I have discovered we have a few loans over $1 million that are located in low or moderate census tracts, which I am hoping to report as community development loans. The purposes are to purchase multi-family or commercial buildings. What documentation do I need to "prove" these proceeds will revitalize/stabilize the neighborhood? For example, loan officer comments in the file indicate this area is experiencing "robust redevelopment and improvement", but I'm sure that's not enough.....

Yeah, that is not enough for the majority of examiners. Look to see if these areas are in some kind of local, state, or federal government "enterprise" zones. Revital/Stabil is the hardest CDL loan category to prove up.

Did a quick search for "enterprise" zones in my state and these loans are not located in one. I'm struggling to find qualified CD loans.

What are the plans for the commercial buildings?

We presented something similar to the examiners a few years back. Purpose of the loan was to purchase commercial RE in a moderate- income census tract. The property was abandoned and an eyesore for the community, a downtown, urban district. Plans were to renovate the property and open a museum. This well-touted renovation plan received local government and media attention with some saying the museum would become a destination that would feed other businesses and the revitalization of the area. Besides the benefit to the physical geography/tract and surrounding area, jobs were created for LMI individuals. We presented the examiners with newspaper articles describing the plight of the geography and articles praising the developer.

How about Opportunity Zones? https://www.cdfifund.gov/Pages/Opportunity-Zones.aspx

I also recently came across a loan where the lender was inquiring about an "Opportunity Zone". Opportunity Zones are very new, and are defined as "economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment." These are areas that have been nominated for that designation by the state, with certification from the Secretary of the U.S. Treasury.

While the above sounds like it would be a very good qualifying factor for CRA community development purposes, I’m not certain that originating a new business loan in a designated Opportunity Zone alone would qualify it as a CRA Community Development Loan (CDL). CRA makes references to CDL’s that revitalize or stabilize “distressed or underserved nonmetropolitan middle-income geographies designated by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation.” This new designation criteria is not yet addressed.

We have an upcoming examination (FRB) and intend to inquire about this. I will follow-up if I'm provided with any good information. In the meantime, for our loan, it's for a newly constructed multifamily building in a moderate income tract that's going on a vacant lot where the city worked on repairing for improvements to be made. I think that it should qualify for a CDL without need for the Opportunity Zone designation.

Johnny5: Are the rents affordable? If so, just go with affordable housing and move on to the next loan.

So, you don't have to evidence that a certain percent of the units will be rented to those with incomes of less than 80% of the median family income?

Pale Rider: No, it sounds as though it will be more of a nicer higher income apartment complex. So we were looking at the revitalization standpoint. The city did spend a good amount of funds to prepare the area for constructing improvements. I'm hoping that basis will help.

Tennismom: I am still awaiting firm details on the loan for a full analysis. But my thought was due to it being a moderate income census tract, combined with building nice housing on vacant lots that the city has spent funds on improving for development, it could be considered for revitalization.

Do you both disagree?

From the CRA Q and As: https://www.gpo.gov/fdsys/pkg/FR-2016-07-25/pdf/2016-16693.pdf

§ll.12(h)—5: The regulation
indicates that community development
includes ‘‘activities that revitalize or
stabilize low- or moderate-income
geographies.’’ Do all loans in a low- to
moderate-income geography have a
stabilizing effect?
A5. No. Some loans may provide only
indirect or short-term benefits to low- or
moderate-income individuals in a lowor
moderate-income geography. These
loans are not considered to have a
community development purpose. For
example, a loan for upper-income
housing in a low- or moderate-income
area is not considered to have a
community development purpose
simply because of the indirect benefit to
low- or moderate-income persons from
construction jobs or the increase in the
local tax base that supports enhanced
services to low- and moderate-income
area residents.

Thanks for sharing. This is what happens when you haven't been working CRA in a long while. I wasn't even aware they issued this Interagency Q&A. Very helpful.

Of course....I left out a portion of the Q and A: "On the other hand, a loan for an anchor business in a low- or moderate-income area (or a nearby area) that employs or serves residents of the area and, thus, stabilizes the area, may be considered to have a community development purpose. For example, in a low-income area, a loan for a pharmacy that employs and serves residents of the area promotes community development."

Will there be permanent job creation for LMI: e.g. - landscapers, maintenance, etc.

You may want leverage on the improvements made by the city. Are there news articles or PR releases talking about the improvements and what it will mean to the community? Is it the vision that additional businesses will locate to the area?

You will find that CRA is quite subjective. The examiners will not necessarily "ding" you for presenting unqualified CD loans, however you don't want to present just anything and hope it flies. Your credibility will be in question.

Document, Document, Document.

The job creation would likely be minimal, and I'm still waiting on further details surrounding the loan. I was curious to look at the site development that allegedly the city invested in, as I think that could potentially help. In my opinion, adding nice new housing to an area that is completely vacant adds value and revitalizes the area regardless of the rent. Whether the Interagency regulators want to acknowledge that or not. It cleans up the area, makes it more attractive to future prospects, brings in new tenants that will spend money in the surrounding areas/businesses, etc. CRA is so subjective and so often misses the mark.

I'm also not sure if the project being located in an "Opportunity Zone" will have any merit, but I'm certainly not counting on it.

along the same lines, I have a loan for a hotel in a moderate income downtown community. The loan is to remodel the building including a facelift to the outside of the building resulting in the rooms becoming large. While there are other hotels in the area, this one in the largest, has been there the longest and has the most reasonable priced rooms. Do you think a case can be made for this being an anchor for the community, given more people would be attracted to it than some of the much higher priced hotels in the area? I don't believe any significant new jobs are being added, but the remodel will make the property more attractive than it has been.

The borrower should have a business plan for the project and your loan officer should have reviewed that business plan as part of the loan approval process. See if you can get a copy of the business plan and most likely you'll find information in there to make the case for Revitalization.

Has anyone gotten examiner feedback on these "Opportunity Zones?" I'm looking to qualify some loans for CD under revitalization/stabilization and wondering if opportunity zone location would help make the case.

I have been using opportunity zones as a qualitative highlight. If a project has an official designation from a Federal, State, Local or Tribal plan for revitalization then it simply qualifies just like a LIHTC project. So if the loan happens to be in an opportunity zone; you can highlight it as being responsive to the community credit needs. It's like a CRA person is a police officer trying to find reasonable cause to determine if a loan has a primary purpose, and the examiner is the judge trying to determine if a loan does meet the obligation of CRA beyond a reasonable doubt and to a moral certainty. We just have to have enough evidence to demonstrate that to our examiners.