined amount of economic upside is set aside for community initiatives. The split between investors and the special reserve is determined by an explicit calculation outlined in the operating agreement. Under that calculation, increasing returns to investors drives an increasing percentage allocation to the special reserve. For example, under the pilot’s MINT’s sharing mechanism a 8% cash return on equity requires that 15% of available cash is allocated to the special reserve. Assuming that level of profitability on capital base of $10mm implies $120k of dividends to neighborhood causes per year.
What’s Next for Trust Neighborhoods
The MINT is a groundbreaking model in its balanced and replicable approach to meeting the needs of renters and homeowners with those of investors. The unique promise of the model is to create and/or sustain thriving mixed-income neighborhoods, while still serving as an attractive enough investment opportunity to finance new acquisitions into community-control.
The Trust Neighborhoods team is working to launch their next five neighborhood MINTs in 2021. We continue to support the project as they work on a community-led replication strategy across the country.