How an innovative bank launched a CDC
First Newton National Bank (Newton National) is a $73 million institution located in central Iowa. In 1996, Newton National created the First Newton National Development Company (CDC) with $270,000—5 percent of the bank’s capital. This CDC’s mission was to develop affordable housing.
Newton, a rural community of about 16,000, best known as the headquarters of Maytag Appliances, had a limited supply of affordable rental apartments. Newton National’s first CDC project set out to tackle that problem.
The CDC funded and built an 18-unit apartment building that included two units for handicapped residents. Funding for the project took all of the CDC’s seed money plus $579,000 borrowed from the bank. Construction was completed in 1996. The building was fully leased within a month and was sold within a year at a price that returned the seed money, but no profit, to the CDC.
Next, Newton National turned its attention to land that was condemned by the city of Newton because houses there were dilapidated and dangerous. The CDC bought two properties, tore down the houses, built four new ones and quickly sold them each for the CDC’s cost of $85,360, using the U.S. Department of Agriculture’s Guaranteed Rural Housing Program to provide buyer financing. Inspired by the improvements, neighbors on the block started fixing up their own houses.
Next door were five vacant lots priced too high to make them good targets for an affordable housing project. With help from the city and a grant from the state’s local housing assistance program, Newton Housing purchased the lots and started construction on five houses in the summer of 2001. All five houses were completed and sold to low- to moderate-income buyers.
Another CDC project involves working with the local hospital to plan, fund, and build a low-income assisted-living project for Medicaid-eligible seniors. The hospital will manage the facility.
First Newton President Gary Kahn says he enjoys doing hands-on work at the CDC’s projects — even the time when he was called to unclog the toilet. He also has a bit of profit to show: the $270,000 nest egg that launched First Newton’s CDC has grown to $330,000.