“If Not Us, Then Who”: Securing Affordability Through Community Ownership

On October 15^th, LISC LA held the “Preserving Cultural Neighborhood Gems: A Series of Case Studies” convening to bring awareness to preservation strategies in gentrifying neighborhoods. Throughout the half-day convening, audience members heard from California-based practitioners who are developing strategies to stem the tide of displacement.

The first panel of the morning was called: “If Not Us, Then Who”: Securing Affordability through Community Ownership,” which highlighted home, land, and business examples of community ownership. Tom DeSimone, CEO of Genesis LA, moderated this excellent conversation with Isela Gracian, President of East LA Community Corporation (ELACC), Rudy Espinoza, Executive Director at Inclusive Action for the City (Inclusive Action), and Evan Edwards, Director of Strategic Partnerships and Business Engagement at Project Equity.

Community-ownership of business, land, and home is an important preservation strategy for at-risk communities. As one panelist noted, “until you own it, you do not control it.” Without direct control, gentrifying neighborhoods across the U.S. are losing the ability to hold onto their community and its assets. But community-ownership is not just a preservation strategy, it is also an equitable wealth-building strategy.

According to the Color of Wealth analysis done in 2016, in Los Angeles County, white households have an average net worth of $355,000, while African Americans have an average net worth of $4,000, with only $200 in liquid assets. White households were 40% more likely to hold assets in stocks, mutual funds and investment trusts, while only 21.5% of African American households owned stocks, mutual funds or other investments or trusts. Lastly, 68% of white families are homeowners, while only 40% of African American families are homeowners. These statistics only graze the surface of the wealth disparities that are negatively affecting so many individuals and families of color.

Modifying ownership structures of home, land, and business can be a tool in the equitable wealth-building toolbox. By providing ownership opportunities to those that have been previously disenfranchised, people of color have a chance to grow their assets and strengthen their balance sheet. A stronger balance sheet opens the door for greater opportunities - like the ability to purchase one’s home, take out a loan to grow their business, and pass on their wealth to future generations.

As Tom from GenesisLA stated, “there are many ways to achieve community ownership – through nonprofits, land trusts, and employee ownership.  All options need to be on the table to expand the opportunities for wealth building and community stability.”

Each panelist highlighted unique ways of preserving legacy assets through modifying their ownership structures. For example, Isela Gracian spoke about ELACC’s Community Land Trust, Fideicomiso Comunitario Tierra Libre (FCLT). FCLT is a non-traditional homeownership project that began in 2015. Four years ago, ELACC acquired three vacant sites in Boyle Heights to establish a Community Land Trust and form a Limited-Equity Housing Cooperative to explore new approaches to addressing housing instability, unaffordability and lack of access to ownership opportunities.

Community land trusts are nonprofit, community-based organizations designed to ensure community stewardship of land. In this structure, the Community Land Trust acquires the land and maintains ownership of it permanently. The trust enters into long-term leases with prospective homeowners, instead of a traditional sale. When the homeowner wants to move, the tenant will earn a portion of the increased property value. The remainder of the value is held in perpetuity by the trust in order to preserve the affordability for future low- to moderate-income families. By separating the ownership of land and housing, this innovative ownership model prevents market factors from causing home prices to rise significantly, and thus guarantees that housing will remain affordable for future generations.

In the case of the FCLT, the building that sits on the Community Land Trust’s land will be a limited equity housing cooperative (LEHC), which is a residential development owned and managed by a democratically governed, nonprofit cooperative corporation. Therefore, instead of leasing to an individual family, the Community Land Trust will lease to this cooperative corporation. As indicated in the name, an LEHC limits the amount of equity a member can earn upon resale of their unit (and membership share) in order to preserve the cooperative’s affordability for future generations. In this way, both the land and the building will be owned and managed by the community.

ELACC and members of the Boyle Heights Community in discussion about the FCLT project

A group of committed Boyle Height’s residents have been working collaboratively with ELACC, as the developer, to develop the Community Land Trust and Limited-Equity Housing Cooperative. Their plan is to construct a variety of townhouses and a multi-family apartments via innovative financing strategies to reach the deepest level of affordability possible for future resident-owners. The development will happen across 2-3 phases –the first phase being the constructions of 8 townhouses.  Ultimately, the project will provide low- and moderate-income people with the opportunity to build equity through homeownership and ensure that the Boyle Heights residents are not displaced due to land speculation and gentrification.

The FCLT is not the only alternative ownership model ELACC is exploring. More recently, ELACC has joined forces with Inclusive Action for the City, Genesis LA, and Little Tokyo Service Center to develop another cooperatively owned real estate entity – the Community Owned Real Estate (CORE) project. CORE was created by Little Tokyo Service Center, GenesisLA, Inclusive Action, and ELACC to purchase available commercial properties in order to keep the spaces affordable for local small businesses. CORE intends for these properties to be community owned through a shared ownership model. CORE currently owns five properties – two in Boyle Heights, two in East LA, and one in El Sereno. 

In addition to the CORE project, Rudy Espinoza of Inclusive Action for the City highlighted their two small business financing funds, the Semi’a Fund and the (Re)store Fund. The Semi’a Fund (Seed Fund) is a micro-loan program that provides low-interest loans to entrepreneurs. The Semi’a Fund loan is designed to support business owners who cannot secure capital from traditional lenders yet require support growing or formalizing their business.

The (Re)store Fund is an equity fund to invest in small businesses in low-income communities. Borrowing lessons from the traditional venture capital industry, Inclusive Action is working on not only providing capital to entrepreneurs but also ongoing coaching that will help them grow their business over time. The equity fund is a much needed asset in the industry, as many small and diverse businesses have difficulty filling equity gaps in their business. According to the US Census Bureau, $30,000 is the capital starting point to get a startup off the ground and most lenders require at least 10% equity contribution for a business loan. Given that the median net worth of a white household in the US is 13x greater than that of an African American household, the equity requirements put diverse-led businesses at a significant disadvantage (Pew Research Center). The (Re)store Fund helps fill the equity gap through a direct investment into the business.

Lastly, Evan Edwards spoke about Project Equity’s work to help legacy businesses transition to employee-owned structures. LISC LA and Project Equity, with the support of Citi Bank, have launched this business preservation strategy in the City of Long Beach and plan to expand into the City of LA in the coming months.

Like many cities around the US, the need for this initiative in Long Beach is prevalent - there are 2,5000 businesses that are over 20 years old, which account for $12.3 billion or 63% of the city’s revenue. These businesses employ 46,700 people. Yet a majority of these businesses do not have succession plans in place. Without a long-term plan, many of these businesses may close, which would put 1/3 of the workers in the city at risk of losing their jobs.

Keeping companies locally owned over the long term is a critical economic development strategy. Only 15% of businesses are passed onto the next generation because the owner’s children are not interested or able to take over their parents’ business. Project Equity works with these legacy businesses to transition them into employee-owned models. This transition allows the owner to retire without the business closing its doors. This model is beneficial for the employee owners as well – research has shown that when workers become owners, their household net worth is 92% higher, their median job tenure is 53% longer, and their median income wages is 33% higher. Project Equity and LISC LA are utilizing the employee-owner model to preserve local jobs, build wealth for low and median income workers, and stabilize local economies. To learn more about LISC LA’s work with Project Equity, read Project Equity’s press release here.

Throughout the discussion, the panelists spoke about the importance of strong partnerships and of trust – and noted that the stewards of these tools must be community-based. They also discussed the difficulty of acquiring capital for these innovative projects, as most traditional financing sources do not yet know how to underwrite a community-owned entity. As Rudy Espinoza from Inclusive Action stated, “to scale community ownership beyond small pilot initiatives, we have to create new finance tools that not only gets capital into the hands of community members, but also shifts power into their hands." Some CDFIs around the country are beginning to grow into this area, and LISC LA is eager to join forces and support this movement.

We are grateful to all that supported, planned, and attended the “Preserving Cultural Neighborhood Gems: A Series of Case Studies” event and look forward to continuing the conversation.

The work of LISC LA is made possible by supporters like the Weingart Foundation.

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Emma Kloppenburg, Program Officer

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