BLOG | INVESTING WITHOUT COMPROMISE
MOVING CAPITAL FROM WALL STREET TO MAIN STREET.
In our previous entries, IMPACT CEO Jeff Brenner and I highlighted the vast need for affordable housing across the United States and offered examples of new affordable housing developments IMPACT has financed to help alleviate the shortage. These examples illustrate the role we play in bridging the gap between Wall Street and Main Street.
In our latest blog, I’d like to describe the nuts and bolts of our work by sharing three important components. These “differentiators” are what set IMPACT apart from the growing number of advisers new to the space. They are built upon a set of investment principles (Stewardship; Long-term Focus; Impact; Open-minded & Steadfast; and Opportunistic) which are the foundation of our investment philosophy. Most importantly, they are the reason IMPACT has been able to connect Wall and Main Streets by delivering approximately $900 million of institutional investment capital to finance over 45,000 affordable housing units in 41 states plus D.C.
Since its founding in 1998, IMPACT has originated over $1.9 billion in community impact via a platform that recognizes and reflects the rigorous standards of our investors. As fiduciaries, institutional investors put the interests of their stakeholders above all else. Any new investment must serve the investors’ primary objectives for investment safety and risk-adjusted returns—thereby allowing them to pay retirees, provide life insurance benefits or pay casualty claims. Accordingly, at IMPACT, we are stewards of the assets that our investors have entrusted to us.
IMPACT has and will continue to “take a pass” on loans that don’t meet our rigorous standards and avoid periods when credit terms soften. Further, unlike many lenders, IMPACT is not a volume shop, making money on quick deals and high volumes. Our focus is long term with transparency and accountability ensuring alignment with our stakeholders. This purpose-driven formula results in a culture that emphasizes rigorous underwriting, strong asset management and long-term performance, along with impact with every investment. Through May 31, 2018, our affordable housing lending platform has not suffered a realized loss of principal or interest.*
Commitment to Innovation.
Our next differentiator is an unwavering commitment to being open to new thinking as we seek to drive long-term performance. We opportunistically seek out scalable investments in the “dusty corners” overlooked by others. We take pride in our ability to pioneer new avenues to impact for America’s communities. Many individual affordable housing deals occurring on Main Street are simply too small for Wall Street to efficiently support. Realizing this, IMPACT embraced the use of tools that Wall Street itself created. IMPACT’s securitization of $40 million of affordable housing mortgages at issuance in 2000 was a groundbreaking application of the commercial mortgage-backed securities model. IMPACT has now completed five securitizations totaling nearly $800 million mortgages at issuance—building the bridge from Wall Street to Main Street.
Another important innovation that has broadened the appeal of these investments is IMPACT’s work with the Federal Home Loan Mortgage Corporation (aka Freddie Mac). An affiliate of IMPACT was the issuer on the first two Freddie Mac Q-Series deals. The Q-Series securities include a guarantee from Freddie Mac on the senior-most tranches. Freddie Mac’s role as credit enhancer lowered the risk and improved the liquidity of the securities, which increased their appeal to institutional investors. The application of this CMBS tool to the financing of affordable housing allowed us to create investment scale and generate more capital for IMPACT to invest in Main Street.
Always, always Impact.
While working at a rival firm at the time, I saw how the innovation of IMPACT built its credibility in the market. Others noticed as well. The ability to offer a continuous flow of capital throughout real estate cycles, helped IMPACT secure relationships with three of the largest originators in affordable housing.
With these originators on board, IMPACT has been able to significantly grow its financing platform for affordable housing, with approximately $900 million of affordable housing units financed since inception. This means more than 45,000 additional units of housing affordable, on average, to individuals or families earning less than 50% of area median income. Few others in the space can boast such a long and proven track record—a reflection of our commitment to driving impact in every investment we make. Our platform continues to be the backbone of IMPACT’s affordable housing practice.
These differentiators—platform, innovation and impact—close the divide between institutional investors and neighborhoods across America, making developments such as Village Circle and The Bristol (see my previous blog) possible. Every day, we recommit ourselves to “bringing home” the power of Capital Markets, bridging the divide between financial and physical worlds, with “positive returns”**for both.
** Please note that “Positive Returns” is not a guarantee of any kind but rather a term of art. “Positive Returns” means investing with the intent of generating measurable social change, in addition to financial returns, and realizing the intangible benefits of being viewed as a good corporate citizen by our investors’ constituents.