Steve Hicks reveals how he crafted a charitable mission with a difference, one where everyone wins.

Although Provident Foundation is, of course, a nonprofit, CEO Steve Hicks spends a lot of time orchestrating mission-driven projects to generate revenue. “We choose projects based on feasibility, and by that I mean the ability to generate revenue,” said Hicks. “This allows us to invest in and operate projects for the long term, putting the excess revenue generated back into the community rather than in the pocket of investors.”

Hicks spent more than 25 highly successful years in public finance and legislative law. “Then, as Yogi Berra said, I came to a fork in the road, and I took it,” Hicks said. “I had spent more than enough time in practice at large firms, and I wanted to be more than a one-trick pony before my sunset years.”

Steve Hicks, CEO

At 50, Hicks put together a business plan for a national nonprofit, one that generates and pursues multiple charitable missions. Together with key talent from investment banking and public administration, Hicks developed Provident to be a provider of below-market-rate services to a wide range of people while remaining successful in a business sense. Ongoing revenues from the original projects are used for diverse local projects.

This year, together with Citigroup Global Markets, Provident will begin a college housing project for a Chicago university. The initiative was done in conjunction with the university (which wanted to teach students, not run real estate), local community leaders, and public agencies. The finished complex will provide much-needed housing for undergraduate, graduate, and married students at below-market rates.

Using sophisticated modeling ordinarily reserved for use in the largest investment firms, Provident projects that over the next 25 years, $100 million in net revenues will be generated by the housing, after all costs, operating expenses, and service debts are taken out.

“That $100 million will be used in a variety of ways,” Hicks said. “Some may go to academic scholarships for needy students, some for housing scholarships. We are in talks with a local public K-12 school, which could take some of the proceeds for an expansion that taxpayers have been unable to fund for more than 10 years.”

There will be a for-profit portion of the housing project that outside investors will turn into retail space. While it’s not a depressed area, the non-university residents are low-to moderate income, and the area’s retail is blighted. “We also see the potential to borrow against projected net revenues for a public parking facility whose net revenues can in turn be used for more community programs and services,” explained Hicks.

It is not often that businesses can talk about a win-win-win situation. “The community benefit, coupled with the leverage at work here, is what has me fired up,” said Hicks. “The more we explore projects, the more we see that they are not only feasible, but they also have multiple paybacks, like in Chicago.”

Provident has been involved with projects to build affordable housing in California, Arizona, Texas, and Georgia; most are structured as mixed-income campuses. Each of the new communities is a mix of median and below-median incomes, with the latter paying below-market rates.

“Each has a common public activity area, and we’ve coordinated with local community colleges to teach courses there—bringing education closer to home,” said Hicks. Counselors and resources from local nonprofits are brought in to help people prepare for job interviews. “In some places, we’ve even brought in quality second-hand clothing so people can make a good impression at those interviews.”

No quick flip
Unlike conventional developers, Provident stays with its projects, scheduling at least 10 years of operational involvement. “Most developers want out as soon as possible, selling or ‘flipping’ their investment,” Hicks said. “In no situation do we undertake something for the short term. We stay private and nonprofit for that reason—this kind of long-term commitment will inevitably require you to trade this quarter’s net revenues for long-term gain. You can’t do that if your eye is on your quarterly performance.”

A second project, due to be completed in Connecticut in the next two years, involves funding an innovative utilities project for a group of community nonprofit hospitals. Each hospital provides a 60'' by 80'' property that Provident’s capital will fit with a fuel-cell electrical generating plant. Each plant will provide the hospitals with electricity at up to 20% below going rates, a six-figure annual savings for each.

The only byproduct of the electrical generation is water, which will be used for irrigation and landscaping. Steam produced in the facility will be piped into the hospital for heating. “Emcore in Norwalk will provide the technology,” Hicks said. “That gives the project another benefit: more jobs in a local manufacturing company. I spent days talking with utilities and fuel-cell engineers, and you might expect that to be somewhat dull, but I enjoyed every minute.”

Provident does receive management fees from each initiative to cover salaries and administrative costs, and the foundation does not as yet have the cash reserves to subsidize non-economically feasible projects. “But we are in a position to moderate the surpluses we need, and we are increasingly successful with capitalization from the institutional market,” Hicks said.

“We don’t accomplish these projects alone,” he continued. “Citigroup, Merrill Lynch, Lehman Brothers, Jones Walker, Kensington Capital Advisors, as well as state, county, and city funding agencies have helped us greatly. They have taken the time to get to know us and to understand our mission. If we didn’t have their support, we would not exist.”

At the moment, Provident has accessed more than $800 million in capital. “For years, I worked in an atmosphere where the only thing that meant anything was the next dollar,” Hicks said. “Now, I have the
privilege of sitting down with people who want to talk about what a project can do for communities and people, rather than talk about margins. The focus is not on the deal but on what it’s about, and I’m having the time of my life.”.