Historically, California has funded privately contracted, for-profit service providers to develop and operate group homes for individuals with developmental disabilities. However, this can leave these ‘community care facilities at risk of closure if an operator retires or goes out of business.

With the closure of several of the state’s developmental centers and the relocation of clients into community-based settings, more individuals with disabilities are living in group homes. Given these circumstances, the South Central Los Angeles Regional Center, which administers the provision of services for individuals with disabilities, sought to acquire care facilities once, to ensure they serve individuals with disabilities in perpetuity. To do so, a nonprofit-controlled affiliate, Friends Community Housing, was established to acquire, renovate, manage, and lease group homes to individual service providers. This model, now promoted by the state, provides stability for vulnerable and medically fragile individuals and allows them to age in place. But Friends Community Housing lacked access to the capital needed to acquire and extensively renovate 10 separate houses for ADA-equivalent accessibility and onsite services.

Given this unique asset class and lack of market comparables, no banks would lend to Friends Community Housing. To facilitate the transaction, Genesis LA was flexible with its credit standards. Genesis understood that the organization was newly formed and controlled by a small nonprofit undertaking a new business model, so the CDE looked to the value of the underlying real estate and the income sources of the service providers that operate each facility and pay rent to Friends Community Housing.

This underwriting resulted in Genesis LA providing a $4.3 million leverage loan and $5.9 million in New Markets Tax Credit (‘NMTC’) allocation, which, given Friends Community Housing’s lack of capital, provided 100% of the project financing. Genesis LA’s financial structuring for Friends Community Housing is considered a first-of-its-kind use of NMTC financing for a scattered-site group home project. Several other nonprofits have approached Genesis LA for advice in structuring similar projects, and the project has been recognized by the New Markets Tax Credit Coalition as an innovative use of NMTCs. Today, the project serves 41 clients and employs 10 small business service providers, 8 of which are minority-owned and operating in severely underserved communities like Watts and Compton.