The concept of impact investing has been around for several years, although it is still a largely underutilized tool in advancing social and economic benefits in the real estate industry. The idea of specialized funds was first brought to Rainbow’s attention more than a year ago by a board member who desired to put it in practice to benefit residents of affordable communities. Cost is always a factor when evaluating the use of operating funds and capital in affordable multifamily housing as there are limited resources that must be deployed in the most efficient manner possible. A separate source of funding that removes the hurdle which will allow for greater access to the types of services and programming that help residents achieve self-sustainability would be of great benefit. Providing this kind of opportunity is enough reason alone to pursue this as a viable outlet for philanthropic investors—but is there enough momentum to make it last?
The short answer is yes. Organizations such as Omidyar Network, powered by tech titan Pierre Omidyar, founder of eBay Inc., have been investing capital to advance social good for over a decade now. Steve Case and Bill Gates have also tossed their names and checkbooks behind impact investing initiatives, both locally and around the globe. Although the causes vary wildly, the approach is the same, with a focus on advancing a particular social cause that will improve quality of life. This kind of attention means not only broader awareness but also new innovative approaches that bring about meaningful, positive change. In essence, impact investing has been part of real estate investing for several years now, just not overtly labeled as such. Several developers and state housing agencies have long known the benefits that providing tenant services can have on a community and its surrounding neighborhood. Organizations engaged in purchasing affordable communities that incorporate a service-enriched housing model belong in this category.
The discussion as to whether or not these types of investments should produce financial return, as well as social, is a debate worth having, but not one that this article has allotted space for. However, those organizations that accept impact invested dollars do have a responsibility to prove that the programs funded are effective in meeting a pre-determined goal. The collection and usage of big data must play a role in proving success, thus opening up the potential for future opportunities. Though the benefits of social impact investing are not always tangible, advances that are material and substantial can be reported upon which adds validity to the notion.
At Rainbow, ROI data collection is something that the organization participates in portfolio-wide. This ensures that the right mix of programming is paired up with the residents’ needs in order to ensure a financially stable community. Looking at nearly 10 categories that drive the most cost in an apartment community, a program plan can be crafted to directly address those underlying cost drivers and look to contain them. In many cases, Rainbow’s presence can begin to pay for itself in as little as the first year of delivery. For example, averages across the served portfolio see a vacancy loss reduction of 8 percent within year one. Increased penetration into the resident population and expanded programming translates into average bad write-offs reduced by 34 percent and turnover shrinkage by 21 percent into the second year of the delivery of a service-enriched housing model being implemented. These numbers translate directly into both social and financial good for the individuals and families that received access to programming which helped stabilize their lives, and now live more comfortably and securely, as well as for owners and federal or state agencies that reap the benefit of having a financially viable asset, which will be preserved as quality affordable housing for those who need it most in the community.
For organizations that can prove both financial and social advancements, impact investing will continue to be a strong trend even as equity markets continue to improve. The economic downturn opened the door to new and alternative investing ideas. For impact investing this was an opportunity to showcase various needs and encourage entrepreneurial-like solutions to complex issues. Truly, the financial and social benefits cannot be separated; inputs and outcomes must be measured to help determine effectiveness and benefits. For real estate investors the key is to expand upon proven items that help stabilize a particular asset. Be it in renewable energy that reduces utility costs or a value-based community that performs better finically thanks to a strong tenant population, innovative ideas are becoming more commonplace.
Flynann Janisse is the executive director of the Rainbow Housing Assistance Corp.