Trust was born in the English language a big word. It's said it came in from the Old Norse, circa 1200, as traust, meaning "help, confidence, protection, support." It's become one of the language's biggest words of all, effectively the mind and heart's bridge – as F. Scott Fitzgerald put it: "The ability to hold two opposed ideas in mind at the same time and still retain the ability to function."

Housing affordability is about nothing if not about the countless barriers to achieving it, and without that big, big term in English, trust, the barriers will only grow higher and thicker and more impenetrable.

It's fitting then that an an earlyish-stage innovation in housing affordability – Trust Neighborhoods – should build its own genetic code around the word trust, for all of the barriers conspiring against affordability require that "ability to hold two opposed ideas in mind at the same time." Or at least two.

Trust Neighborhoods helps nonprofit organizations in cities across the US set up mixed-income neighborhood trusts (MINTs) which develop, own, and operate mixed-income rental properties. Their mission is to give residents the ability to stay in quality housing at affordable rents in neighborhoods that are at risk of pricing pressure and resident displacement. They are a twice-named Ivory Prize finalist for Finance in 2022 and 2023, and 2021 Terner Housing Lab portfolio company.

Ivory Innovations House Party Podcast Episode 5: Click here.

As described in the Ivory recognition:

What if a community land trust and a social impact fund got together and had a baby? Meet the Trust Neighborhoods mixed income neighborhood trust (MINT) model. One of the limiting factors for community land trusts is their ability to raise capital – something which private funds often have in abundance. Learn about the innovative financing model behind Trust Neighborhoods’ MINT and how they help communities facing displacement raise funds to buy residential buildings that provide mixed income opportunities for housing affordability."

In this case, bridging or jumping the barrier to housing affordability, means holding the "opposed ideas" – capital interests vs. local community interests in mind and action to execute on the following community real estate investment model

I found myself in so many moments in my life trying to navigate to worlds that might seem really disparate, often or even in in in tension with one another and try to find solutions that work for both," Trust Neighborhoods co-founder and Chief Operating Officer Kavya Shankar tells Jenna Louie, Chief Innovation and Strategy Officer at Ivory Innovations, in Episode 5 of the House Party Podcast. "That's ultimately what we're trying to do at Trust Neighborhoods. We're trying to build the mixed income neighborhood trust model as a model that is trustworthy to community and also trustworthy to large pools of private capital. Often community is mistrustful or distrustful of capital. And a lot of times capital isn't willing to take big bets on community. And so we're trying to build something that helps deliver capital at scale at the local level and keep the power locally. I'm very lucky to have had experiences in the past that make it a little bit easier to bridge what sometimes seem like two very different worlds."

Here's a little more detail on Trust Neighborhoods' MINT model:

Build the portfolio:

1. Buy and renovate naturally occurring affordable units
2. Acquire and renovate vacant units
3. Build new infill on vacant lots.

How the rents are set:

1. Initially, all units are rented out at current market rates, which are tested to make sure they are affordable
2. The majority of units in the MINT are stabilized at initial rents, only increasing with inflation
3. A minority of units are allowed to fluctuate with future market rents to cross-subsidize the affordable units and provide returns to the debt and equity investors

How investors and the neighborhood benefit:

Over time, the profits of the portfolio are split between Trust Neighborhood’s investors and the MINT. Through their control of the MINT, the neighborhood is able to direct the reinvestment of those profits as it sees fit.

How revenues are split:

The split between investors and the special reserve is determined by an explicit calculation outlined in the operating agreement. Under that calculation, increasing returns to investors drive an increasing percentage allocation to the special reserve. For example, under the pilot’s MINT’s sharing mechanism, an 8% cash return on equity requires that 15% of available cash is allocated to the special reserve. Assuming that level of profitability on a capital base of $10mm implies $120k of dividends to neighborhood causes per year.

Effectively, Trust Neighborhoods creates community land trusts that provide returns for investors. Since MINTs generate returns on the funding used to acquire their assets, Trust Neighborhoods has access to more capital and is able to scale more quickly than traditional community land trusts. Partnering with existing neighborhood partners also helps to mitigate the risk of moving into new neighborhoods where Trust Neighborhoods is not knowledgeable about the real estate landscape. Furthermore, Trust Neighborhoods is currently raising capital at the organizational level to be able to create MINTs in new neighborhoods more quickly.

Indicative of their impact, MINT portfolios contain both market-rate and affordable units. Market-rate units are used to offset affordable prices and ensure that trusts can pay investors. By putting existing affordable units in the hands of trusted neighborhood organizations, MINTs ensure the preservation of affordable units. Placing affordable units within the control of neighborhood organizations that understand the landscape, residents, and importance of preserving affordable units within a community allows Trust Neighborhood’s impact to exceed that of a single organization.

Shankar, in her conversation with podcast host Jenna Louie, explains the reasoning underlying the particular structure of the capital investment model:

We have this tragic dynamic sometimes in America where neighborhoods either face disinvestment, or displacement. You have some neighborhoods that have experienced disinvestment from decades of racist housing and finance policies. And then you also have this other set of neighborhoods that start to get investment, but that investment often displaces the very people that that investment is trying to help. You end up with displacement, especially with the renting community. What motivated the mixed income neighborhood trust model, was that we wanted to allow neighborhoods to invest in themselves, without sacrificing affordability and belonging.

Essentially what we do at Trust Neighborhoods is we equip a neighborhood-based organization with a financing tool, the Mixed Income Neighborhood Trust. We essentially have that neighborhood use the tool to go out and acquire and renovate scatter sites portfolio of housing with the idea of the majority of those units being held at affordable rates, the minority being floated to market rate and helping cross subsidize keeping the other units affordable in perpetuity. What you end up with is a mixed income rental housing portfolio, which allows neighborhoods to break that disinvestment or displacement, dynamic and actually grow into neighborhoods that are diverse mixed income, and importantly, deliver opportunity for everyone, especially the low income bipoc renters that are so often left out of that opportunity."

In this innovative approach to attracting capital, the capital and the community both need to win for the approach to work, Shankar explains.

Community is central to every step of the process with a MINT," Shankar says. "To start, Trust Neighborhoods doesn't even work in a neighborhood unless we're backing a neighborhood-based organization that's there and has the legitimacy of the community, and a vision around this work.

During the setup process, residents are co-authoring the legal priorities of what this project is going to be focused on. And then even after launch, management of the project on a day-to-day basis is done by a local neighborhood partner, and residents sit in the governance structure.

At every step of the way, in every layer, community is really centered in both power and in process. For us, it's not just about housing affordability, it's also about who has power and who has the ability to actually shape community. And so that was a really central point of importance to our team early on. I also think another important part of it for us was, it's also not just about community, it's who's in the community and for us, renters are so often left out of power structures. You look at a lot of neighborhood based organizations and they're very homeowner dominated and so one of the restrictions or requirements of our Government governance structure is right there is also have a seat at the table alongside other community stakeholders."

Shankar and her Trust Neighborhoods teammates recognize their brand of capital investment is not for everybody, and for her, that's okay, as she notes in this case example:

Boston Neighborhood Trust launched in September 2022," Shankar says. "It was an amazing set of partners that came together, ranging from the East Boston Community Development Corporation, City Life/Vida Urbana, which is a Latino tenant organizing group, the city of Boston, the philanthropic community, Trust Neighborhoods, a number of other individuals and families. So that was a really, really incredible project that launched in September that at close, acquired 114 units and took them off the speculative market and put them into community control. The fundraising process was tough.

It goes back to we're building out a capital market category that looks a little bit different from other products. Investors don't have control. Control sits locally. We think that's critical to the impact, but that's not always something investors are used to. The returns, from a cash flow perspective, looks fine, but we never sell the units. The units are meant to be permanent, affordable housing."

So there is a liquidity risk associated with investors getting out of their position. So, in some ways, this is a really traditional investment. In other ways, we have these unique aspects that are critical to innovation, but make it a little bit more complicated for investors to do due diligence."