ROLE #4

The Capacity Builder

Role Summary

There are two ways to get into the weeds on the process of teeing up potential investment opportunities: as an Opportunity Sponsor, and as a Capacity Builder. The critical difference? Opportunity Sponsors bring their own deals (typically real estate) to market. Capacity Builders help those associated with the institution, others in the community, or even other groups elsewhere in the U.S. bring their own opportunities to market.

Summary of Benefits

To date, the Capacity Builder role is one of the least undertaken roles discussed in this Roadmap. So why should you help develop this critically needed role?

Satisfying your Research Mission: Developing open-access demand frameworks, pro forma models, and marketing materials – in exchange for access to information about the deals that use them – could provide enormous insight into community development patterns across the U.S.
Helping Educate Students: Your instructors are always looking for experiential learning opportunities, and getting hands-on experience crafting the materials below will help students learn the fundamentals of economic modeling, marketing, and community development far more than textbook instruction ever could.
Supporting Underserved Groups: Many local community development corporations, underrepresented founders, or minority developers don’t have access to platforms that can easily help them assemble all the materials listed below. But you do. Providing that access and those support services creates a level playing field for opportunity sponsors that don’t otherwise enjoy one.

Financial & Resource Commitment

FINANCIAL COMMITMENT

RESOURCE COMMITMENT

There are two ways to pursue the Capacity Builder role: taking in-house talent and leveraging it to benefit community, or paying third-party consultants to do it for you. Option 1 carries a very low financial commitment, but a high internal resource commitment, and Option 2 is the inverse (consultants are expensive, but they do all the work!).

Functional Scope / Workflow

We envision the “Capacity Building” role as a catch-all for any technical assistance provided to help get investment opportunities to the point where they can be funded – helping to bridge that critical gap between “idea” and capital. Though these aren’t exclusive, we’ve provided a few illustrative buckets into which that technical assistance can fall in the space below:

Establishing a deal pipeline (your stuff, community stuff, etc.)
Demand Estimation
Pro Forma / business case development
Team Development / network creation
Deal marketing / community marketing
Deal / legal structuring (including exit setup / TA on community purchasing)

CATEGORY 1

Establishing a Deal Pipeline

One of the most interesting evolutions within the community development world over the last few years has been the rise of local “market makers.” This includes existing groups like Invest Atlanta, Baltimore Development Corporation, or the Erie Downtown Development Corporation, and new groups like Opportunity Alabama, Opportunity Virginia, or Opportunity Appalachia. These groups have an ordered, presentable view of interesting investment opportunities that will help advance community objectives if funded. Depending on the place, this effort could be led by community development financial institutions, local economic development groups, a local nonprofit, or another entity you uncovered while doing your landscape mapping.

A key note here – The reason most local market makers establish their deal pipelines is because they are also Capital Aggregators and want a pipeline of deals to help fund. If you are considering this critical pipeline aggregation role, please also read our section on Capital Aggregators to see whether you – or another local entity – needs to be responsible for funding these opportunities once they are organized.

Real Estate

If you want to start building a pipeline, you’ll need to start by identifying all the deals (beyond the ones you came up with as an Opportunity Sponsor) that need capital. Try the following groups as potential deal sources:

Community development corporations (list available from the National Alliance of Community Economic Development Associations).
Local development community – represented by anything from a specific local group focused on commercial development to the members of your local commercial realtors association.
Local planning, zoning, and economic development officials (they will normally have a list of all “active” real estate deals from which you can identify the most impactful deals, then contact sponsors to see if they want to be included on the pipeline list).
State / local nonprofits with focus on placemaking or economic development (e.g., Main Street groups).
CDFIs (CDFI Fund Locator), New Markets Tax Credit-granting “community development entities” (CDEs), development finance agencies, and other local impact-oriented capital providers (who may be willing to work with you to help them bring additional capital into the deals in their respective pipelines).

Operating Businesses

If you want to start building a pipeline here, we suggest the following:

Reach out to your office of technology transfer (and offices of tech transfer from other local institutions) to identify what your commercialization process looks like and how many companies are currently leveraging your institution’s research.
Reach out to your local business incubators and accelerators to ask which companies they feel might present the strongest potential for positive impact and have an upcoming need to raise capital.
Work with your office of alumni affairs to determine whether you have alumni founders or alumni in key leadership positions at growth businesses, either locally or regionally. As a value-add service to that alumni group, consider adding those businesses to your list (once you’ve verified their legitimacy).
Once you have these lists, go back and check their headquarters addresses to see if they fall into an Opportunity Zone, NMTC-eligible area or qualify for other incentives (like SBIC investment). This step is particularly important for Capital Aggregators, as it will give you a framework for some potential angles of approach on aggregating capital.
If you have identified a substantial number of operating businesses you’d like to support, it might make sense to start a targeted outreach campaign to identify their needs beyond just investment – from the marketing materials and preferred vendor relationships you’d create as a Local Anchor to the possibility of a venture fund (perhaps even backed by alumni equity) you’d assemble as a Capital Aggregator.

Once you have your real estate / operating business investment opportunities identified, you’ll need to collect enough information about them to pass along to interested third parties. The easiest way to do so is by using an online portal like The Opportunity Exchange, which can aggregate all your opportunities and present them in a standardized format, with easy prompts to collect the information investors are typically looking for.

CATEGORY 2

Demand Estimation

This is the most important piece of information a pre-revenue business or any real estate development can produce. Market demand/feasibility studies are conducted by objective third parties to ultimately determine if enough market demand exists for the project to be worth the investor’s time and capital commitment. These third party studies will utilize various resources to determine if there is a measurable demand (tenants willing to lease/rent, market size/scope, potential customers, etc.) for the opportunity – which can cost anywhere between $5,000 and $50,000 to produce.

Remember – you don’t need to do this for free. Providing demand estimation services could satisfy a critical need while also creating a new income stream for your institution, if your product is consistently good enough to help your opportunities attract capital.

How You Can Help

Universities have the capacity to produce demand studies themselves or purchase them from third parties, if they are so inclined.

Specific Action Items:

Tailor your demand study efforts to what you have identified as your priorities – or to the needs of the projects you’ve identified through local market making. The most common types of demand studies needed are:
- Housing (single family, multi-family, etc.)
- Grocery
- Senior Housing
- Business incubation / entrepreneurship (locals applying for federal grants to build new business incubators have such a study as a requirement before getting a grant).
- Broadband (typically around estimated “take rates,” e.g. how many people and businesses are likely to acquire new broadband access at a given price point if available).
- Retail / Food and Beverage (particularly in the “downtown revitalization” context).
Use your team to identify the appropriate school, department, or professor on campus that has the capacity to produce market demand or feasibility studies. Then, contact them to determine if they’d be willing to do so for the projects you have decided to help. A couple of motivators for their participation are:
- Teaching Mission – their involvement would serve as a case study for their students / facilitate student learning objectives
- Financial Stability – they can help the institution get paid
In some cases, you’ll need to contract out because you don’t have the right personnel in house to perform the analysis. Covering these costs on behalf of a project can make or break a deal, and is a great way to help accelerate a project that your institution has prioritized.

CATEGORY 3

Pro Forma / Business Case Development

One of the best ways to advance community-oriented deals is to help them build both the financial infrastructure and the business case they will need to go to market. This means (a) helping pull a pro forma together and (b) helping develop or refine the 5-10 page slide deck or business plan that goes along with that pro forma. We’ve provided you with some helpful examples of what it means to build a pro forma as an Opportunity Sponsor – but you can just as easily apply those same principles to building a pro forma for a third party. As for business plan development, we’ve included some helpful samples in the Resources Guide, but all will need to include, at minimum –

Initial cost/construction estimates (for real estate developments) or “burn rate/budget” (for operating businesses);
Total addressable market and how it was calculated;
The plan for capturing as much of that market as possible;
Long-term business development and management strategy;
The team and their ability to execute on the strategies outlined above; and
Architectural plans and renderings (real estate) / information on IP, product images, etc. (operating businesses).

As with demand estimation – remember that you don’t need to do this for free. As long as you can show your value and are offering a discount to the market, you are providing a critical service. If you are affiliated with a small business resource center, you are likely already providing all these services and you may not even know it!

How You Can Help

Get the appropriate professionals from your institution – from your real estate school, your business school, or your small business development office – engaged to help.
Engage your business school and graduate students in helping to develop pro formas, market segmentation strategies, and business plans for particular operating businesses.
Engage your real estate program (if applicable) to ask for help identifying market segments to tackle and building out a leasing or tenant attraction strategy.
For real estate deals, engage your architecture and engineering programs to help verify the costs included in your pro forma and business plan.
Depending on the industry, your university may have a specific department or school that has relevant expertise to provide around a business’ addressable market or solution it offers (e.g., a chemistry department might have insight into a drug’s potential market scope or effectiveness). If so, get them engaged.

CATEGORY 4

Assembling a Team / Ecosystem Building

For both real estate projects and operating businesses, it is crucial to have a strong development and management team in place. Lenders and investors want to know that the management team has done this type of deal before and has the relevant experience to execute. Seen from an investor or lender perspective, a project with an experienced team is less risky than a project whose team has never managed this type of enterprise before. Remember – every team needs to be able to (1) close the deal THEN (2) run the business. In most operating businesses, the deal team runs the business – but the same is not always true in real estate, where one developer might build the building, then sell it or turn it over to a leasing company to operate it. You’ll need both identified and on your team from the start.

How You Can Help

This “ecosystem building” function pairs well with being a Community Convener – if you have taken the time to thoroughly map the local community development landscape, you should leverage those connections to help get deals off the ground.

Create an “ecosystem map” that lists out the people with whom you have relationships that fall somewhere in the Ecosystem Diagram above. In particular, focus on contacts with developers, property managers, and entrepreneurs (whether local or alumni) that could drive a potential real estate project idea, manage a project, or commercialize some university research.
If a particular investment opportunity does not yet have its full team in place, leverage the pro forma you helped created and the market information you collected to convince those on your ecosystem map that this project merits their attention.
If an opportunity already has a team in place, work your network of connections to make sure that team is as strong – and representative – as possible. For example – at Opportunity Alabama, we are working to diversify the local real estate scene by introducing existing general contractors to diverse subcontractors that have capacity, but have not had access to large CRE deals before. We are leveraging our technical assistance to deals in order to get these teams hired on job sites, giving them the experience they need to compete for larger deals independently down the road. Building that list of minority subcontractors is the critical first step in this process – and one that your institution may want to engage in if no one else locally has done so.

CATEGORY 5

Deal Marketing & Community Marketing

Your marketing department may be your strongest ally as a capacity builder for two reasons: (1) each potential investment opportunity needs its story told, and (2) potential investors (particularly those from outside your community) will need a better sense of its potential before investing.

Deal Marketing

As they say – a picture is worth 1,000 words. Nowhere is that more true than trying to convince investors with limited time that a given deal is investable. For both real estate deals and operating business investments, converting much of the information your team has collected above into helpful tables and infographics will make your case much stronger.

This is particularly true on the real estate side, where project renderings (an architect’s visual illustration of what the project will look like upon completion) are often the big element that sells a deal – and without support, these are pretty expensive.
The operating business equivalent is the branding package – logos, designs, and consistent marketing materials can provide the “pop” an opportunity needs to stand out in a crowded field.

Community Marketing

Most investors underwrite communities in the same way they do the investment opportunities themselves (particularly on real estate deals, where local growth is required to make deals work). As a result, communities need a cogent response to the question: “why will you be a better place ten years from now?” Universities are uniquely situated to help communities answer that question. From their “community development” or “community outreach” arms to their research faculty, universities have the ability to help communities (a) identify their greatest challenges (like access to childcare or broadband), (b) enact creative solutions to those challenges (like student-led workforce development programs), and (c) put mechanisms in place (like community land trusts) to ensure that all residents benefit from an influx of new capital.

Once that plan is together (which may already be the case for your community!), that entire story needs to be told in a cogent, “sound bite”-able way that can attract investor attention.

How You Can Help

Engage your marketing department – and potential student interns – to help develop quality branding packages for real estate projects and operating businesses. While your students may already be helping provide materials to local businesses through capstone classes, few schools have made the jump to assisting with community marketing materials. We’ve found the Accelerator for America guide to Creating a Community Prospectus to be the most helpful by far – and their list of prospectuses that show other city’s projects and engagement efforts provides ample best practices material.
Engage the appropriate parties at your institution in crafting the narrative around why your community will be a better place ten years from now. This goes hand in hand with being a Community Convener, and is a natural outgrowth of that role.
Engage your School of Architecture, Engineering, or Design to create renderings for real estate projects.
Leverage your marketing department and students to turn the materials collected into more digestible pieces for investors, using graphics and other visuals where possible.

CATEGORY 6

Helping with Deal Structure

This broad category breaks down into real estate and operating businesses, as shown below.

Real Estate – Obtaining entitlements, options, site control, permitting, etc., is critical for any project to get started. In addition, they’ll need a clear plan for what entity and what structures they will use to acquire the property, develop the site, hold it, and ultimately sell down the road. Add to that the complexity of tax credits deal structures, and you’ve got the perfect opportunity for technical assistance.
Operating Businesses – Every operating business will encounter numerous regulatory hurdles before it can open its doors. Some involve intellectual property or patents; others involve proper business licensure or regulatory hurdles (particularly in highly regulated industries). In any case, investors want to know that all the planning you’ve done above will actually happen – so getting the right counsel engaged to get you across the finish line will be key to success.

How You Can Help

Your institution may have access to both the internal network (law school professors, experts on capital stacking, etc.) and external partners to help firm up deal structures. For example, you could consider the following:

Provide free or reduced-price access to commercializable research for companies that want to leverage it to make an impact.
Leverage law students, accounting students and faculty to provide free advice to help get through permitting, form businesses, help build complex capital stacks, or resolve legal and regulatory challenges.
Advocate on behalf of community-oriented projects at local zoning, planning, and other commission hearings.