EVOLVING CHALLENGES FOR COMMUNITY DEVELOPMENT CORPORTATIONS The Causes and Impacts of Failures, Downsizings and Mergers William M. Rohe The University of North Carolina at Chapel Hill Rachel G. Bratt Tufts University Protip Biswas The Enterprise Foundation January 2003 EVOLVING CHALLENGES FOR CDCS:THE CAUSES AND IMPACTS OF FAILURES,DOWNSIZINGS AND MERGERS I About the Center for Urban and Regional Studies The Center for Urban and Regional Studies in the College of Arts and Sciences at the Universi- ty of North Carolina-Chapel Hill, is a multi-disciplinary research center focusing on issues and problems faced by our nation’s cities and regions. In addition to conducting and supporting research projects, the Center sponsors seminars with visiting scholars in order to provide an intellectually stimulating atmosphere for developing new approaches to problems and issues in selected areas of study. Created in 1957, it is one of the oldest university-based research cen- ters of its kind in the country. Copyright © 2003. Licensed to University of North Carolina at Chapel Hill. Reprinted by permission of the copyright holder.All Rights Reserved. ISBN 0-9728693-0-1 Ordering Information This report may be ordered from the Center for Urban and Regional Studies, Campus Box 3410,The University of North Carolina at Chapel Hill, Chapel Hill, NC 25799-3410 or via email [email protected] charge is $5.00 for postage and handling. Please make payment by check or money order to the “Center for Urban and Regional Studies.” For orders to be mailed outside the United States, remittance must be in United States dollars payable on a United States bank. EVOLVING CHALLENGES OF COMMUNITY DEVELOPMENT CORPORATIONS III EVOLVING CHALLENGES FOR COMMUNITY DEVELOPMENT CORPORATIONS:THE CAUSES AND IMPACTS OF FAILURES, DOWNSIZINGS,AND MERGERS CONTENTS ACKNOWLEDGMENTS . v EXECUTIVE SUMMARY . vii CHAPTER 1: INTRODUCTION . 1 Definition of Key Research Concepts . 2 Methodology . 3 Organization of Report . 4 CHAPTER 2: LITERATURE REVIEW . 7 CDC Failures, Downsizings, and Mergers . 7 Contextual Factors Affecting CDC Performance . 9 Organizational Factors Affecting CDC Performance . 11 Effects of CDC Organizational Changes . 15 Conclusion . 16 CHAPTER 3: SUMMARIES OF CASES . 17 Community Development Corporation of Wisconsin (CDCW): Organizational Failure . 17 Whittier Housing Corporation (WHC): Organizational Failure . 19 Oak Cliff Development Corporation (OCDC): Organizational Downsizing . 21 Advocate Community Development Corporation (ACDC): Organizational Downsizing . 23 Albina Community Development Corporation (Albina): Organizational Merger . 24 Slavic Village Development (SVD): Organizational Merger . 26 CHAPTER 4: CONTEXTUAL FACTORS . 29 Market Forces . 29 Increased Competition for Resources . 31 Changes in City Policies . 33 Role of Intermediaries and Other Funders . 34 Lack of CDC Support Organizations . 35 Level of Trust . 36 Conclusion . 38 EVOLVING CHALLENGES OF COMMUNITY DEVELOPMENT CORPORATIONS IV WILLAM M. ROHE,RACHEL G. BRATT, AND PROTIP BISWAS CHAPTER 5: ORGANIZATIONAL FACTORS . 39 Breadth of Organizational Mission . .39 Internal Management Problems . 42 Lack of Staff or Board Capacity . 43 Communication Problems . 45 Lack of Community Support . 47 Conclusion . 50 CHAPTER 6: IMPACTS OF CDC FAILURES,DOWNSIZINGS, AND MERGERS . 51 Loss of Confidence in CDCs . 51 Decline in the Production of Affordable Housing . 52 Loss of Existing Affordable Housing . 53 Destabilized Neighborhoods . 53 Distress among Tenants of CDC-Owned Properties . 54 Effects of CDC Mergers . 54 Conclusion . 55 CHAPTER 7: CONCLUSION AND RECOMMENDATIONS . 57 Recommendations . 59 Final Thoughts . 69 CASE STUDIES . 71 Community Development Corporation of Wisconsin: Organizational Failure . 73 Whittier Housing Corporation: Organizational Failure . 87 Oak Cliff Development Corporation: Organizational Downsizing . 99 Advocate Community Development Corporation: Organizational Downsizing . 113 Albina Community Development Corporation: Organizational Merger . 129 Slavic Village Development: Organizational Merger . 145 APPENDIX A: PEOPLE CONTACTED TO IDENTIFY FAILED,DOWNSIZED, OR MERGED COMMUNITY DEVELOPMENT CORPORATIONS . 159 APPENDIX B: INTERVIEWS CONDUCTED AT EACH SITE . 163 APPENDIX C: DETAILED METHODOLOGY . 169 APPENDIX D: INTERVIEW GUIDE . 173 AUTHORS . 177 REFERENCES . 179 CENTER FOR URBAN AND REGIONAL STUDIES — THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL-HILL ACKNOWLEDGMENTS V ACKNOWLEDGMENTS We thank the Fannie Mae Foundation for its support of this project.We owe a particular debt to Ays¸e Can Talen and Sohini Sarkar for their thoughtful comments on the initial research proposal and the draft final report.At the University of North Carolina, we are indebted to Executive Assistant Carolyn Jones, who provided valuable assistance in preparing this manuscript.At Tufts University, we thank Research Assistants Matthew Martin and Whitney Rearick, who helped in the early phase of this research, and Department Administrator Ann Urosevich, who managed the Tufts University subcontract. We also thank the dozens of key informants who shared their knowledge about community development corporations that failed, downsized, or merged in recent years (see appendix A). The information they provided was invaluable in helping us select the six organizations to study. Finally, we are in debt to the people who were interviewed for this study (see appendix B).We appreciate their willingness to share their experiences with us.We hope that this project both accurately reflects what they told us and contributes to a deeper understanding of the chal- lenges being faced by community development corporations throughout the country. EVOLVING CHALLENGES OF COMMUNITY DEVELOPMENT CORPORATIONS VII EVOLVING CHALLENGES FOR COMMUNITY DEVELOPMENT CORPORATIONS: THE CAUSES AND IMPACTS OF FAILURES, DOWNSIZINGS AND MERGERS William M. Rohe, Rachel G. Bratt, and Protip Biswas EXECUTIVE SUMMARY Community development corporations (CDCs) are key vehicles for providing better housing and promoting community development in low- and moderate-income neighborhoods.These organizations, however, face a variety of challenges to their continued viability. In recent years many have failed, downsized, or merged with other organizations.This study represents the first systematic analysis of CDCs that have failed, downsized, or merged. By analyzing the experiences of six organizations—two that failed, two that downsized, and two that were the product of a merger—we identify the factors that contributed to these organizational changes and the impacts on the communities served.The study also recommends ways for both CDCs and their supporters to address the challenges they face and reduce the prevalence of downsizing and failure. In recent years, CDCs have become increasingly important actors in many low- and moderate- income communities. In neighborhoods where the loss of private businesses has often been endemic and where private and even public investment may be extremely low, CDCs provide housing and create jobs and economic opportunities for residents.As key engines of community growth and revitalization, CDCs have been the subject of considerable study, and their contin- ued viability and productivity are widely viewed as important in efforts to improve deteriorated neighborhoods and their residents’ opportunities. Over the past 30 years, much attention has been paid to the growth in the number of CDCs. The widely cited National Congress for Community Economic Development surveys, for exam- ple, have shown a near-doubling in the number of CDCs between 1988 and 1999. Recently, however, several large, well-respected CDCs have failed or been drastically downsized, and oth- ers have merged with different organizations. One of the most dramatic examples of a CDC fail- ure is Indianapolis’s East Side Community Investments, which had been one of the nation’s largest and most celebrated CDCs. Between the early 1990s and 1997 it went from a staff of 115 to a staff of 6 and in October 2001 it finally went out of business. These incidents led us to ask several questions: 1. Are CDC failures, downsizings, and mergers isolated instances, or are they part of a more general pattern among CDCs across.