Arctaris Impact Investors, backed by $50 million in investments from Erie Insurance and $5 million from the Erie Community Foundation, committed two years ago to invest $30 million in Erie Downtown Development Corp. projects.
Boston-based Arctaris said it would also invest $10 million in other designated federal Opportunity Zone areas in Erie.
But Arctaris, a social impact investor that targets its investments in underserved areas, didn’t hand over a giant check right away. No suitcases full of cash were brought to EDDC headquarters in downtown Erie.
The EDDC, a community- and business-backed group formed in 2017 to rebuild the population and restore vibrancy to downtown Erie, had to come up with compelling projects and prove they were worthy of investment.
In short, there had to be a plan to pay the money back.
“We’re looking for a target return that’s commensurate with what our investors are looking for, as well as high social impact for the community,” said Jonathan Tower, managing partner at Arctaris, which has since worked to roll out investments elsewhere of the country. country in partnership with Erie Insurance.
Month:Erie has a $40 million investment in the Opportunity Zone
A new investment
Another EDDC project seems to have ticked all the boxes.
Arctaris this week announced the completion of a $12.4 million investment in an ongoing EDDC construction project at the corner of West Fifth and State streets.
The announcement follows a long period of study and due diligence as Arctaris analyzed the project.
Month:Downtown Erie’s flagship City Food Hall lineup changes as opening nears
The 60,000-square-foot building will include 30 new apartments and a new 25,000-square-foot climbing gym managed by Pittsburgh-based Ascend.
Arctaris’ investment will also help fund construction of a new 300-space parking garage being built west of there on Fifth Street. Eventually, the parking lot will be joined by another building that will wrap around the parking structure.
Investments, not subsidies
The announcement marks an important milestone, said John Persinger, CEO of the EDDC.
“It’s great to receive this investment,” he said. “The commitment was always conditional on meeting certain investment thresholds. These are investments. They are not subsidies. We had to show them projects that made economic sense and that generated a return for the businesses involved.”
Erie Insurance and Arctaris are different from some of the other EDDC investors. Both have made at least some of their investments through the federal Opportunity Zone program that allows investors to receive special tax incentives when they invest capital gains in designated low-income areas.
Month:Clean slate at Fifth and State
This will likely shape the means by which these investments are repaid.
“They’re probably going to get annual returns,” Persinger said. But some of that return could be delayed.
“As an Opportunity Zone investment, they’re looking at a 10-year horizon to take advantage of the Opportunity Zone legislation.”
Second time for Arctaris
This represents the second specific investment that Arctaris has made in EDDC projects.
Arctaris announced in June 2021 that it had invested $9.3 million in EDDC projects along North Park Row, where EDDC has opened the flagship public market, Flagship City Food Hall and 28 apartments, all leased.
Tower acknowledged the challenges of investing in what is often described as the lowest-income census tract in the United States.
“A project like this is naturally challenging,” he said. “You’re creating a new market for something that doesn’t exist. The relationship between rent and cost of construction is not as favorable as you might see in a high-income census tract.”
Despite that, Tower said he’s encouraged by what he sees in Erie.
“We think Erie’s future is very bright, given the spirit of cooperation and the strength of the anchor institutions around downtown,” Tower said. “This is an area that saw many decades of migration before these projects started.”
Tower said Arctaris plans additional investments in both the EDDC and other Erie projects.
Jim Martin can be reached at [email protected]