New York Acquisition Fund: New York, NY – 2008 Innovations Winner
This three-part case study presents the initial problem, the thinking, the politics, and the design negotiations that produced New York City’s “NYC Acquisition Fund” in August 2006. The case concludes with a brief round-up of performance data and commentary from the Fund’s first two and a half years of operation.
The NYC Acquisition Fund was created to deliver loans to small and nonprofit affordable housing developers, allowing them to compete with market-rate developers to buy property in New York City on the open market at a time of rampant speculation, rapidly rising prices, and fierce competition. It represented a groundbreaking effort to use public sector funds and authority, together with foundation capital, to leverage hundreds of millions of dollars in loan capital from private lenders. In September 2008, the Fund was named a winner of the annual Innovations in American Government competition, sponsored by the Ash Institute for Democratic Governance and Innovation at the Harvard Kennedy School, which declared it a “national model.”
The case is divided in three parts in the interest of maximum teaching flexibility. Teachers may want to assign their students to read one, two, or all three parts, depending on the nature of the class. Although the case includes finance concepts and terms, they are presented clearly and simply for the benefit of lay readers. Part One: Birth & Launch of an Idea, pp. 1-16, describes the intellectual and political history of the Fund – how City Housing Commissioner Shaun Donovan came up with the idea, and how he and his allies made it a reality. Part Two: Portrait of the New York City Acquisition Fund LLC, pp. 17-26, describes the structure and principles of the Fund and details the six toughest design questions, negotiated among the Fund’s partners over a 14-month period: what kinds of projects would be eligible? how firm a commitment would the City make to funding each project upfront? when and how would loan underwriting be delegated? how, exactly, would risk be allocated among the lenders, foundations, and City? and what loan terms would be available to borrowers? Part Three: Fund Performance, August 2006 to March 2009, pp. 27-29, briefly sketches the Fund’s performance in its first two-and-a-half years. The case includes 11 exhibits, pp. 30-58.