A drive down Bankhead Highway, just outside Atlanta's downtown, is not for the faint of heart.

Vacant, boarded-up buildings line the thoroughfare. Young men sell drugs near an abandoned gas station. The neighborhood is not the sort most banks rush to invest in.

Or is it?

Just north of the highway is the Overlook Atlanta apartment complex, secured with iron fences and a guarded gate. NationsBank Corp. bought the property in 1993 for $4 million and began an aggressive rehabilitation.

The NationsBank Community Development Corp. built fences, hired guards, and ripped out the small, bulletproof window through which residents paid their rent. It put up a spacious leasing office, appointed with new furniture, and installed central air conditioning in all of the 512 apartments, helping to combat a summertime vacancy rate of more than 60%.

Today the property is 95% occupied and turns a profit. Moreover, it's only one of a growing portfolio of money-making development deals completed by the NationsBank subsidiary.

Although it was formed in 1978 as a nonprofit operation aimed at meeting community reinvestment ideals, NationsBank CDC's focus began to change in 1992. It started buying and rehabilitating low-income properties in an effort to make money and also serve the community.

In the process, NationsBank also developed a model for banks across the country that were interested in meeting Community Reinvestment Act goals in a new way.

In all but one of its deals, NationsBank has acted as its own developer. Instead of confining its role to that of a limited partner, NationsBank acts as the general partner, inviting nonprofit groups to step in as the limited partners. Indeed, by assuming the role of a private, for-profit developer, the company is stepping outside the traditional boundaries banks set for themselves in the areas of community investment.

With the Dec. 31 purchase of more than 1,900 housing units in Tennessee and Georgia, the bank's CDC now owns about 7,700 single-family and multifamily housing units. It plans to buy another 2,000 this year.

Ellen Lazar, executive director of the National Association of Affordable Housing Lenders, cited Banc One Corp., J.P. Morgan & Co., and Chase Manhattan Corp. as examples of other banking companies that are making money in the arena of affordable housing. Like NationsBank, they also use federal tax credits to make deals work. But those banks, and others, typically act primarily as lenders and as passive investors in deals.

"Others are looking at those types of opportunities, but to my knowledge nobody else quite yet has jumped into the fray as a developer other than NationsBank," said Ms. Lazar. "You're looking at really taking risks on both ends of the transaction and making something happen in a deeper way."

To be sure, NationsBank's subsidiary has a long way to go to match the returns that other big banks are realizing from their affordable housing activities. But the upside in developing projects itself is twofold: the bank can identify, buy, and rehabilitate projects faster than it could if it relied on others to make the deals happen; and it can add signature touches to its properties, such as providing adult education classes and after-school child care.

Because it acts as a developer, NationsBank is involved in all aspects of a project its subsidiary finances, including such details as where a new basketball court should be located in an apartment complex.

"When you buy tax credits, you have no say in how the property operates," said J. Michael Pitchford, senior vice president and director of neighborhood development for NationsBank. "This is a whole different ball game. We make or break on how well it does or doesn't do."

Rey Ramsey, president and chief operating officer of the Enterprise Foundation, a national nonprofit organization that promotes affordable housing, said NationsBank is setting a precedent that other banks may soon follow.

"They do a good job of combining profit with a social motive. They're clearly in the forefront ... and there are some others who are looking at that model," he said.

The philosophical direction comes from the top. NationsBank chairman Hugh McColl Jr. and president Kenneth Lewis have actively pushed the development unit to become more aggressive.

As a result, the subsidiary is scouring the country for properties, looking to build on its holdings, which already include developments in Georgia, Texas, Tennessee, Virginia, North Carolina, Florida, and Washington, D.C.

Mr. Lewis recently set a profitability goal for the subsidiary: to earn returns on equity of more than 10% in 1998. In 1996, the company reported a 6.1% return on equity and a net profit of $1.4 million.

"We approach our CDC efforts in a manner that makes good business sense," said Mr. Lewis. "It is the only way community development can become a sustainable business."

Still, the returns don't match those of some of NationsBank's competitors. Banc One Community Development Corp., for example, realizes an average 15% return on equity, and last year it earned $3.2 million in profits, said Joseph S. Hagan, president of the Banc One subsidiary. But Mr. Hagan said comparisons between the two development units are unfair.

"I'm a banker, I'm not a developer," he said. "They take on some very tough projects as a developer, as opposed to being an equity investor." The unit at Chase, which also avoids acting as developer, has a return on equity of about 15% to 20% "We are expanding access to credit, that's our whole goal, and we do that in a number of ways," said Mark A. Willis, president of the Chase Community Development Corp., which last year lent $250 million to affordable housing projects. "We do not act as our own developer. It's a different role, and it has different implications."

Raymond L. Kuniansky Jr., a former banker who is now chief operating officer of the Atlanta Neighborhood Development Partnership, a nonprofit organization involved in affordable housing projects, said he hopes other banks will follow NationsBank's example.

"NationsBank is the only one that I know of that has formed a CDC and has actually acquired, developed, and changed the face of properties," said Mr. Kuniansky. "They're very successful at it. Others will see that they are making money and others will follow it. That's a good thing."

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