LISC’s newly launched NYC Inclusive Creative Economy Fund marks both a bold, new direction for our organization and a natural extension of our long track record of bringing technical and financing resources to low- and moderate-income communities.
Over our four decades as a Community Development Financial Institution (CDFI), LISC has been an impact investing pioneer, raising and blending capital and then deploying that capital with a social purpose, making loans to borrowers in low- and moderate-income communities where typical financial institutions don’t reach. While LISC’s financing activities may be best known for affordable housing, our diverse loan portfolio has historically included a significant commitment to arts, culture, and creativity. As part of our partner Upstart Co-Lab’s 2017 report study, “Creative Places and Businesses: Catalyzing Growth in Communities,” LISC reviewed its lending activity since 1980 and found that we have financed 98 projects related to arts, culture, and creativity representing $139 million in direct lending volume and over $900 million in total development costs.
Thus, to some degree the NYC Inclusive Creative Economy Fund builds on LISC’s established tradition of financing the creative economy. Yet our new initiative signals a deepening of LISC’s commitment to arts and culture and a more intentional strategic approach. Working with Upstart Co-Lab, LISC has been applying a “creativity lens” to our core impact investing activities, which is having dynamic implications for our overall strategy, expanding our market niche as a provider of capital for arts and creativity and broadening our investor relationships. As Upstart Co-Lab founder Laura Callanan is fond of saying, “A lens is a view finder; it helps you to see, and it brings things into focus. Creative places and businesses have always been part of comprehensive community development. But it’s been flying under the radar.”
Solving for Today’s Challenges
LISC NYC was born in 1980 to solve for the problem of disinvestment in “redlined” neighborhoods like the South Bronx, helping reverse the city’s decline by investing in abandoned housing stock and bringing residents back to these communities. Today, by contrast, New York City is booming. The city’s population is growing, and private investment is flowing, even to neighborhoods that historically have been underinvested. The problem we are solving for today, then, is the danger of displacement for low- and moderate-income New Yorkers who are squeezed by the combination of high real estate costs and flat wage growth due to structural changes in the economy.
Historically, LISC NYC had focused on the affordable housing side of that equation. When Upstart Co-Lab and LISC began talking about teaming up to launch an impact investment opportunity, LISC NYC was in the process of reframing its local strategy to be more responsive to contemporary conditions. In 2016, with significant philanthropic investment from Citi Foundation’s Community Progress Makers Fund, we invested in staff and expertise to develop a strategy to apply our lending expertise to equitable economic development, with a focus on creating and preserving middle-skill jobs for New Yorkers.
With Upstart Co-Lab as a strategic partner, LISC NYC began to view its equitable economic development activities through a creativity lens. We began to build a pipeline of loans to a range of new partners that were building and stewarding spaces for enterprises that provide middle-skill jobs: supporting affordable artist studios, spaces for artisans and light manufacturers, and cultural venues that enable creative endeavors that would otherwise not find space to work or perform in New York City. ArtBuilt NYC, for example, has developed 50,000 square feet at the city-owned Brooklyn Army Terminal in Sunset Park, providing affordable work spaces with long-term leases to artists, artisans, and creative entrepreneurs.
We are also lending to partners like the Brooklyn Navy Yard Development Corporation and the nonprofit developer Greenpoint Manufacturing & Design Center. Both of these nonprofits are providing affordable space to high-value, small-batch manufacturing firms that bridge so-called “knowledge workers” (the “design” side of design-build) with fabricators, machine operators, and craftspeople (on the “build” side). And our initiative includes loans to vibrant arts organizations like La Mama on the Lower East Side, whose mission is to provide performing space for artistic voices that otherwise might not be heard in this city. The lending activities emerging from this pipeline have not only adhered to LISC’s rigorous credit standards but also fit squarely in our mission to catalyze opportunities for low- and moderate-income people.
Applying a creativity lens to LISC NYC’s lending work has also opened an opportunity for us to attract new forms of impact capital. Like most CDFIs, our lending capital has come largely from financial institutions motivated by regulatory obligations under the Community Reinvestment Act (CRA) to lend and invest in low-income neighborhoods, leveraging equity-like investments from the US Treasury’s CDFI Fund. While LISC has successfully attracted program-related investments (typically from some larger national foundations), LISC has only rarely gained traction with impact investors such as high net worth individuals, family offices and endowed institutions.
We have just begun formally marketing our NYC Inclusive Creative Economy Fund and gaining traction with impact investors who find the impact, risk, and return profile of this opportunity compelling. LISC is issuing notes with an 8-year maturity that pay interest of 2.75% per annum. While proceeds from the notes will be used to fund loans supporting the inclusive creative economy, the notes are a general obligation of LISC, with recourse to the organization’s diversified balance sheet. In other words, purchasers of the notes do not take on project risk and can underwrite to LISC, which has been rated AA by Standard & Poor’s and has, for 40 years, repaid all of its borrowers on time and in full.
We are hopeful that LISC NYC’s initiative will be replicated across LISC’s national platform of 31 sites, and further, that the Fund will help make the case for a broader adoption of a creativity lens across impact investment capital. To accomplish this replication, LISC and its fellow impact investment practitioners could do the following: advance more locally driven intentional strategies to cultivate arts, culture, and creativity; and advocate for a more robust policy and subsidy support, to create a better enabling environment for inclusive creative economy real estate, making it a more central part of the public discourse.
This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.
Photo: A creative business housed at a building owned and operated by Greenpoint Manufacturing and Design Center in Crown Heights, Brooklyn. ©Tim Soter courtesty of LISC NYC.
Note: Information regarding the NYC Inclusive Economy Fund is provided for informational purposes only, and is being shown to illustrate the growing variety of impact investment opportunities creativity and the arts. It should not be construed as an endorsement or recommendation of the fund by Cornerstone Capital Inc.