Going All In: Dispatch from the Mission Investors Exchange Conference
By Eddie Lorin
Doing well by doing good! The Mission Investors Exchange conference in Baltimore provided incredible hope and promise for a new tomorrow with over 500 of the nation’s top Impact Investors there to learn how philanthropy meets investment.
Darren Walker, president of the Ford Foundation, pledged that it is time for their “95% money” to start acting like the rest of their mission expenditures by going all in with 100% of their assets in Impact and Mission Oriented Investments. This is clearly a historic movement that he hopes will be an example to all Foundations to rethink their stock and bond portfolios and the meaning associated with them. “The time has come to innovate and create new products to serve the extraordinary interest in Impact Investing today.”
In today’s extremely competitive real estate environment, finding a solid, acceptable yield that makes both a social and financial impact is challenging at the least and downright daunting in most instances. The question is whether the financial professionals and their credit/investment committees are ready to take that lower yield in exchange for measured, social results. Is the difference worth 200 or 300 basis points between the proverbial low teens net yield and the yield associated with a true impact investment? Of course if an “Impact Investment” return is comparable to a market investment, then one must question if that investment has any true, measurable impact.
I can tell you as an active fund manager in the nationwide preservation of affordable housing, the competition to acquire buildings most difficult to match is in the form of either investors who project spending little (if any) in capital improvements (to maximize cash flow) or those who plan to displace these affordable residents by petitioning to remove the rental restrictions and bring the apartment community back to market rental rate returns. Either way, these affordable residents suffer by either living in potentially substandard conditions or being forced to find another affordable home where a massive shortage of housing stock undoubtedly already exists.
Most affordable assets were built using governmental or tax credit subsidies that expire for the original investor/developers of these assets after 15 years and the rent restrictions usually last anywhere from an additional 15 to 40 years unless a new buyer petitions to remove them. When a buyer chooses to keep restrictions in place, as we do, the rental upside is limited and capital improvement investments are usually not rewarded enough to justify a market rate investment. When you add to that social impact programming the gap clearly widens between a market return and a verifiable impact one. We acquire assets and implement a significant capital expenditure plan that starts from the street on the exteriors and ends inside each dwelling unit resulting in a completely refreshed property. Further enhancing our residents’ experience, we implement Health and Wellness through our 501C HAPI Foundation in the form of health screening, programming and after school education.
It is critical that the fund manager have specific, measurable reporting standards proving the social impact (and not just financial returns) provided to make sure this potentially lower return is substantially documented.
For Jewish philanthropists looking to get started with Impact Investing, a good place to start is the new Jewish Funders Network edition of the Guide to Program Related Investments by Mission Investors Exchange. It offers a broad range of practical information that Jewish philanthropists need to bring PRIs and other Mission Related Impact Investments into their work. It also contextualizes that information within the Jewish community, thanks to valuable additions to MIE’s work by Yigal Kerszenbaum from The Rockefeller Foundation.
Doing well financially by doing good! Just imagine if Darren Walker ’s pledge is followed by the major Foundations in this country and significant capital is funneled into impact investments. This movement will truly help change and heal the world. Look out bond traders!
Eddie Lorin is Co-Founder of HAPI Foundation and the Alliant Strategic Preservation family of funds in Woodland Hills, CA. He can be reached at 818-472-5666.