by Stuart Cowan and Marta Anderson
The U.S. Treasury Department just gave sustainable (“green”) investing a real shot in the arm and for the most part, it has no idea.
Back in 2000 when Congress passed the Community Renewal Tax Relief Act, it created a program to award $15 billion in tax credits (called “New Markets Tax Credits”) by the year 2007 to Community Development Entitities around the country to then be channeled into eligible low-income census tracts. These New Markets Tax Credits are then used to enhance returns on business and real estate investments with the broader goals of stimulating job creation, developing affordable housing, boosting local businesses and revitalizing neighborhoods.
At the Portland Development Commission (PDC), a city agency in Portland, Oregon, Resource Development Director Norris Lozano’s ears perked up at the opportunity to bring millions of needed urban revitalization dollars into Portland without placing additional demands on the local tax base. So Lozano, PDC and numerous business partners worked together to create the Portland Family of Funds, a Community Investment Bank eligible to apply for the New Markets Tax Credits. This May, Lozano, PDC and the newly founded Portland Family of Funds celebrated an award of $100 million in New Markets Tax Credits from the Treasury Department.
What is unique about the Portland Family of Funds’ (PFF) approach to utilizing New Markets Tax Credits is that before receiving its first award, PFF had already decided to invest in projects that not only offer the requisite economic returns for its investors and social returns for low-income communities, but promise environmental returns as well. In so doing, PFF is significantly expanding the role of New Markets Tax Credits and boosting sustainable investment opportunities.
Portland is known for its progressive urban planning and sustainability efforts, so PFF establishing a banking mission that includes environmental benefits such as reduced air and water pollution and energy efficiency might not be surprising. However, PFF makes a strong argument for the pure business sense behind their commitment to “triple bottom line investing”: investments that not only yield financial returns, but community and environmental benefits as well. PFF is confident that its profits and ability to invest in Portland, especially over the long term, are actually enhanced by the third environmental bottom line. Thanks to Congress, PFF is about to test this out with millions of dollars in real estate investments.
PFF is starting with the historic renovation of the Portland Armory, taking a long-vacant building with significant architectural merit and turning it into a world-class performing arts center and community space. It has a very clear metric to ensure the environmental bottom line is met: the Armory will be restored to achieve a Platinum LEED certification. LEED (Leadership in Energy and Environmental Design) is a third-party certified design standard administered by the U.S. Green Building Council that evaluates buildings on their performance in sustainable sites, water efficiency, energy and atmosphere, materials and resources, and indoor air quality. Platinum is the highest achievable level; PFF will require all of its projects to meet at least the Gold LEED level.
There are many reasons that holding its real estate investments to a high LEED standard makes economic sense for PFF. High-performance green buildings offer significant cost savings over time with energy and water efficiency. They boast consistently lower operations and maintenance costs. Because green buildings are designed to be healthy for occupants, with elements such as natural daylight, natural ventilation, and non-toxic paints, worker productivity is increased — along with occupancy rates and rents. Recent LEEDTM buildings in Portland, including the Natural Capital Center and Brewery Blocks, have significantly outperformed the local real estate market. PFF intends to fully exploit current market failures in the finance and valuation of these buildings while giving communities good neighbors that are great catalysts for the local economy.
And this is just the beginning. PFF is applying for millions more in New Markets Tax Credits this fall. Meanwhile other recipients of New Markets Tax Credits are also making community investing sustainable. Coastal Enterprises, Inc. of Wiscasset, Maine is using its tax credits for sustainable forest management programs in the region’s struggling logging communities. Coniston Consulting in Chicago is pouring its investments into remediating and redeveloping urban brownfields.
While Congress’ original vision for New Markets Tax Credits did not include sustainability, it is exciting that some of the $15 billion is adding additional value to communities through greener growth. Cities and regions are thinking more deeply and longer-term regarding how to improve low-income areas and this is to the benefit of investors, communities and the environment. As the remaining New Markets Tax Credits are disbursed over the next four years, the huge potential for sustainable community investing should not go by unnoticed or untapped.
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Portland Development Commission: www.pdc.us
Portland Family of Funds: www.portlandfunds.org
Stuart Cowan is the Sustainability Program Manager for Portland Family of Funds. He oversees New Markets Tax Credit applications and the Applied Sustainability Initiative. Stuart has ten years of experience in sustainable design, environmental economics, and complex systems and is co-author of Ecological Design, a standard reference. Contact him: stuart@portlandfunds.com.
Marta Anderson is an intern for the Portland Family of Funds and is pursuing a joint Master in Public Policy and Urban Planning from Harvard?s Kennedy School of Government and Graduate School of Design. Contact her: marta@portlandfunds.com.
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