Many of the savviest investors look to put their money into undervalued assets—because those investments often have strong potential for future growth.
That basic value principle is one way to think about JPMorgan Chase’s $100 million initiative to invest in Detroit in the aftermath of the city’s bankruptcy. JPMorgan Chase’s calculation: with the right kinds of investment in the community’s recovery, the Motor City can make a big comeback.
Since the commitment’s launch in May 2014, more than $34 million in grants have been disbursed in the city through partnerships with local community organizations. By investing in urban renewal projects, job training and other growth initiatives, the firm believes the city can secure a brighter future.
“It’s in our interest that Detroit do well,” Chairman and CEO Jamie Dimon explained in a February interview with the Detroit News. “We want to see Detroit revive and thrive. Detroit is one of the major American cities that hasn’t recovered. We’ve never done a comprehensive thing like this in a city. I don’t [care] about naysayers. People love what we’re doing in Detroit.”
After the fall
When Detroit officials filed for bankruptcy in July 2013, citing an inability to meet the city’s fiscal obligations, it was the largest municipal bankruptcy in history. It was a steep fall from the perch that Detroit held a half-century ago as the nation’s fourth largest city, an industrial leader and a cultural center.
The city exited bankruptcy proceedings in December 2014, after restructuring debt and making changes to employee pension programs. However, Detroit still struggles with longstanding trends of population loss, urban blight and disinvestment.
That’s why JPMorgan Chase’s $100 million commitment to Detroit is important—it represents a significant investment on the part of a private sector financial leader to help spur recovery in the city. That investment includes:
- $50 million for investment in community development financial institutions to finance local business investment and redevelopment initiatives.
- $25 million for tackling urban blight in the form of investing in rehabilitation of abandoned and distressed properties around the city.
- $12.5 million for strengthening workforce readiness by providing skills training to Detroit workers and helping them to connect with employers.
- $7 million for small business grants to help entrepreneurs start companies, build their businesses and create jobs.
- $5.5 million for additional economic growth initiatives.
In focus: Tackling the skills gap
One critical challenge, JPMorgan Chase officials recognized, is that too many Detroit workers face a skills gap when it comes to jobs" href="http://www.jpmorganchase.com/corporate/Corporate-Responsibility/detroit-skills-gap-report.htm" target="_blank">face a skills gap when it comes to jobs. Industry contraction in and around the city left many semi-skilled workers without viable job options. One key to overcoming that gap is to expand the city’s middle class through targeted training for the jobs of today and the future. The $12.5 million investment in training for “middle-skill workers” in fields like health care, manufacturing and information technology is a key step toward that goal.
“Occupations such as medical lab technician or machine tool operator not only provide a pathway to the middle class, they are also an engine of competitiveness for the Detroit economy,” Dimon said in an April news release about the city’s skills gap. “Investing in training will give job seekers of all ages the skills they need to open doors to economic mobility at the same time that it builds the skilled workforce that Detroit will need to thrive.”
According to JPMorgan Chase, these “middle-skill” occupations comprise some 17% of all jobs in the region, with more than 321,700 jobs available in 2013 alone. That number is only expected to grow, with 9,800 middle-skill job openings projected each year through 2018. These positions also bring higher wages, with an average hourly wage of $23.37, which is substantially higher than the regional average of $17.08 per hour.
A model for other cities
The firm’s community investment model could be adapted and adopted by other distressed cities seeking a way forward in a changing world, as Peter Scher, JPMorgan Chase’s executive vice president for corporate responsibility, stated in an April presentation to the Global Cities Initiative forum, also held in Detroit. And as Scher made clear, the private sector’s success is intertwined with the economic health of the broader urban economy.
“We know that the future of JPMorgan Chase depends on the success of cities like Detroit,” Scher said. “Our future is inextricably linked with the fiscal health of our communities and the financial well-being of the families who live in them. In fact, one could argue that no bank or business can succeed if our urban areas fail. So we all need to get in the game and put our skills and resources to work. The times require nothing less.”
The road forward
As a further indication of the firm’s confidence in the Motor City’s recovery, JPMorgan Chase held its annual meeting in Detroit on May 19—another signal to investors, city officials and residents that their commitment is ongoing.
JPMorgan Chase isn’t the only financial player betting on a comeback for Detroit. Goldman Sachs included Detroit as one of the 20 cities targeted for its 10,000 Small Businesses (10KSB) program providing training and education for entrepreneurs. Last fall, Goldman celebrated the graduation of Detroit’s first class of 64 10KSB entrepreneurs to complete the program (read Project Invested’s coverage here).
Citigroup also recently highlighted their work with the City’s Public Lighting Authority and the Michigan Finance Authority in a recent television commercial, focused on its role in replacing the 40 percent of city lights that had stopped working. Citi put in up to $60 million of its own capital to back the project and get it off the ground, which attracted additional investors to back the $185 million project, enough to pay for 10,000 more lights than the original plan called for.
The challenges that Detroit faces today didn’t arise overnight—and they won’t be solved quickly. The city still has a long road to travel to return to its position as a vital and vibrant urban center that it was just a few decades ago. But constructive public-private partnerships and investments like JPMorgan Chase’s will help the city to move further along that road.