Elyse Cherry, CEO of BlueHub Capital, talked with ThinkAdvisor about the largely overlooked world of community development financial institutions that offer investors a fixed income alternative in the impact investing space.
“Lots of folks are looking for impact investments. They can be hard to find in the equity space and they can be even harder to find in the fixed income space,” Cherry explained to ThinkAdvisor. “[BlueHub] is a great source for that. A great place to invest fixed income funds, and we have a long history of really high impact.”
In 1984, Cherry co-founded BlueHub Capital as it’s called today with the goal of building healthy communities where low-income people live and work. Its namesake fund, the BlueHub Loan Fund, which is a certified community development financial institution (CDFI) that makes loans to support community development projects, was founded in 1985. This was before the term CDFI was coined during the Clinton administration via legislation that BlueHub was “very active in getting passed,” Cherry said.
CDFIs are private financial organizations driven by a mission to bring mainstream finance and economic inclusion to underserved communities. CDFIs can be for-profits, nonprofits, credit unions, banks, loan funds or venture capital funds. They are all certified by the Treasury Department’s CDFI Fund.
BlueHub Capital, in particular, is a national nonprofit organization that invests in people and communities for an inclusive future though its CDFI loan fund and other funds. Late last year, it was announced that BlueHub Capital would be the new name of the mission-driven national nonprofit organization formerly known as Boston Community Capital. The new name embraced the organizations now national reach.
The nonprofit’s early focus was on Boston and the state of Massachusetts.
“We were really trying to deal with the challenges of investing money into low-income communities and our initial founding was really in Boston,” Cherry said. “We had a grand total of $3,500 and as I say not enough sense to know you couldn’t do anything with that.”
Over the next three decades, the organization greatly expanded its financing capabilities and geographic footprint.
Cherry has been instrumental in BlueHub’s progression from a startup to a national model for community investment.
In 1997, Cherry came in to lead the organization full time.
“At that stage, we’d gone from $3,500 to $30 million. And in the intervening 21 years we have made it to almost [$1.1 billion in assets under management],” she said.
Under Cherry’s leadership, BlueHub has invested more than $2 billion and has leveraged more than $7 billion of public and private investment.
“The way we have financed ourselves over the years is primarily with debt investments — that is, people loaned us money,” Cherry said.
BlueHub sources capital for its work in many ways — through loan facilities with large money center banks (like Bank of America and HSBC) and with regional and local banks (like Eastern Bank and East Boston Savings Bank), through tax credits for solar and new market tax credit projects, through a vehicle known as a CDFI bond for foreclosure relief lending, and through promissory notes issued to individuals, family offices and foundations in return for their investments.
The promissory notes total approximately $24.4 million from 326 investors in BlueHub Loan Fund, its certified CDFI, and $37.1 million from 317 investors in SUN, its foreclosure relief initiative. Individuals, family offices and foundations represent an important source of investment for BlueHub Capital but only a portion of BlueHub’s overall investment dollars.
“We aggregate all that capital, we assure we have good reserves so that everyone’s money is safe … [and] we go out and underwrite projects all over the country,” Cherry said. “When we find projects that are consistent with the needs of the community they’re located and everybody wants it — [and] we think we can underwrite it in a way that gives us a good financial base — then we lend the money and those projects get built.”
Cherry gave a couple of examples of projects that have been built through BlueHub’s funds.
BlueHub contributed a suite of four loans totaling $16.8 million to Community Solutions Inc. to support the rehabilitation of the Swift Factory complex in Northeast Hartford, Connecticut.
The project will transform three vacant buildings into 86,000 square feet of commercial and community space.
“The Swift Factory used to be a gold leaf factory. It was sitting there … being unused,” Cherry said. “It becomes an income and energy generator for a community that has known this as nothing.”
The revitalization project is designed to provide local residents healthy food and good jobs that pay living wages in an area that was designated a federal Promise Zone in 2015.
Major tenants for the new buildings include Fresh Box Farms, a hydroponic farm that produces leafy greens; Bears BBQ food production and processing, which supplies local BBQ restaurants; and CSI.
The renovation also features space for three or four nonprofit tenants and a food incubator space that could support as many as 10 food production businesses.
Gestalt Community Schools
In November 2018, BlueHub Loan Fund approved a $7.7 million loan to Gestalt Community Schools, a nonprofit charter management organization in Memphis.
Founded in 2008 with a vision of integrating the school community with the broader community, Gestalt Community Schools currently operates two elementary schools and two middle schools, all of which filter into one high school.
The school system predominantly serves African American students, the majority of whom qualify for free and reduced price lunch.
In 2017, BlueHub made its first loan to the school, which at the time allowed it to move three of its schools onto one campus.
The school will use this second loan to build out a new ninth grade academy, which will alleviate space pressure in the high school allowing it to grow to full capacity, and to build out a new facility to serve K-5 students currently off site in aging modular units.
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