Safe, affordable housing is the cornerstone of every community, but it does not make a community. A community needs healthcare, schools, jobs and many other goods and services. Nearly 20 years ago, IMPACT got its start financing affordable housing. But we knew that increasing the supply of quality, deeply affordable housing was not enough. We began thinking about how we might leverage our experience and investor base to create the other building blocks of communities.
We had a great foundation from which to start. Since its founding, IMPACT has invested over $1 billion in affordable housing in 41 states plus D.C. We did this by creating a platform that allows us to efficiently originate loans in high volume and then aggregate them into large pools. This aggregation technique, together with a laser focus on underwriting, allowed us to scale this asset class—making it accessible to institutional investors and attracting large amounts of capital to address an intractable problem in communities across the U.S. We achieved aggregation and scale by being an early pioneer in using a traditional real estate capital markets tool—securitization—and applying it to affordable, multifamily housing.
With our platform established, the challenge was how to apply it to creating quality and affordable community services, while meeting the risk and return metrics of our institutional investors. In our last blog, we pointed out that institutional investors are fiduciaries of the capital they receive from their stakeholders. In IMPACT’s case, our investors have been primarily insurance companies who are investing premiums paid by policyholders, in a prudent manner so that they can pay future claims. We give them the opportunity to achieve the ‘positive returns’ of prudent investing that delivers community impact.
From our affordable housing experience, we learned how a capital stack blended with different types of capital can be used to create an investment that satisfied investors’ expectations while delivering capital for an important community need. This is how we leveraged the Low Income Housing Tax Credit (LIHTC) to create an investment fund to finance over 45,000 units of affordable housing.
In 2002, IMPACT received an allocation of New Markets Tax Credits (NMTC). NMTC was created to drive capital to low-income communities by facilitating private investment in schools, jobs, healthcare, and other kinds of economic development. This is exactly the work that we were determined to do. In 2003, we leveraged NMTC and what we learned in affordable housing debt funds, to create a new fund which invested $10.3 million to develop facilities that would offer affordable childcare. This resulted in childcare space for 250 low-income and special-needs kids living in low-income census tracts. Next, in 2004 we created the first of two investment funds, investing a total of $35 million of capital to develop or expand community health centers serving low-income people and families. With these investments, we funded 11 primary care facilities serving 400,000+ patients annually.
Fast forward to 2011, when the federal Historic Tax Credit gave IMPACT and its investors our next opportunity to create an investment fund to further support economic development. We invested $54.7MM in our home town of San Francisco to finance two very different but important community facilities. The first investment preserved a historic building along the waterfront and allowed the City’s highly popular science museum, The Exploratorium, to relocate from a small obsolete building to a greatly expanded facility—space that helped it expand its mission as a public learning laboratory. Our second investment rehabilitated a historic building in San Francisco’s Presidio and allowed the nonprofit, Futures Without Violence, to expand its work to end violence against women and children around the world.
Created for the sole purpose of making investments that make a difference, we have been investing for IMPACT long before the world started calling it impact investing. Every day, we demonstrate that these investments can be suitable for institutional investors seeking investment safety while making a significant impact on the communities they serve. Our approach is to treat our work simply as investing—with a purpose. Every investment first must have a strong investment thesis. Then it must demonstrate that it can meet both the risk/return metrics and impact metrics that have been established. This approach has allowed IMPACT to drive over $1.9 billion of capital into important community services like health care and childcare, to give working people and families the opportunities that they deserve.
Thoughts? We’d love to hear from you at info@impactcapital.net.