Owning Main Street: Three Finance Innovations for Community Control of Development

Note: this article is based on Allison’s 2018 master’s thesis for the Tufts University Department of Urban & Environmental Policy & Planning: Extending Community Control over Commercial Development: Community Land Trusts and Community Finance Models. It was originally featured on the personal blog of Penn Loh, UEP’s Senior Lecturer and Director of Community Practice. 

Main Street businesses provide access to goods and services and generate jobs and ownership opportunities for local residents. But more than these economic roles, they also enhance vibrant and safe street life. As important as these commercial districts are, residents may not feel much control as businesses move in and out, shifting the fabric of the places they live. Commercial gentrification, for example, can displace local business owners that provide culturally and community specific goods and services to make room for chain stores that can pay higher rents.

In 2015, Oksana Mironova joined a Facebook discussion with others in New York City who were concerned about “seeing small businesses vanish, seeing places that have important community roles… vanish” due to the increasing prices of land in the City and its impact on local businesses and organizations. The online thread led to an in-person meet-up. This group of community members was ready to take action, but was faced with a daunting question:how can a community gain control over commercial development?

The group ultimately decided to collectively invest in real estate development through a somewhat new tool designed to address commercial real estate affordability — the real estate investment cooperative (REIC). Investing pooled funds in real estate would enable these community members to more directly control commercial development.

In Boston, a group of Black and Latino workers pursued this same idea of collective ownership to form CERO, a worker cooperative providing organic recycling services. And when they needed startup capital, they opened up investment to local community members through a direct public offering (DPO).

Cooperative investment in real estate development and collective ownership of local businesses are just two ways that communities are trying to exert control over their main streets. Boston Ujima Project, which is building a community investment fund, is taking democratic control one step further by running a participatory budgeting process among its members to decide how to allocate their capital fund. These three projects are examples of community-based financing and cooperative ownership, particularly to support businesses that have community value but lack access to capital. These attempts to “own Main Street” are each described in further detail below.

Real Estate Investment Cooperatives

Popularized in the United States by the Northeast Investment Cooperative (NEIC) in Minneapolis, a real estate investment cooperative is an organization designed for buying and developing real estate. They provide a structure through which community members can collectively invest in commercial or office space to ensure that the amenities and services they want in their communities can be financed.

Mironova and her associates became the New York City Real Estate Investment Cooperative, “a group of over 500 New Yorkers who are pooling their money and power to secure space for community, small business, and cultural use in NYC.” By gathering funds from community members to financially support the purchase of real estate around the city, NYC REIC hopes to re-establish the community’s control of development.

“We want to play a role in helping people pool money and make decisions based on cooperative principles of keeping nonresidential spaces affordable. For a lot of people that’s thinking about commercial space, but also office space for nonprofits, manufacturing spaces… supporting non-speculative development” says Mironova.

Each investor, regardless of their investment amount, holds a single vote in deciding how money will be spent. While they have yet to purchase their first property, NYC REIC hopes to partner with other organizations to help maintain the affordability of property after it is purchased, perhaps transferring the ownership to a community land trust or other non-profit.

Residents of communities where real estate prices are increasing, like New York City, are not the only ones seeking new ways to finance business and real estate. Finding the capital to support and finance commercial projects is a general challenge, particularly in lower and moderate income communities that are perceived as “risky” for investors.

Direct Public Offerings

In 2012 a group of community members from the Dorchester neighborhood of Boston and representatives from the Boston Workers Alliance and MassCOSH (Massachusetts Coalition for Occupational Safety and Health) came together to create a worker-owned compost diversion enterprise. They sought to build sustainable employment opportunities within a growing green economy while also addressing the need for composting.

However, CERO (Cooperative Energy, Recycling and Organics, also “zero” in Spanish) struggled to access financing. Without a historical record of business success, customers, or collateral, banks were not interested in providing a loan for the new business. And because they were a business, not a non-profit, many foundations were also uninterested or unable to invest in the project.

Lor Holmes, CERO’s general manager, remembers the process: “We needed capital. We had none of our own. We were all low-income and working class. Most everybody was working at least one other job. We went around to all the usual places, traditional banks, and we couldn’t offer them what they needed. We didn’t have a record; we didn’t have customers, inventory, any collateral. That knocked out almost all of the places that businesses get money.”

CERO was also committed to being a worker-owned cooperative, and thus could not offer equity shares to investors because any profit they made would go back to the worker-owners of the business. The worker-owners involved in the founding of CERO were residents of the community that would be served by the business, deepening the company’s tie to the area.

After securing a small loan from the Cooperative Fund of New England and the Boston Impact Initiative and raising a bit more cash and community support through a crowdfunding campaign, CERO decided to explore an alternative finance method: a direct public offering or DPO. When large companies or corporations launch publicly in the stock market, they provide individual public offerings, or IPOs. An IPO provides the opportunity for companies to sell shares to institutional investors and/or retail investors. However in order to purchase an IPO an investor must work with an underwriting firm and have a net worth of at least $1 million or an income of at least $200,000 for the past year.

As opposed to IPOs, DPOs are self-administered and self-underwritten public securities. Unlike a typical crowdsourcing platform like Indiegogo or Kickstarter, DPOs are public offerings where individuals can buy stock in the company and thus potentially gain a return on their investment if the company is successful. Based on the type of DPO that they establish, companies may be restricted to targeting a single geographic location or be able to reach a wider base online. CERO, for example, could only accept investments from within Massachusetts. For companies that do not have the collateral to access loans from banks, a DPO provides an opportunity to build a pool of equity capital that could be used as collateral while also offering community investors partial ownership of the business and direct involvement in its development.

For CERO, the DPO process ended up costing about $20,000 (spent mostly on legal fees and advertising) but eventually raised $370,000 from 85 investors. 95% of those investors live in Eastern Massachusetts; many are from Dorchester and the other surrounding neighborhoods that CERO serves. As noted by Holmes, most of these investments were of $2,500, the minimum investment amount, and most investors had never made a stock purchase before.

Ujima’s Community Capital Fund

Not far from CERO’s home base in Dorchester is another organization seeking to find new ways to finance community businesses and services through collective ownership. The Boston Ujima Project, founded in 2016, is an organization with a mission to create “a new community controlled economy in Greater Boston.”

In 2014, a group of four local organizations came together to address funding needs for grassroots organizations and movement building in the Boston area. After a few years of studying the needs of local communities, these organizations came to the conclusion that a system was needed to provide access to capital for community needs that could be administered directly by the community. They studied a variety of different models and decided to pull aspects of a handful of cooperative frameworks to create a larger initiative, now called the Boston Ujima Project.

One of Ujima’s key programs, the Community Capital Fund, pools money from local community members to be invested in businesses and entrepreneurs that are voted on by members. The Community Capital Fund uses a participatory budgeting model wherein all Ujima members who are residents of Boston have an equal vote as to how the money is spent, regardless of how much they have invested. Membership costs just $25 for adults, and members also have a vote in deciding on the community standards that each investment must adhere to — for example, paying a living wage or a focus on environmental sustainability.

While Ujima is still developing the fund and has yet to allocate capital through this process, the fund will eventually be distributed to small businesses and real estate projects through its Neighborhood Assemblies and Good Business Alliance and Worker Services Network. The fund itself is made up of contributions from members, impact investors, philanthropic foundations, faith based organizations, and anchor institutions. Ujima hopes that the fund will provide an opportunity for the market needs of community members to be heard and provided for outside of a typical investment structure.

Democratizing Finance, Democratizing Development

Democratizing the finance structure of community development leads to a more diverse set of funding options, encouraging businesses that may not be able to access conventional funding sources to open and increase access to goods and services to the community. This democratization also provides the general public more opportunities to access to the financial benefits of investment.

Main street districts can be the lifeline of a community — providing jobs, access to goods and services that people need, and a place for people to gather and connect with one another. By democratizing the investment process, the community is invited to share in the success and benefits of commercial development, while being directly involved in deciding what happens in these districts.