SOUTHERN DEVELOPMENT BANCORPORATION:
DELTA ACRES RENTAL HOUSING PROJECT
IN CLARENDON, ARKANSAS

Southern Development Bancorporation (Southern) is a bank holding company with five subsidiaries that became operational in May 1988 with the acquisition of Elk Horn Bank and Trust Company in Arkadelphia, Arkansas. Three of these subsidiaries are tax-exempt entities created to focus on generating economic development in targeted Arkansas regions suffering from high rates of poverty and unemployment. Southern is also certified as a Community Development Financial Institution (CDFI) by the U.S. Treasury Department. The development concept of creating an institution like Southern can be traced to an invitation from the Winthrop Rockefeller Foundation to South Shore Bank of Chicago to come to Arkansas and assist in adapting the bank holding company concept for stimulating economic development in rural Arkansas. Southern used private capital to establish itself and its subsidiaries as a permanent, self-sustaining institution, while fostering the development of economically disadvantaged areas.

One of the projects undertaken recently by Southern is the development of 25 units of rental housing in Clarendon, Arkansas using Rural Housing Service's Section 515 program. This project helps highlight how Southern's organizational structure is advantageous to tackling community development problems in the Delta. It also illustrates how collaboration and partnerships at the local level can foster effective development within Delta communities.

Overview of Clarendon, Arkansas²⁴

The proposed project will be located in the City of Clarendon, the county seat of Monroe County. Clarendon is almost a dormant community, where no real development or change has occurred in a long time. It suffers from the poverty and unemployment conditions typical of many Delta counties. There has been no new construction in this community for years. In fact, there has been a 9.1 percent loss in housing stock between 1980 and 1990. Much of this loss has been in owner-occupied single-family units. The years since 1990 have probably seen an even greater decline in available housing stock.

Clarendon experienced a decrease of 13 percent in population over the 1980-1990 decade. Monroe County had a decrease of 19.3 percent. A significant proportion of this decrease occurred in the under 34 age group. Census Bureau estimates for 1995 indicate that a over a third of the county's population lives below the poverty line. This level is even higher among the more vulnerable sections of the population such as the elderly and children.

During the 1980s, Monroe County had a 15.5 percent decrease in employment. This decrease has slowed down since that time. At the time this study was conducted, employment in Clarendon was provided by only three factories. The unemployment rate is at 13 percent according to 1990 census figures. Census Bureau estimates for 1995 indicate a median income of $18,815.

A 1998 market study conducted to assess the feasibility of developing rental housing in Clarendon financed by the Low Income Housing Tax Credit (LIHTC) indicates that there are four multifamily complexes in the city. They are all at 100 percent occupancy, with substantial waiting lists. Sixty-four percent of the rental households have an income of less than $12,500. These tenants would require rental assistance in order to afford the proposed rental complex. Approximately 17.5 percent of the rental households earn between $12,500 and $20,000, and constitute the group that could pay basic rent in the proposed complex while remaining within the income limits required by the Section 515 and tax credit programs. The market study projected a need for 24 units with rental assistance and six units at basic rent. In addition, the study projected a need for 13 elderly rental housing units, with 10 of these requiring rental assistance.

The Structure of Southern Development Bancorporation²⁵

Southern is an unusual institution in that it seeks to accomplish a public purpose mission through the structure of a private profit-making business. Southern owns and operates the Elk Horn Bank and Trust Company, a state-chartered, full-service bank organized in Arkansas in 1884, First National Bank of Phillips County located in Helena, and Delta State Bank of Elaine, Arkansas. Although Southern’s development efforts begin with its banking operations through the accumulation of development credits, Southern feels that it is much more than a community development banking operation. Southern's holdings also include two other operating companies: a real estate development subsidiary, Opportunity Lands Corporation (OLC), and a nonprofit small business development affiliate, Arkansas Enterprise Group (AEG). Together these operating companies offer a spectrum of products and services: bank credit, real property development and management, small business assistance and higher risk "non-bank" business lending. In 1998 the U.S. Small Business Administration recognized Southern for "most loans to underserved markets" for the Arkansas district. (See Figure 5.1 for a chart explaining Southern’s structure and the relationship between its various affiliates.)

Figure 5.1  Southern Development Bancorporation
               Organization Chart

One of the critical components of AEG is the Good Faith Fund (GFF). GFF's mission is to increase the incomes and assets of low- and moderate-income residents of the Arkansas Delta through the development of entrepreneurial skills, and the provision of credit, training, and other support services. It began as a self-employment loan fund. Since 1988, GFF has provided need-based technical assistance and training for over 763 emerging entrepreneurs and made $2 million in loans. More than 85 percent of the people assisted are women and approximately 90 percent are African Americans. GFF has also been branching out into a new role as an advocate and policy advisor for the population it serves.

More recently, in 1998 and 1999, Southern has begun focusing its efforts on creating homeownership opportunities within its target area in the Delta. In the past, Southern pursued homeownership development through OLC. OLC is a for-profit subsidiary that builds new startups, acquires and renovates distressed commercial and residential properties for use as low-income rental housing and affordable office space for small businesses. According to Southern's 1998 annual report, OLC has completed 36,900 square feet of commercial space for small businesses and 72 housing units with another 25 in construction near tornado-ravaged Arkadelphia.

Southern has also organized a nonprofit real estate affiliate, Southern Community Development Corporation (SCDC). This organization will work parallel to OLC. Southern has concluded that markets in the Delta are too weak to support unsubsidized affordable housing development. A nonprofit organization generally has greater access to programs that underwrite low- and moderate-income housing. The creation of SCDC gives Southern two vehicles for developing housing in the Delta.

Southern has the ability to undertake comprehensive development efforts in the Arkansas Delta because of its unusual structure. It has the vehicles in place to stimulate affordable housing development coupled with encouraging economic development through small business and self-employment lending. It also has the foresight to combine all of these endeavors with technical assistance and training, both of which are crucial to the long term success of any venture in the Delta. In addition, Southern has an image of permanence and other benefits of an institutional presence in the Delta through its banks.

Rental Housing Development in Clarendon

Two factors led Southern Development Bancorporation to consider developing rental housing in Clarendon. First, the stage was set and the timing was right to attempt a housing project in the city. Southern was familiar with conditions in the community because its affiliate, Opportunity Lands Corporation, owned some lots in the city. After years of no new construction, clearly some development would be welcome and would perhaps have a ripple effect and spur more development. Second, Southern had a reasonable entree into the community. It had connections with a local banker affiliated with Merchants and Planters Bank in Clarendon. Southern's modus operandi, when feasible, involves approaching a community through a local contact that can help it build a partnership with key players in the community.

In this instance, the local banker introduced Southern to the city and its mayor and helped explain the proposed rental project to the community. OLC, Southern's for-profit real estate affiliate, would be the vehicle for undertaking this development. OLC would serve as the managing general partner of the limited partnership to be formed in 1999.

OLC planned to utilize Rural Housing Service’s Section 515 rental housing program. The City donated 3.78 acres of land for this project, helping OLC to score the highest in the state on its 515 application. At the time this study was conducted, OLC was in the process of applying to Arkansas Development Finance Authority for HOME program funds to provide a match for Rural Development's 515 project loan. It was also planning to compete for credits from the Low Income Housing Tax Credit program. The tax credits, if awarded, will pay the allowable developer's fee and provide needed equity for the projects hard costs. (See Figure 5.2)

Figure 5.2  Sources and Uses of Funds for Delta Acres

Figure 5.3  Delta Acres Sample Elevations

The proposed housing, Delta Acres, will be comprised of 24 units with one-, two- and three-bedroom houses. (See Figure 5.3 ) It will also have a manager's unit. The units will be conventional stick frame, with brick veneer and vinyl siding. In an attempt to create a spirit of community, the detached cluster type units will be arranged around a common courtyard area with a community center. The community center will provide a place for the residents to meet and use for education including classes for improving job skills. Other facilities will include a fenced tot-lot, laundry, a walking trail, and common outdoor picnic area with family gardens. The site immediately to the east of the project is a community ball field, an important asset. The outdoor facilities of the project will be carefully designed to link it to this recreational space. (See Figure 5.4.)

Figure 5.4  Delta Acres Proposed Layout Plan

The project will proceed as any other tax credit project undertaken by Southern. Southern's size and expertise perhaps make it easier than it would be for a small nonprofit to undertake the complex partnership and financing arrangements that are routine for tax credit projects. What is special about this project are the spin-off benefits that will accrue for the community.

As in many other rural areas, there are no local contractors are available in Clarendon. OLC will work with a contractor from Little Rock with whom it has an ongoing relationship. The Little Rock contractor will transport his crew to Clarendon for this project. While they are available in the area, OLC will utilize their skills to build new affordable single-family units on the lots it already owns in the City. These units will help meet the housing needs of the population earning 50 to 60 percent of the area's median income.

In addition, OLC is in the process of negotiating the involvement of local manufacturing industry in the provision of housing for its employees. At the time this study was conducted, the owner of the local shoe factory had expressed an interest in instituting a matched savings program, or Independent Development Account (IDA) program, for its employees to save money for downpayments and closing costs. Most of its employees were commuting from other areas and the factory owner was hoping to encourage the employees to relocate to Clarendon.

Finally, through participation in the rental housing deal, local bankers have developed a level of comfort with OLC and enthusiasm for its goals. They have expressed interest in instituting a counseling program for first-time homebuyers. They are also committed to providing the mortgage financing for these families.

Lessons Learned and Replicability

An entity with Southern's resources and skills does not experience many obstacles in putting together housing deals in the Delta. It has the ability to influence parties that may otherwise have proved adversarial, such as local government. It has the ability to encourage local banks to participate in the provision of affordable housing. While recreating an institution of this magnitude may not be feasible in all parts of the Delta, it is possible to replicate some of the approaches institutionalized by Southern.

For instance, it is worthwhile for local groups interested in developing affordable housing in a community to identify a local leader that is interested in facilitating the development of the community. By building a relationship and gaining the support of this leader, local groups may be able to open a number of doors within the targeted community.

Similarly, during the process of building affordable housing, it is useful for local groups to identify related opportunities for spurring additional development within the community. Local groups may find opportunities for creating other programs that help address the needs of the community they serve.

Finally, Southern itself is in the process of expanding the area it serves into contiguous counties in Mississippi. This will be the first step in serving a greater portion of the Delta, and more areas will benefit from Southern's expertise and commitment.