Study: Cleveland Has a Private (Non)Investment Problem

Cleveland ranks 93rd out of the 100 most populous cities in the United States in terms of investment committed per household, according to an analysis examining the flow of capital in the city by the Urban Institute, a nonprofit research organization dedicated to advancing upward mobility and equity.

“Investment is both a chicken and an egg,” said lead researcher Brett Theodos. “It’s a sign that things are improving, but it’s also the cause of why things are improving.”

Using dozens of private, public and government data sources, researchers ranked single-family, multifamily, small-business, nonresidential, mission, public and overall investments in cities between 2010 and 2020.

Overall, Washington D.C. topped the list, with $34,960 per household, followed by Denver, Colorado and Fremont, California. At the bottom of the list, Hialeah, Florida and Detroit, Michigan ranked 98th and 99th while Buffalo came in last with just $5,217 per household.

Despite its low aggregate ranking, Cleveland’s ranks in individual lending categories varied. The city’s lowest rank of 98 out of 100 for single-family investments, which include purchase loans for owner-occupied, single-family properties. Cleveland also ranked poorly in the small business and multifamily investment categories, placing 94th and 89th, respectively.

However, in nonresidential investments Cleveland landed in the middle of the pack at number 62. Researchers included real estate loans for commercial, industrial, agricultural and other nonresidential properties in this category.

Theodos says mission capital comes in from, “sources which are backed sometimes by some measure of philanthropy or the public sector, but are still nonprofit-driven, in that they are concessionary either in the rates they provide, the terms, the amount of collateral, the type of collateral or possibly just in how much advance developmental services they provide.”

Mission lending is one of the categories where Cleveland has done well. With $530 in mission capital on average annually, Cleveland ranked eighth out of the 100 cities. Similarly, with $506 in public loans, the city ranked seventh in the federal capital category.

“The good news is that Cleveland is strong in mission and federal [investments] and those are real dollars and they’re making projects happen,” Theodos said.

The obvious problem with these numbers is that, no matter how well Cleveland does comparatively in these categories, mission and federal loans combined make up less than seven percent of aggregate annual investment.

“The bad news is that they are still small relative to private market capital flows,” said Theodos. “So even though the city is doing a good job at accessing those resources, they really never, in any scenario, are able to make up for fundamental deficits in private market investment.”

This week Mayor Justin Bibb announced a partnership with and $2.5 million philanthropic donation from KeyBank. The contribution and $15 million the city received from the American Rescue Plan Act will be used  to fund home repair grants in Cleveland.

Funding will go to nonprofits CHN Housing Partners, Local Initiatives Support Corporation, Habitat for Humanity and Cleveland Restoration Society to administer loans and grants to assist low-income residents.  Beyond the partnership, Bibb hopes the program will bring in more money from the private sector.

“Having a partner like KeyBank leverage our $50 million capital commitment is going to go a long way to incentivize other private sectors to help us leverage these dollars to restore and fix all of Cleveland’s neighborhoods,” Bibb said.

Researchers say analysis metrics show growth and stabilization for Cleveland. The city’s challenge will be attracting private market interest in a way that doesn’t displace residents.

The analysis found that, while Cleveland as a whole faces underinvestment, “a greater share of Black and Hispanic residents are relatively underinvested.” Additionally, there is a predictive link between poverty and many forms of investment, with more investment in low-poverty areas and less in high-poverty areas.

While investing in poorer neighborhoods and neighborhoods with Black and Latino residents spurs growth, it can also mean gentrification and displacement of residents.

Some historically disinvested neighborhoods have found success attracting capital while avoiding displacement by using economic development strategies that provide quality jobs, develop affordable housing and invest in local capacity, researchers found.

Other initiatives that could help prevent displacement include tenant opportunities to purchase, which give tenants a chance to stay in their homes if developers want to sell and housing preservation funds, which help residents retain existing affordable housing.

“Everything comes back to control of land,” Theodos said. “It’s really a parcel-by-parcel type decision, not a neighborhood-by-neighborhood decision. You don’t want all the land in your neighborhood to be publicly-owned or nonprofit-owned but you also don’t want none of it to be…It’s a delicate dance of hitting the gas and the brake at the same time.”

This article appears in Aug 23 – Sep 5, 2023.