The value of Community Development Corporations in local franchise development: doing business with CDCs is a good business practice and results in a positive situation for all parties involved.

They range from small, less-organized advocacy groups to highly sophisticated professional organizations developing thousands of housing units, owning commercial real estate such as shopping centers or managing loan equity venture funds. They have developed 71 million square feet of commercial and industrial space, developed 550,000 units of affordable rental and ownership housing, created 247,000 private sector jobs and provided $1.9 billion in loans to 59,000 small and micro-businesses. They are the Community Development Corporation (CDC), 3,600 strong, operating in urban and rural communities nationwide.

CDCs are neighborhood organizations that work for commercial revitalization, including retail development. They are in the business of increasing the economic activity in the neighborhoods they serve Interest in retail development has never been more important. As a result of new funding sources through the New Markets Tax Credit program and support from intermediaries and professional trade associations, resource availability has increased significantly. CDCs have access to public-sector development incentives and subsidies that can provide necessary equity to make a retail development profitable.

CDCs have the community pulse

The communities served by CDCs are generally located within the central business district and have existing infrastructure that provide good opportunities for new business development. These non-profit organizations have the pulse of the community and can provide franchisors with the information necessary to locate a local business operation. According to the research conducted by the Initiative for a Competitive Inner City, there are approximately eight million households in America's inner cities. These areas represent $85 billion in retail spending per year, approximately 7 percent of U.S. retail spending. About 25 percent of inner city retail demand is unmet and this demand per inner city mile is often two to six times greater than each metropolitan square mile.

Why is this important to franchise systems? CDCs can be strategic partners and play a critical role in the success of retail development. In many inner city neighborhoods, the CDC is the neighborhood's strongest institution. They have the ability to attract subsidies, assemble and prepare sites and navigate the political landscape to make the development phase less arduous for a franchiser. CDCs also play an important role in understanding the needs of their community before and after the retail establishment is in full operation. They can build community enthusiasm for the development and, in most cases, can also assist in recruiting, screening and training of new employees.

Franchisors looking to expand to new, emerging markets should look no further than the inner cities. Community development corporations provide a variety of services to the small entrepreneurs in their neighborhoods. Many of these organizations offer small-business development programs that assist new entrepreneurs to secure business loans, assist in business planning and provide ready made real estate locations. CDCs can assist the franchisor in identifying small-business owners from the neighborhood.

A safety net

These new entrepreneurs face many challenges in that most have never owned a business before but have great passion to do so. With support from the local community these entrepreneurs have a better chance at survival and profitability. Franchise development in these communities is an effective way to provide these entrepreneurs with an opportunity to operate a business but with a safety net of the franchise sector to provide added benefit of guidance from the parent company.

Many studies on retail development within these communities have indicated that businesses grown from within the community have a higher percentage of growth and lower percentage of crime. This stems from the fact that most community residents will embrace a business if resident-owned and consider it a community asset. With assistance from the CDCs, franchisors can be good community partners with the residents of these communities. Doing business with CDCs is a good business practice and results in a positive situation for all parties involved.

RELATED ARTICLE: Ponderosa and Martin Luther King Economic Development Corporation.

The Martin Luther King Economic Development Corp. (MLKEDC) is one of several community-development corporations that have turned to franchising to revitalize their local communities. Located in a business improvement district of Milwaukee, MLKEDC decided to bring a casual dining restaurant to the community so that residents would not have to travel far for a decent restaurant experience.

In 1999, members of the development corporation attended the International Council of Shopping Centers convention in Las Vegas to explore their options and had good conversations with representatives from Metromedia Restaurant Group, franchisors of Ponderosa. After further discussions and research, MLKEDC secured a business partner--Stella and Henry Love of Milwaukee, a minority couple who own other retail establishments in the community--and purchased a Ponderosa franchise. They obtained the necessary pre-development funds through grants and private investors, and in October, 2001, they broke ground for their new restaurant.

The Loves assumed 81 percent ownership of the business and have full control over operations. MLKEDC has a 19 percent ownership interest in the business, and assisted the Loves in screening more than 700 applicants for employees. After more than a year in business, the restaurant is thriving, and has already succeeded in turning a profit.

The community got a much-needed restaurant. Ponderosa expanded its market share. MLKEDC developed a future revenue stream. Everybody won ... all because a franchise company and a community development corporation decided to work together.

This brief synopsis is just one of several case studies being featured in a new IFA Educational Foundation research study examining partnerships between franchisors and community development corporations. The study, due this month, is being funded through a grant from the ExxonMobil Foundation. For information contact Sonya Brathwaite, the International Franchise Association's Director of Diversity at 202-662-0784.

Candace Baldwin is leadership development specialist for the National Congress for Community Economic Development. She can be reached at 202-289-9020 or [e-mail].