We initially envisioned creating a localized REIT, but found challenges from legal, local, compliance and cost perspectives. While we originally envisioned a REIT structure because of its transparency to investors and the passthrough tax advantage at the corporate level, we saw the opportunity and need to construct a new type of financial product that uses the best aspects of REITs, Coops and B- Corporations.

The Community Investment Trust is not a REIT but mimics many of its attributes. REITs require at least 100 investors and do not focus the geography of investors and does not provide for low-dollar investments and share price risk protection as the CIT does.

Laws designed to protect lower income populations also exclude them. Such laws prohibit the offering investments to unaccredited investors. Our challenge, therefore, was in constructing a stock offering to unaccredited, low-income investors. Furthermore, how could we create a backstop to protect investors from loss?

Our legal partners found a unique legal solution to creating the CIT. Orrick , a public finance law firm with an office is Portland, specializes in municipal bonds and was familiar with credit-backed structures for bond offerings. With that structure in mind for the CIT, the team pursued a novel approach based upon creating a security that was exempt from registration with the SEC and the State of Oregon. Utilizing Section 3(a)(2) of the Securities Act of 1933, the attorneys postulated (and Mercy Corps later secured) a direct pay Letter of Credit (LC) from a bank, which provides investors with both liquidity and loss protection against any decline in their principal investment over time. This LC backstop, essentially a structured guarantee under our primary loan, provides the appropriate “do no harm” protection for our targeted low-income investors. We are the first organization to use this structure. We partner with a stock offering and transfer agent as the customer service interface with investors to sign up for the investment, choose their monthly investment amount and receive dividends, resubscribe annually after the share price changes, and cash-out when they choose. We are the firs to use this Section 3(a)2 provision in the Security Act.