Thursday, March 15, 2012
The NY Times reports that the Community Preservation Corporation, which has helped finance tens of thousands of affordable housing units throughout the New York City area over the past 38 years, is now in financial trouble because of failed loans for condos and other high-end developments. This example illustrates that while legal and management concerns about for-profit business ventures creating the risk of private inurement and distracting charity leaders from their core mission are very real, nonprofits also must always remember the financial and prudential issues raised by the inherent riskiness of such ventures. Here it appears that CPC, both directly and through a for-profit affiliate, lent millions of dollars to luxury condo projects on which the borrowers have now defaulted, leaving nearly two-thirds of such loans delinquent. According to the article, the leader who led this effort - and received compensation that rose to over $1 million - has been forced into retirement, CPC has dismissed 40 percent of its staff, and CPC only avoided complete collapse because its lenders were willing to work out an extension of its revolving loan program. In hindsight, as one board member is quoted as saying in the article, it was "wrong" for CPC to pursue this risky investments.