Albany

Last fall, residents in the South End neighborhood rallied alongside Albany Mayor Kathy Sheehan to protest the eventual closure of a Rite-Aid on Pearl Street, which was one of the few places in the neighborhood where residents could buy food, basic household items and medication.

The store played a key role in the community, and its closure raised a question about how best to revitalize low-income communities in the Capital Region: what if a neighborhood's residents, rather than corporate shareholders, had ownership of the businesses they rely on within their neighborhood?

"If we're talking about community development, who has ownership?" David Craft, a community development clinic fellow at Albany Law School, said. "Capital is moving more toward investing into bigger companies and corporations. We need to explore what other options that are out there that allow for the income and profits to be circulated more within communities."

Community investments funds, or similar investment vehicles, have been used in recent years in places like Portland, Ore., and Minneapolis, Minn. The financial tool has helped revitalize shuttered shopping strips and struggling commercial areas by allowing people living in the neighboring communities to invest directly in the businesses they shop at.

Here's how the mechanism might work in Albany: A group of residents in a given geographic area — say the Sheridan Hollow neighborhood — would partner with a local community development organization, an investment law firm or other financial institution like a bank, to create an investment corporation that anyone within that geographic area could buy shares of.

Shares in current community investment funds can range in size. In Portland, shares were priced at $10 to $100, and are easily accessible for anyone within the allotted area. In other funds, shares are priced at a minimum of $1,000 per, allowing the fund to raise more capital, while remaining fairly accessible.

Residents would buy shares, take some form of a required financial literacy course, and become investors.

The money in the fund would then go to buy unoccupied or distressed properties in the community. Following renovations, the building would eventually be leased at a low rate to a business owner with plans to open a grocery store or some other business the resident shareholders want to see in the community.

Currently, there's virtually no way for unaccredited investors to invest in something outside of the stock market, like their local economy.

"You've got people who live in communities benefiting from an increase in values of the properties and also if it's generating income, you're getting a share of that as well," Stacy Mitchell, co-director of the Institute for Local Self-Reliance, said of community investment funds. "Most of us, we're limited to buying stock in publicly traded companies or mutual funds, but if you want to invest in the local economy, there really aren't any vehicles for doing that."

The central challenge to establishing these community funds, however, is the extensive and often costly legal and regulatory legwork required to properly establish a community investment fund that asset-poor residents who aren't accredited investors could put money into.

Another challenge is getting "the stars to align" by having motivated community residents as well as trained financial partners willing to put up the money to get the investment fund off the ground.

"It takes quite bit of work to set up these community investment funds, it costs some money," said Brian Beckon, a principal with the Oakland-based law firm Cutting Edge Capital, one of the leading U.S. firms helping communities establish investment funds.

"Getting community organizations around this, to put in real time to do this when financial sustainability may be months or years away, that's a challenge. Finding local expertise that can help make this happen in areas is a challenge," Beckon said. "These stars don't align very often. This illustrates the work we have to do."

Proponents of the community investment fund model, like Craft, argue that it gives ownership of community businesses to residents in that community.

Those resident investors are incentivized to actively support their local businesses, and are likely to value the community benefit over a hefty rate of return on their investment, unlike a large, profit-seeking corporate investor.

"If you're raising capital from people in your community, chances are they're going to invest in you because they believe in you, they want you to succeed, not because you're offering a higher rate of return than another investment," Beckon said. " That's a very different kind of transaction than say, a venture capital firm that's just putting money into your company because its offering a higher rate of return than they could get somewhere else."

Within the South End, Jahkeen Hoke sees the potential a community investment fund would have on his community.

Hoke, the executive director of AVillage, a South End advocacy group, pointed to the years of brain drain the Capital Region has experienced as young people — particularly of color — see few local opportunities to find gainful employment. But, with greater investment and growth of opportunities, quality-of-life and opportunities available in neighborhoods like the South End could improve significantly.

"Having the ability to be empowered and involved and invest, yes it will keep people investing here, but it also forces them to re-position their mentality of their neighborhood, and on how they service their neighborhood," Hoke said. "If you invest and have ownership, you're going to care about something. "

And the investment model has potential in capital-starved rural settings, as well.

In western Massachusetts, the Pioneer Valley Grows Investment Fund was established in 2009, and has raised nearly $2 million from around 65 non-accredited investors with the goal of funding local, environmentally sustainable food and farm businesses.

The group was started by an amalgam of local organizations, but was aided with legal and regulatory work by the Franklin County Community Development Corporation.

The fund has invested in 34 businesses across the Pioneer Valley, and none of the loans they've administered have defaulted, according to Rebecca Busansky, the fund's coordinator.

"People, when they stop and realize, what do I want my town to look like? What's the impact of climate change? It's pretty important. Then what can I do about it? That's where we're seeing growth of community investment funds," Busansky said.

While only a handful of community investment funds have grown successfully thus far, Benton, Craft and others see immense potential in the internal, do-it-yourself community investment model.

They say the community investment vehicle could also protect from possible gentrification by maintaining ownership of businesses, and eventually could drive economic development in areas that are typically overlooked by outside investors.

"Can we look at another option that looks at locally-grown, locally-based type businesses and real estate ventures that can maybe strive for more of those types of benefits, not just financial return but employment opportunities, amenities and a share of the profits being shared within the community?" Craft said.

"That way," he said, "we're not extracting wealth from communities."