By Ellie Winninghoff
How does a $245,000 loan to restore 65 acres of pastureland to its original salt marsh condition help build a regional economy?
Although the pastureland had economic value, it poured contaminants into Willapa Bay, the second largest estuary on the Pacific Coast and the top shellfish producer in the West. As restored wetlands, it filters water and provides the necessary infrastructure for a healthy shellfishery.
From a lender's perspective, though, the salt marsh had no collateral value. That's where Craft3 came in. Craft3, a revolving loan fund and community development finance institution, or CDFI with five offices in Oregon and Washington, made the loan to restore the marsh in 1998. In doing so, it ended up collateralizing "something that did not exist--transferable mitigation rights that were not yet created, might not be created, but if created, would be available for sale," says John Berdes, president and CEO of Craft3.
Craft3 has $170 million in assets under management, and aims to build regional resilience by concentrating investments in rural and urban centers in Oregon and Washington.
In 2003, Craft3's salt marsh loan was repaid after those rights were sold and used to create the first mitigation bank in the state of Washington. Mitigation banks are offsets against habitat damage and loss caused by development, and involve restoration and the protection of additional lands. The largest purchaser was the state's transportation department.
Since l995, Craft3 (formerly Enterprise Cascadia) has made loans to more than 750 small businesses and community organizations. It has used its New Markets Tax Credits (NMTCs) authority to finance a range of endeavors such as a wellness center for the Shoalwater Bay Indian Tribe, and has participated in loans with smaller Native CDFIs.
With support from the Gates and Russell Family Foundations and the state of Washington, it also offers consumers loans to replace septic systems near Willapa Bay and Hood Canal, which produce 40% of the country's oysters.
Recent investors include the Paul G. Allen Foundation, Meyer Memorial Trust, and the Weyerhaeuser Family Foundation. Accredited investors can participate in the fund, which pays 2% per annum for three to five years. It is rated AAA-2 by CDFI Assessment and Ratings Systems (www.carsratingsystems.net), or CARS.
Co-founded by Berdes and executive vice president Mike Dickerson, Craft3 was born in the midst of a culture war of jobs versus the environment. The idea, says Berdes, was to "bring development and conservation to the same campfire." It was controversial at the time--and un-tested. Capitalized with $2.5 million, the fund began as a skunkworks project.
But while Craft3 did lots of transactions during its first five years, it did not affect change.
"We spread the butter very, very thin, and we did not link those opportunities to each other," Berdes says, explaining why the fund in 2000 switched from being "opportunistic" to "strategic." With a new focus on "density of outcomes," the idea was that impact compounds if investments are geographically concentrated. Craft3 chose Astoria, Oregon, the center of the regional rural economy, as the initial focus of its new focus.
"You strengthen centers so markets can function," he says. "If you concentrate outcomes, they connect and they amplify."
A small coastal town at the mouth of the Columbia River that separates Oregon and Washington, Astoria was a fur trading post established in 1811 by John Jacob Astor and the first permanent U.S. settlement west of the Rocky Mountains.
In the mid-1990s, it was home to the worst brownfield site in the state--a 17-acre greasy, dead pond left over from a plywood mill. The state offered matching funds to clean it up, but no bank would touch the deal. In 1996, Craft3 jumped in and put up the equivalent of 30% of its start-up capital.
"We ended up helping the city position and market the site," Berdes says, explaining how the CDFI recovered its cash 18 months later.