Can $30M fund help minority developers?
Money could help Medical District be ‘a vibrant, inclusive community’
The Memphis Medical District Collaborative and Pathway Lending on Monday announced the creation of the Medical District Investment Fund, a $30 million capital fund to help finance development of residential and mixed-use projects in the district.
MMDC director of real estate Ben Schulman said the fund will go beyond simply encouraging new development. It will be strategically utilized to encourage development by minority- and femaleowned businesses, create a diversity of housing and transform the micro-economy of the diverse neighborhood.
“A tool like this, the orientation of it changes shape as no longer being something that is a seed or a catalytic mover, but rather a very, very purposeful, mindful tool to ensure that development is being done in an equitable and inclusive fashion,” he said.
“Rents are still relatively low . ... It often doesn’t pencil out for a developer.”
Ben Schulman
MMDC director of real estate
The district can absorb 1,000 additional residential units and about 170,000 square feet of commercial
and retail space.
Traditional lenders don’t like to take risks and can be apprehensive about underwriting in a situation where the debt service ratio is above a certain level. That can affect newer developers without deep pockets and those looking to develop in still-emerging areas.
“Rents are still relatively low, what one can charge in the Medical District,” Schulman said. “It often doesn’t pencil out for a developer, hence the difficulty in finding financing.”
While developers and businesses who get funding through the Medical District Investment Fund will go through a stringent underwriting process, the fund is designed to be flexible, allowing for more creativity and greater leeway to intentionally support projects put forward by minority developers.
“People increasingly see the value of the Medical District as a place for investment, opportunity and to become a part of a growing community,” MMDC President Rory Thomas said.
‘Agents of change’
First Horizon, Regions Bank and Truist Bank provided $10 million each to capitalize the fund. Pathway Lending will underwrite any supported developments and administer the fund, also supported by the Kresge Foundation and The Hyde Family Foundation, a driving force behind the formation of the MMDC in 2016.
Hyde Family Foundation president Teresa Sloyan described the entities behind the fund as “agents of change” and said it would help spur “a vibrant, inclusive community.”
Hank Helton, executive vice president and chief stakeholder officer for Pathway Lending, said the place-based development model has proved successful in supporting the creation of affordable housing and a wide range of businesses.
“To bring access to capital into a specific geography that has a lot of potential for development that will not only impact the current residents but also continue to give the neighborhood the ability to grow and stabilize and really have a very diverse mix of not only types of businesses, but also a good socio-economic mix,” he said.
The Pathway team also hopes to see a good mix in the developers on those projects, strategically engaging Black- and female-owned businesses. Helton said he also hopes to see emerging developers create partnerships with other local developers to leverage additional opportunities moving forward.
“For the smaller ones, you’re really looking for capacity-building methods for them to ... maybe do a project or two on their own to really build that capacity and to build their reputation in the market that will allow them to start to attract more traditional sources of capital,” he said.
While the investment fund will not be the only source of capital for Medical District projects, Helton said providing gap funding can help projects move from blueprints to reality.
Another tool in the toolbelt
The fund is not the first domino, but maybe the second or third to fall as investment and development in the Medical District, especially in the Edge District, has accelerated in recent years. It’s meant to help keep the momentum going, Schulman said.
Despite that, the district – currently home to 10,000 residents and host to 30,000 employees and students – can absorb 1,000 additional residential units and about 170,000 square feet of commercial and retail space, according to the MMDC.
The fund isn’t the only tool in the MMDC’S arsenal to help encourage development. The organization has a “seed fund” for $5,000 pre-development grants and a “grow fund” for $30,000 to $250,000 direct investment funds for site acquisition and environmental remediation. The new “build fund” offers between $250,000 and $3 million for construction and gap financing.
Other organizations, like the Downtown Memphis Commission, also provide incentives for projects in some parts of the Medical District.
This build fund has been in the works for about two years, Shulman said, and for him, it was the right time for everything to come together. While the Edge District has seen a lot of interest and investment in recent years, other parts of the Medical District have not attracted as much attention.
Schulman said the MMDC wants to ensure development isn’t siloed within the Edge but that new investment is peppered within all 2.6 square miles of the district.
“The timing of it coming to bear right now actually is perfect,” he said. “We want to make sure that there are tools available to allow that momentum to continue as the overall trajectory goes from, really, what was a weak market which needed a lot of stuff just a few years ago, to a rising market, which is what I would qualify the position we’re in now, to a stronger and more established market.”
Corinne S Kennedy covers economic development, soccer and health care for The Commercial Appeal. She can be reached via email at Corinne.kennedy@commercialappeal.com.