Glossary

Built infrastructure—The built infrastructure of a rural downtown refers to the buildings, streets, bridges, telecommunications, public utilities (natural gas, water and sewage), power supply, and other structures that make it possible for the city or town to function. 

CDFI—A community development financial institution (CDFI) is a private financial institution that provides affordable, responsible lending to help low-income, low-wealth and other disadvantaged people as well as communities to join the economic mainstream. CDFIs can include community development banks, credit unions, loan funds, and venture capital funds. 

Collateral—Property pledged as security for repayment of a loan, to be forfeited in the event of a default.

Community—A group of people who live in the same locality and under the same government. It can also refer to the specific district or locality in which such a group lives, whether a city, town, state or even a region.

Community development—Purposeful, shared action that improves social, economic, physical, and environmental well-being while preserving valuable aspects of the culture and traditions of a particular place. 

Community foundation—A nonprofit, philanthropic institution that administers permanent funds established by many individual donors for the long-term diverse, charitable benefit of the residents of a specific geographic area. Typically, a community foundation serves an area no larger than a state. 

Community investment—Transactions designed to improve social, economic, and environmental conditions in communities while producing an economic return. The goals and approaches of community investment differ from those of traditional financial investment. The latter seek to maximize the return on investors’ money with any resulting public good being purely incidental. Community investment seeks to serve the public good and may result in varying degrees of what the investor deems an acceptable financial return.

Additional terms relevant to community investment follow below:

Accredited investor—An investor who has special status under financial regulation laws, often designated as high-net-worth individuals and couples, banks, financial institutions, and large corporations. Some types of financial offerings are restricted to accredited investors.

Business Tax Credits—Business tax credits are a dollar amount that companies can subtract from the taxes owed to a government. Business tax credits are applied against the taxes owed, as opposed to a deduction that is used to reduce taxable income. Businesses apply the tax credits when they file their annual tax return. In the United States, the Internal Revenue Service (IRS) oversees the application of business tax credits as the credits are used to offset a company’s financial obligation to the federal government.

Capital stack—A capital stack consists of financial sources represented by blocks of investments and grades of risk. The stack illustrates the pecking order of cash flows. Risks and rewards increase with each block of investment. A classic arrangement of a capital stack, more fully described in the Playbook and illustrated individually for each of its case studies, appears as follows:

• Equity—Last paid

• Senior Debt—1st Repaid

• Subordinated Debt—2nd Repaid

• Credit Enhancement—Helps Gain Financing

• Grant or Subsidy—Not Repaid

Catalytic capital—Dollars for grants, credit enhancements and forgivable loans where financial return is not a consideration. Catalytic capital may support pre-development work, such as technical assistance and capacity-building, or it may flow into the capital stack later as a way of making sure the deal gets done. In both instances, it helps get low-resource communities and shovel-worthy projects ready for repayable investment.

Community investment system—The set of active stakeholders, policies, practices, resources, platforms, and relationships that either facilitate or constrain the flow of investment capital in a particular place. Viewing community goals and priorities through this lens makes it easier to evaluate emerging options, assess opportunity costs, and make timely informed decisions that can sustain development across a pipeline of investable deals.

Credit Enhancement—Credit enhancement can help a business or nonprofit gain the final debt or equity financing they will need to complete a project. Among the most impactful types of concessionary capital that a foundation or other entity can offer, these strategies often take the form of loan guarantees and bridge loans. 

Crowdfunding—An alternate finance strategy for raising funds for a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Crowdfunding has been used to fund a wide range of for-profit entrepreneurial ventures such as artistic and creative projects, medical expenses, travel and community-oriented social entrepreneurship projects.

Financial Debt—Any money owed to an individual, company or other organization. One acquires debt when one borrows money. Generally speaking, one acquires debt for a specific purpose, such as funding a college education, purchasing a house, or financing a business. Debt may come from a variety of sources and may be stacked (or named) according to their risk/return status. Common terms include senior debt and subordinated debt.

Financial Equity—In real estate, a risk interest or ownership right. In business, equity represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off. In the case of acquisition, it is the value of company sales minus any liabilities owed by the company not transferred with the sale. Equity can be found on a company’s balance sheet and is one of the most common pieces of data employed by analysts to assess the financial health of a company.

Financial Gap Financing—Gap financing often is the late capital needed to make a project happen. For example, a downtown affordable housing development in Kansas needed $250K more in their capital stack to make it happen. Accordingly, the community foundation provided a loan that was concessionary and  subordinated to the bank.

Funding vs. Financing—Funding is defined as financial capital provided to advance a project, organization, or business with no expectation of repayment or financial gain (e.g. grants). There likely is, however, an expectation of a social return on investment. Financing, on the other hand, involves financial capital provided to advance a project, organization or business with an expectation of a financial return on investment that is greater than the original amount of capital provided. This may include a range of options, including repayment of capital, interest, and asset appreciation.

Guarantee—An enforceable assurance making one party responsible for the payment or debt of another. Guarantees are binding, however, only if made on top of legally valid contracts.

Impact investing—A new tool for philanthropy and impact organizations that seek to help build resilient, prosperous, equitable communities through leveraging the power of capital to create measurable positive social change and/or environmental impact. Unlike grantmaking, though, the funds circle back around to the foundation, often with a moderate financial return so that the dollars can be recycled back into the community. Funds also are invested in alignment with community priorities.

Investment capital—Repayable capital where investors want a financial return on investment. Investment capital primarily comprises two types of capital: Market Rate Capital, which expects an ROI consistent with current market expectations for investment adjusted for a specific kind of risk, and Concessionary Capital, which is willing to accept a lower-than-market-rate return in exchange for accomplishing desirable social or environmental outcomes.

Investment vs. spending—Spending is about consuming a resource (like money or time) to purchase goods or services without expecting something in return. Investing is also about consuming a resource, but you have a realistic expectation of getting something in return for having spent that resource. When you spend, you consume. When you invest, you accumulate value in an asset.

Investment pipeline—The informed prioritization of a set of investable opportunities based upon an assessment that evaluates each project’s scope and complexity, cost, timeliness, and relative merits compared both to other projects and the overarching development vision and goals established by the community.

Investor—An investor is any person or other entity (such as a firm or mutual fund) who commits capital with the expectation of receiving financial returns. Investors rely on different financial instruments to earn a rate of return and accomplish important financial objectives like building retirement savings, funding a college education, or simply accumulating additional wealth over time. 

Non-repayable funding—Investors who provide non-repayable funding do not require a financial return on investment, although they may expect a social return on investment, such as the creation of a certain number of jobs.

Pipeline of deals—A group of individual projects that are being considered or underway at the same time within a given community which taken all together seek to fulfill a designated set of the community’s priority development goals.

Readiness for investment—A set of criteria by which to evaluate whether a particular project and its development team has reached a threshold of feasibility and preparedness likely to assure a reasonable expectation of success following the receipt and management of funds designated for realizing the project’s goals and objectives. An informal self-assessment is likely to be made initially by the project team itself prior to deciding to submit a formal solicitation of investment to a foundation, bank, CDFI, private investor, or other agency. The latter will conduct its own formal review and due diligence of the applicant’s prospects and capacity.

Return on investment—Return on investment (ROI) is the financial, social or environmental benefit to be gained from an investment in a specific enterprise, whether the construction or renovation of a property or the launch or expansion of a business. As a metric used at the outset of a venture to anticipate those possible benefits, it compares the gain or loss from an investment relative to its cost.

Revolving loan fund—A revolving loan fund (RLF) is a gap financing measure primarily used for development and expansion of small businesses. It is a self-replenishing pool of money, utilizing interest and principal payments on old loans to issue new ones. 

Senior debt—This is often conventional debt like a mortgage or a loan where an investor gives a certain amount of money in exchange for payments made at regular intervals with interest. They often expect a modest return on investment and are the first to be repaid.

Subordinated Debt—This is patient capital which may take the form of a forgivable loan or another type of funding or financing that can be repaid slowly. 

Transactional capital—Repayable capital where investors want a financial return on investment. It may be referred to as “repayable financing.”

Transformative investment—Transformative investments help change the nature of the relationship between communities and capital, transforming disinvested communities into places of more equitable opportunity where the communities themselves drive new possibilities for economic and social activity. In so doing, communities are better prepared to leverage downtown assets to address existing disparities, such as access to affordable healthcare, opportunities for young people to start a small business and build a future in their hometown, or to help develop an emerging sector that can provide jobs, including tourism, the creative economy and even technology businesses, such as website and app development. Transformative investments generate a substantial ROI to the community.

Community priorities—In order to target redevelopment opportunities consistent with its values and economic development goals, community stakeholders may undertake an inclusive planning process to identify and prioritize a slate of revitalization projects which appear to be doable and align with the community’s expressed vision and longer-term goals. These priorities exist as a flexible, living document that can be easily updated to take advantage of emerging opportunities that also align with the community’s vision and goals. They not only help to attract capital but also reduce the risk of failure by demonstrating focus and commitment.

Community wealth building—The slow, patient accrual and ongoing reinvestment of eight community capitals to establish a vibrant local and regional economy as well as a renewable high quality-of-life that serves a broad range of local residents. 

Community assets—The mix of geographic, natural, built, technological, institutional, organizational, individual, business, medical, cultural, historic and other competitive advantages that sustain a community’s economic well-being and attractive quality-of-life.

Eight community capitals—To build a community’s wealth, it’s helpful to look beyond just financial capital and take into account all the features of a city, town or region that make it a good place to live, work, and visit. We can think of these features as eight different types of capital, which are listed and described as follows:

Built capital—The existing stock of constructed infrastructure— for example, buildings, sewer systems, broadband, and roads—in a region’s places.

Cultural capital—The existing stock of traditions, customs, ways of doing, and worldviews in a region’s population.

Financial capital—The existing stock of monetary resources available in the region for investment in the region.

Individual capital—The existing stock of skills, understanding, physical health and mental wellness in a region’s people.

Intellectual capital—The existing stock of knowledge, resourcefulness, creativity and innovation in a region’s people, institutions, organizations, and sectors.

Natural capital—The existing stock of natural resources—for example, water, land, air, plants and animals—in a region’s places.

Political Capital—The existing stock of goodwill, influence and power that people, organizations and institutions in the region can exercise in decision-making.

Social capital—The existing stock of trust, relationships, and networks in a region’s population.

Cooperative ownership—Whether buildings or business enterprises, cooperative ownership affords a group of investors the opportunity to collaboratively own and share decision-making authority regarding a property or business. This ownership structure may be configured in many different forms, ranging from common to preferred stock.

Demand—The willingness and readiness of a customer or client to purchase goods and services at a specific price.

Enabling Environment—The enabling environment is the context in which community investment deals get developed and executed. Community investment deals do not exist in isolation. Rather, they are creatures of their environment that are made possible, accelerated, or impeded by the characteristics of the locale in which they take place. Of course, public policies play an important role in creating the environment. But so, too, do a variety of other elements, called the Readiness Factors, including resource flows, availability of data, and the networks, relationships, practices, skills, and knowledge of local stakeholders, among other things. This context is the enabling environment. 

Grant—An award of funds to an individual or organization to undertake charitable activities. In its traditional legal meaning, the word “charity” encompasses religion, education, assistance to the government, promotion of health, relief of poverty or distress, and other purposes that benefit the community.

Markets—A market is a composition of systems, institutions, procedures, social relations or infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor power) to buyers in exchange for money. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and resource allocation in a society.

Roles of key personnel on a community project team—The 5 key players and the various positions they may play on a project team, including the Spotter, the Framer, the Community Engager, the Developer, and the Project Manager. It is possible one person may play more than one role.

Spotter—The role of Visionary. They recognize potential opportunities (buildings, enterprises, and people) and know how to take the next step to connect the appropriate people together to help make something happen.

Framer—The role of Deal Maker. Every community needs framers to get the investment they need to thrive. Framers have the language, tools, and connections to make things happen. They move good ideas into action and help connect projects to key resources (including investment). They don’t have to be experts on everything, but they need to know the experts and when to call on them.

Engager—The role of Connector. This partner helps build the vital sense of shared purpose and connection: first, among all of the partners who work together to accomplish the four stages of the project, and, second, with the rest of the community, especially those stakeholders who can be reassured the project addresses the goals and priorities previously established for the benefit of the community.

Developer—The role of Developer. A project developer for physical structures takes on many of the responsibilities of a traditional developer, including assuming substantial risk in hopes of earning a substantial profit. A Developer can be a private firm that is working for hire on behalf of a property owner. It even can be a nonprofit organization for whom building or, more likely, renovating a building is a challenge that aligns closely with its core mission and values.

Project Manager—The role of Coordinator and Communicator. This role is likely played by a hired professional developer or, alternatively, an employee of a community-based organization with lead responsibility for the project. The project manager may direct the project during any of its four phases but most likely during the predevelopment and development phases. Often this role is the primary point of contact for the project.

Technical Assistance Provider—The Role of Coach, usually advising the project from within a specific area of expertise that is needed to achieve the goals of a specific stage of the project.

Stages of project development—The stages of investment, whether for the development of a physical structure and its environs or for a specific business, tend to follow a similar pattern of four distinct interrelated stages—planning, predevelopment, development and management—with a decisive decision-point, called go/no go/modify, in the middle. They are described below:

Planning—Stage 1 is the initial discovery phase, likely prompted by a Spotter’s announcement of a promising opportunity. It is the time to gather the core team that will assess the opportunity, recruit partners, engage the community to assure a good fit with existing community priorities, perform a preliminary needs analysis, and develop a shared vision.

Predevelopment—Stage 2 is the due diligence phase of any project, following Planning, when the project team drills down for information that will help map out the feasibility of the project. It is characterized by technical services related to: architecture and engineering; assessing likely sources for investment, including tax credits; refining a business model; preparing a well-crafted prospectus; and finally putting together a capital stack that will finance the project.

Go/No Go/Modify—The decision point of the project development cycle is not actually a phase. It is the moment in which everything is fully considered and a clear decision made about whether to move forward with Development, reconsider where things stand and possibly modify the project to make it more feasible, or pivot to an altogether different project that is also in the pipeline of projects yet aligns better with the community’s vision.

Development—Stage 3 is the full-steam-ahead phase of constructing or renovating a building and preparing it for occupancy, including marketing it to prospective tenants. The role of Developer may be enacted by an entrepreneurial development firm, a hired development firm paid to manage this phase of the project, or a community organization that has taken on the novel task of directing the Development phase.

Management—Stage 4 of the project development cycle may have its roots in earlier phases—say, with pre-occupancy sales and leasing offerings—but it more fully swings into high gear after the building is ready for occupancy. Its new tenants may be commercial ventures, nonprofit organizations or private residents. The building also may provide space for civic or other community activities. In some instances, an entrepreneurial development firm or nonprofit organization that has been the Developer will stay on to manage and market building operations during or after occupancy. More often, however, another entity will step in to purchase the renovated structure, fulfill its sales and leasing opportunities, and manage its continuing operations.