Stalled Atlanta Project Shows Drawbacks of Equity Pools
A stalled effort to build housing for the poor in Atlanta points up the difficulties that banks may encounter with equity investment pools.
The pools, which take advantage of federal housing tax credits, have become popular among bankers in recent years as a way to fund multifamily housing developments for the poor. By backing such projects, banks can fulfill part of their obligations under the Community Reinvestment Act.
Corporate Funds Needed
But these programs depend heavily on contributions from corporations besides banks. If efforts founder, a bank's high public profile can prove a liability.
The Atlanta Equity Fund was created last year to invest $5 million for building multifamily housing on land owned by the city. Atlanta's major banks - Citizens and Southern Corp. (now part of C&S/Sovran Corp.), Sun Trust Banks Inc., Wachovia Corp., and Bank South Corp. - immediately pledged $250,000 each to the fund and went looking for other corporate sponsors.
A year later, having raised only $1.5 million, the Equity Fund is being reorganized under the newly formed Atlanta Neighborhood Development Partnership. A committee of the organization, largely composed of bankers, will attempt to enlist the corporate support that has heretofore been lacking.
"It looks like it's moving slow, but I think it will be revived," said James C. Mynatt, first vice president at Sun Trust's Georgia subsidiary.
Atlanta's effort appears especially weak when compared to Chicago's, where an equity fund with 37 corporate contributors has raised $40 million since 1985 and completed $145 million in financing to build 3,000 housing units.
Atlanta bankers downplay their role in the Equity Fund. "The banks really want everybody to understand that this is a corporate effort, not just a bank effort," said John G. Bragg, vice president and CRA operations officer with Wachovia.
Sales Effort Questioned
Theories vary as to why Atlanta businesses were slow to support the Equity Fund. Some critics charge the banks with mounting a poor sales effort.
Bankers say the current recession, which has put earnings under pressure, has clearly made companies more cautious about contributing to new philanthropic ventures. Federal tax credits are of no use unless they can be applied to earnings.
"A lot of the corporations already do a lot for the community and this is just something heaped on. Maybe they're not ready to jump into something else," Mr. Bragg said.