Building Better Futures Through An Innovative Approach to Housing Development Opportunities

Finding housing options to support the successful reentry of formerly incarcerated people back into society is no easy task. Homelessness remains a significant challenge for those coming out of prison – especially here in New York City.

That’s why The Fortune Society, a nonprofit organization that empowers homeless, formerly incarcerated individuals and their families to build better futures through supportive and affordable housing, is working together with FJC – A Foundation of Philanthropic Funds (FJC) – to create a fund that will enable The Fortune Society to initiate these complex housing development projects.

The initiative bridges people across a vast array of inequality – some of the most vulnerable New Yorkers and New Yorkers whose wealth allows them to set aside funds specifically for philanthropic purposes – in Donor Advised Fund accounts.

Below are some questions and answers about Donor Advised Funds and how they are helping The Fortune Society.

Q: What is a Donor Advised Fund (DAF)?

A: A donor advised fund (DAF) is a charitable account whereby donors make irrevocable, tax-deductible contributions to a charitable sponsor. Donations to DAFs are not only tax-deductible the moment they are made, but they also grow tax free. Donors give up legal control of these donated assets to the DAF sponsor, but donors retain advisory privileges that allow them to recommend how those funds are distributed to the nonprofits of their choosing. Donors can also recommend how funds in the account are invested. Although the ultimate decision-making authority regarding grantmaking and investments reside with the DAF sponsor, as a practical matter, most DAF sponsors defer to the recommendations of their donors, as long as they are recommending activities that are permissible by charitable laws and regulations.

Q: Who utilizes DAFs?

A: DAFs are held at charitable sponsors, tax-exempt non-profits that include community foundations, national charities, and those created by large financial institutions (such as Fidelity Charitable Foundation, Vanguard Charitable). According to National Philanthropic Trust (2021), there are over 976 charitable sponsors that host over 1 million DAF accounts. On behalf of their donors, DAF sponsors take on the administrative burden, typically for a modest asset-based fee. As a result, donors can focus solely on mission and grantmaking, relying on the sponsor to handle tax filings, audit, compliance, and the mechanics of grant disbursements.

Q: How are DAFs different from private foundations?

A: Donor advised funds share many characteristics with private foundations, but they are set up as individual accounts operating under a single organizational umbrella. Accounts can range in size from a few thousand dollars to multiple millions.

Q: Are DAFs a popular option?

A: The DAF industry has undergone a major expansion, particularly over the last five years. The National Philanthropic Trust releases an annual survey of the DAF industry, for which they analyze the IRS Form 990 filings of over 900 DAF sponsors. The National Philanthropic Trust

(2021) estimates that as of 2020 there were nearly $160 billion in assets in DAF accounts, an amount that has doubled since 2016. To give a further sense of the industry’s scale, in 2020, six of the top seven charities receiving the most contributions were sponsors of DAFs, including a number affiliated with large financial institutions (such as Fidelity, Schwab, Goldman Sachs, and Vanguard) (Collins & Flannery, 2022).

Q: How do you respond to recent criticism of the DAF industry?

A: Recent critiques of the DAF industry cite the fact that unlike private foundations, DAF accounts currently do not carry minimum annual payout requirements. But in aggregate, arguably, DAFs deploy funds to nonprofits at a greater rate than private foundations. National Philanthropic Trust (2021) notes: “Private foundations hold nearly seven times the assets held by DAFs. Grants from DAFs to qualified charities totaled $34.67 billion in 2020, equating to 54.5 percent of the estimated $63.60 billion granted by independent foundations.”

Q: How will a DAF benefit The Fortune Society?

A: The fund will help The Fortune Society address a significant financing gap that entrepreneurial housing nonprofits face when initiating real estate development projects. Unlike private real estate companies, who can raise equity from investors to fund the earliest and most risky predevelopment stage, nonprofits must fund predevelopment expenses from rainy day funds, if they exist, or else pull cash from their operating budget, Ideally, nonprofits need a dedicated source of capital that can be used for necessary expenses incurred as a precondition to assembling construction and permanent financing, such as deposits to secure sites for acquisition, feasibility studies, environmental reviews and the like.

Q: What is FJC and how does it play a role in the mission of The Fortune Society?

A: FJC is a boutique public charity that offers a diverse menu of philanthropic services to a range of stakeholders. With over $380 million under management, its over 1,000 accounts include Donor Advised Funds (DAFs), fiscal sponsorships, collective giving accounts, revolving funds, and many other philanthropic vehicles. FJC acts as an intermediary between the financial services sector and the nonprofit sector, enabling nonprofit organizations and their supporters to focus on their missions, rather than be burdened with the details of operations and compliance.

FJC provides a structure where multiple individuals who support The Fortune Society’s mission can pool their philanthropic dollars together to help the organization cover the pre-development costs to initiate these capital-intensive housing projects.

Working with FJC, The Fortune Society has identified a source of capital to play this critical role – funds contributed by wealthy individuals to Donor Advised Fund (DAF) accounts. For the five-year term of this initiative, The Fortune Society, FJC, and participating donors have agreed to invest $600,000 in a revolving fund that will allow The Fortune Society to deploy the funds for predevelopment expenses that are recoverable when construction or permanent financing is secured. In this way, a single dollar may be recycled for multiple projects. At the end of the five-years, funds that have been recycled will returned to the individual DAF accounts for future philanthropic uses.

Q: How does this effort lead to the development of supportive housing?

A: This opportunity creates a solution to meet an urgent social need. The Fortune Society currently does not have a source of ready money that can be put down up front for housing development. This collaboration would be a lasting solution to this problem.

The total development costs of a typical supportive housing development may run into the tens of millions of dollars, depending on size, which is financed through a combination of private financing and federal, state, and city subsidies. The Fortune Society’s ability to secure those resources requires them to invest in significant soft costs during the pre-development phase, which can run in the tens or hundreds of thousands of dollars.

Q: What is this initiative intended to do?

A: The initiative will enable The Fortune Society to solve the issue of the availability of funds for these catalytic investments. The revolving nature of the fund is intended to give The Fortune Society the resources it needs throughout the life of the fund to act aggressively in pursuit of mission-critical real estate development opportunities and finance up-front costs. The goal is to recycle these philanthropic dollars multiple times for multiple initiatives, and to leverage the money along with other resources (city/state/federal housing subsidies) to create a long-term impact.

This kind of revolving fund will allow The Fortune Society to finance up-front costs related to mission-driven affordable housing projects, giving the organization a chance to act quickly and nimbly when opportunities arise.

This project will enable wealthy New Yorkers to invest in long-term outcomes, making significant impact with their philanthropic dollars; they give the funds away once, and those same dollars can recycle multiple times for multiple projects.

Specifically, the fund will:

• Support people coming out of prison with stable, permanent supportive housing and services,
• Provide The Fortune Society with the capital necessary to invests in its future and organizational growth by doubling or tripling its real estate portfolio over the next five years, and
• Allow FJC to demonstrate to more wealthy individuals how DAF accounts can be put to work for maximum impact, thereby helping them be more creative with their resources and support a greater number of people in need.

Q: What happens at the end of the five-year term?

A: Money coming from DAFs (a total of $300,000) at FJC will remain charitable by the conversion to flexible accounts, which can be deployed as grants to nonprofits as the donors see fit or remain with The Fortune Society for use as the organization deems necessary for its critical work. Money contributed by The Fortune Society as part of this effort (another $300,000) will be held in a fiduciary account at FJC. At the end of the five-year term, funds in the fiduciary account will stay with The Fortune Society.

Q: Where does the initiative stand now?

A: To date, The Fortune Society has drawn $400,000 to cover predevelopment expenses on two projects:

• Just Home is an innovative housing initiative that will provide permanent, supportive housing with services for medically complex homeless New Yorkers returning after incarceration. Residents of this project suffer from medical issues that require constant medical attention. The project is a partnership with the NYC Health + Hospitals Corporation and will be built on city-owned land at the Jacobi Medical Center (Bronx, NY).
• Illegal Hotel Conversion. Redevelopment of an “illegal hotel” to supportive and affordable Single Room Occupancy (SRO) housing at 258 West 97th Street in the Upper West Side. The completed project will have 59 supportive housing units and 25 affordable units.

Funds will be used to cover architectural services, environmental reviews, consultant fees, and staff management costs.