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 from the Erie Downtown Development Corp.
Boston-based Arctaris said it would also invest $10 million in other federally designated areas of the Erie Opportunity Zone.
But Arctaris, a social impact investor that targets its investments in underserved areas, didn’t give up a giant stake in the country. No suitcases full of cash were sent to EDDC headquarters in downtown Erie.
The EDDC, a community- and business-backed group formed in 2017 to repopulate and restore vibrancy to downtown Erie, had to put together compelling projects and demonstrate they were worthy of investment.
In short, there had to be a plan to return the money.
“We’re looking for a target return that’s commensurate with what our investors are looking for, as well as a high social impact for the community,” said Jonathan Tower, Arctaris managing partner, who has since worked to place investments in parts other countries in partnership with Erie Insurance.
More:Erie has a $40 million investment in the Opportunity Zone
A new investment
Another EDDC project seems 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 comes after a long period of study and due diligence as Arctaris analyzed the project.
More:Flagship City Food Hall lineup in downtown Erie changes as opening nears
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.
Arctaris’ investment will also help fund construction of a new 300-space parking garage being built west of it 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 an important milestone, said John Persinger, CEO of EDDC.
“It’s fantastic to get this investment,” he said. “The commitment was always conditional 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 from some of the other investors in 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:Neat proposition at Fifth and State
This is likely to shape the means by which those investments are repaid.
“They likely get annual returns,” Persinger said. But part of this return may be delayed.
“As an Opportunity Zone investment, they’re looking at a 10-year horizon to take advantage of the Opportunity Zone legislation.”
Second time for Arctaris
This represents the second specific investment that Arctaris has made in EDDC projects.
Arctaris announced in June 2021 that it had invested $9.3 million in EDDC projects along North Park Row, where EDDC has opened the Flagship Public Market, Flagship City Food Hall and 28 apartments, all leased.
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 challenging,” he said. “You’re creating a new market for something that doesn’t exist. The rent-to-build cost ratio doesn’t look 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 Erie’s future is very promising, given the spirit of collaboration and the strength of the anchor institutions around downtown,” Tower said. “This is an area that saw many decades of out-migration before these projects started.”
Tower said Arctaris plans additional investments in both the EDDC and other Erie projects.
Jim Martin can be reached at [email protected].