Issue #148, Winter 2006
A Merger of Equals
The merger of Over-the-Rhine Housing Network and ReSTOC created a transformative opportunity for these two Cincinnati institutions and their neighborhood.
By David Cramer and Robert O. Zdenek
In an environment where community development corporations (CDCs) are
competing for scarce resources, joining forces to better serve their
constituents makes sense. But merging can be traumatic for well-established
nonprofits; it's not often that the two parties collaborate as equals
as they go through the merger process. If they can do so, they can emerge
as a stronger, more dynamic organization.
Two Cincinnati housing nonprofits, Over-the-Rhine Housing Network and
ReSTOC (Race Street Tenant Organizing Cooperative), completed two years
of working toward a merger in June 2006. Both were engaged in affordable
housing and property management in the Over-the-Rhine neighborhood,
located near downtown Cincinnati. They shared the same founder and board
members, and had a similar approach, in that both organizations were
strong advocates for the homeless. Both were often at odds with others
who had different perspectives on improving the neighborhood. The organizations
did differ in their development approaches. ReSTOC relied heavily on
volunteer labor - rehabbing one building at a time, while Over-the-Rhine
Housing Network arranged multiple buildings into financing packages.
Out of their merger into a new entity -Over-the-Rhine Community Housing (OTRCH) - came an opportunity to make transformative changes. The new organization kept its predecessors' core support for the homeless and very low-income people, and at the same time embraced a broader mission to develop a healthy neighborhood by creating opportunities for homeownership and mixed-income housing. The two groups came together as true equals, unlike many mergers in which the stronger organization absorbs the weaker one.
A Changed Environment
Both CDCs realized that they had reached a significant crossroads.
They could stay in their precarious economic position, holding on to
vacant property and gaining very little income, or seize the opportunity
to reinvent themselves. They began merger discussions with the help
of a facilitator in the fall of 2004. After examining different options,
both boards concluded that a merger was a good idea and proceeded with
an implementation process the next summer.
They hoped the partnership would bring about better efficiencies, management and professionalism. They also hoped to overcome the polarization of recent years. ReSTOC, in particular, had drawn the ire of key business and civic leaders because of its strong history of advocating for and serving homeless individuals. The homeless were especially unwelcome to those who perceived them and their service providers as threats to major cultural institutions and downtown revitalization efforts. At the same time, both organizations desired to maintain a strong commitment to their core constituents.
Improving the Neighborhood
OTRCH's leaders concluded that just providing affordable housing was
insufficient - the neighborhood needed to be attractive and safe as
well. Much of the previous renovation to their buildings had been done
only as problems arose. The new group recognized that to attract tenants
and buyers housing units needed to be modernized with extra features
such as central heating and air conditioning.
OTRCH also intensified resident organizing at its existing properties.
Leaders of both CDCs had observed that certain buildings, particularly
those that built a sense of community through their residents' associations,
did better in attracting and holding tenants. Instilling a sense of
"ownership" was also important. In Community Views, a 12-unit
project completed in 2005, OTRCH adopted a renter equity model that
enables tenants to earn credit for paying rent on time and helping with
maintenance. After five years, residents are fully vested and are able
to use their equity toward buying a home or investing in a business.
The residents' association also performs other tasks normally handled
by a management company, such as making sure all units are occupied.
The money residents earn through the renter equity program goes into
a fund managed by a separate nonprofit, the Cornerstone
Community Loan Fund.
Another important area of concern for the new CDC was the issue of
race. The 2001 riot raised the profile of racial polarization in Cincinnati.
Over-the-Rhine's residential makeup is mostly black, yet the agencies
that provide services and housing tend to be white-controlled and staffed.
Over-the-Rhine Housing Network and ReSTOC were no exceptions. Both boards
and staff were majority white, and staff management positions were all
white. Because ReSTOC's board structure required 51 percent of its members
to be residents of its housing, a significant portion of its board was
black but not the majority. Both organizations' entry-level and professional
positions were filled by residents and minorities. The new organization
retained a significant portion of residents and recruited black professionals
to the new board. OTRCH also began to explore career paths for employees
to grow in the organization. Mary Burke, the new executive director
and former director of Over-the-Rhine Housing Network, says the board
added a number of key minority leaders and now better reflects the leadership
within the community.
The new organization was able to benefit from ReSTOC's volunteer base and block clubs. Without the merger, Over-the-Rhine Housing Network would have had to create block clubs and volunteer efforts from scratch. Instead, ReSTOC's strong organizing capacity was absorbed within the new CDC.
Changing Internal Values
While Over-the-Rhine Housing Network had some of the same leadership
as ReSTOC, it was less visible and had a reputation for focusing more
on the basic mission of developing and managing affordable housing.
Creating a new corporation with a new name provided an opportunity to
improve its reputation with the city, private development interests
and funders. To maintain its commitment to the homeless, the new organization
kept the core board and staff leadership from the two older CDCs and
located its main office where ReSTOC had been headquartered.
The missions of both organizations had previously focused solely on serving people with the lowest incomes. But OTRCH's leaders recognized that a healthy neighborhood required a mix of incomes, even within the CDC's own developments. There was some internal debate within the new CDC about this, as its leaders worried about their self-image and that building anything other than very low-income housing might be perceived as "selling out." Others were concerned that resources were scarce enough without devoting any to people with moderate or higher incomes. Nevertheless, the group decided to provide rental units for a range of incomes within the same developments, as well as homeownership opportunities in the form of condos and single-family housing. Mixed-income development offered the opportunity to earn additional income for the CDC, which could then be used to sustain the organization's entire portfolio. The new mission of the organization is to "build and sustain a diverse neighborhood that values and benefits low-income residents and promotes an inclusive community."
A second shift was to raise the standard of property management. While
both organizations managed their property adequately, it wasn't sufficient
to either attract a mix of incomes or be competitive in the local market.
Private developers in the same neighborhood were serving a higher-income
renter and were also better able to fill their low-income units using
Section 8 subsidies. Higher exterior standards were also necessary to
contribute to overall neighborhood attractiveness.
One of the challenges that each organization had faced was not having enough staff devoted to housing production and management. Andy Hutzel, OTRCH's director of operations and ReSTOC's former executive director, says a key benefit of the merger is having dedicated staff with specialized expertise. Before the merger, ReSTOC had limited housing production capacity, since there was only one staff member working on new housing initiatives, and even then they could commit just 10 percent of their hours, he says. The merged CDC now has a full-time staff person devoted to this work.
There are two major readiness factors that CDCs need to take into account
when exploring mergers. First, board members' support is essential,
since boards represent the broad interests of the community and can
easily stop a merger from occurring. It helps when the two organizations'
board members know each other, as was the case in Cincinnati. By recruiting
more minority board members and creating career paths, the board and
senior staff addressed core capacity issues early in the merger process.
The other factor is that merging is easier when organizations have similar
size and strengths, but more challenging when they have disparate resources.
Merging is a process that takes time and requires patience, says Burke.
"We were very fortunate to have a dedicated staff person devote
time to manage the merger process, and we are also fortunate that our
board and community are both excited about the new organization. They
understand that it will take time, but that we have all really improved
our services and skills."
David Cramer is an affordable housing consultant in Baltimore. Robert O. Zdenek is executive director of the Alliance for Healthy Homes and vice president of NHI's board. They both served as the consultants in the OTRCH merger process.
Since its inception in the late 1960s, the community
development corporation (CDC) industry has grown dramatically, totalling
4,600 CDCs in 2005, according to a census conducted by the National
Congress for Community Economic Development (NCCED). The survey also
showed that cumulative CDC housing production increased from 650,000
units in 1998 to 1,252,000 in 2005.