Arctaris Impact Investors, backed by $50 million in investments from Erie Insurance, and $5 million from the Erie Community Foundation, pledged two years ago to invest $30 million in projects by the Erie Downtown Development Corp.
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, did not deliver a giant check on the spot. No suitcases full of cash were hauled into EDDC headquarters in downtown Erie.
The EDDC, a community- and business-backed group formed in 2017 to rebuild the population and restore vibrancy in downtown Erie, had to put together compelling projects and demonstrate that they were worthy of investment.
In short, there had to be a plan to pay back the money.
“We are looking for a target return that is commensurate with what our investors are seeking as well as a high social impact for the community,” said Jonathan Tower, managing partner Arctaris, which has worked since then to deploy investments in other parts of the country in partnership with Erie Insurance.
More:Erie lands $40 million Opportunity Zone investment
A new investment
Another EDDC project appears to have checked all the boxes.
Arctaris announced this week 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 lengthy period of study and due diligence as Arctaris analyzed the project.
More:Downtown Erie’s Flagship City Food Hall lineup changes as opening draws near
The 60,000-square foot building will include 30 new apartments and a new 25,000-square foot climbing gym operated by Pittsburgh-based Ascend.
The Arctaris investment will also help finance the construction of a new 300-space parking garage being built west of there on Fifth Street. The parking garage will eventually be joined by another building that will wrap around the parking structure.
Investments, not grants
The announcement marks a significant milestone, said John Persinger, CEO of the EDDC.
“It’s great to receive this investment,” he said. “The commitment was always contingent on meeting certain investment thresholds. These are investments. They are not grants. We had to show them projects that made financial sense that generated a return for the businesses involved.”
Erie Insurance and Arctaris are different than some of the other investors in the EDDC. Both have made at least part 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.
More:Clean slate at Fifth and State
That will likely shape the means by which those investments are repaid.
“They will likely get annual returns,” Persinger said. But part of that return might be delayed.
“As an Opportunity Zone investment, they are looking at a 10-year horizon to take advantage of the Opportunity Zone legislation.”
Second time around for Arctaris
This represents the second specific investment that Arctaris has made in EDDC projects.
Arctaris announced in June of 2021 that it had invested $9.3 million in EDDC projects along North Park Row, where the EDDC has opened the Flagship Public Market, the Flagship City Food Hall and 28 apartments, all of which have been rented.
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 challenged,” he said. “You are creating a new market for something that does not exist. The ratio of rent to construction cost does not map out 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 the future of Erie is very promising, given the spirit of cooperation and the strength of the anchor institutions around the downtown core,” Tower said. “This is an area that saw many decades of out-migration before these projects began.”
Tower said that Arctaris plans additional investments both in the EDDC and in other Erie projects.
Jim Martin can be reached at [email protected]
Erie Insurance and Arctaris team up on new $12.4 million investment & Latest News Update
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