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Linking Resident Services to Affordable Housing to Access the Growing Social Impact Financing (SIF) MarketM20 Monday August 20, 2018 1:30 PM and T09 Tuesday August 21, 2018 10:30 AM

DOUGLAS P. KOCH, MAI, AICPPRINCIPALADVISORY AFFILIATES, LLC

Douglas P. Koch, MAI, AICP

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Linking Resident Services, Social Impact Financing and Affordable Housing

Making the Case. Why does AASC and its members care about SIF?• The strong linkage among resident services, Social Impact Financing (SIF) and

affordable housing is waiting to be tapped by industry leaders.• We can create the scale and organizational motivation needed to:

• Generate sustainable funding for services provided at affordable housing developments;

• Improve the lives of residents and reinforce institutional growth.• This presentation is divided into three sections:

(1) Gain an overview of the SIF market.(2) Understand the linkage among affordable housing, resident services and

SIF. (3) How to integrate SIF into your strategic plan.

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Linking Resident Services, Social Impact Financing and Affordable Housing

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Making the case

The strong linkage among Resident services, Social Impact Financing (SIF) and affordable housing is waiting to be tapped but needs high level industry leadership to provide the scale and organizational motivation needed.• We start with a captive, deserving, income & program certified, population

accessible in LIHTC housing.• LIHTC housing currently serves over 2.7 million certified Low Income Households.

These residents live under our roofs, are certified eligible by well documented processes audited by the IRA and have significant social service, health care, education and workforce-training-related needs.

• Other social service programs and organizations require to (1) attract their service recipients, (2) certify their eligibility and (3) organize or build centers/places to provide services.

• Baseball analogy: We have the bases loaded already….easier to score and serve!

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Making the case

Over the last 30 years we evolved well documented and integrated Resident Services Programs. (RSPs) • RSPs are already associated with established affordable housing apartment

developments• RSPs are organizationally linked to the affordable housing delivery system: investors,

syndicators, developers and state agencies. • A number of organizations developed methods for measuring the impact of these

affordable housing development associated Resident Services programs. • There is significant potential to convert this measurable success into significant project

and program capital/funding through social impact investors on the project, property management, financial intermediary and investor level.

• The American Association of Service Coordinators represents one of the three legs in this platform.

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Making the case

Scaling up is easier in this sector than in most likely another potential domestic social impact financed endeavor because of the legions of:

• Qualified service providers, syndicators, investors, non-profit and for profit developers all working together.

• And, oriented toward administering, funding and monitoring resident services. • AASC can provide this leadership because of its participation at various levels of

the affordable housing industry.

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(1) Overview of the Social Impact Finance (SIF) Market


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The Evolving Social Impact Finance Market

• Socially Responsible Investment, or SRI: An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts. Socially responsible investments can be made in individual companies or through a socially conscious mutual fund or exchange-traded fund (ETF). https://www.investopedia.com/terms/s/sri.asp#ixzz5LYHYtL1U

• Impact investments Defined: Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. (Global Impact Investing Network {GINN} 2018 Annual Survey.)

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What is Socially Responsible and Sustainable/ESG Investing?

• Socially responsible investing and sustainable/ESG (Environment, Social, and Corporate Governance) investing are terms that are often used interchangeably.

• While they are both forms of investing that evaluates investments based on their societal impact, their approaches are somewhat different.

• Socially responsible investing focuses on the exclusion of specific industries.• However, sustainable investing takes into account factors considered

important to the overall sustainability of a business:

https://www.fidelity.com/mutual-funds/investing-ideas/socially-responsible-investing?imm_pid=700000001009773&immid=100390&imm_eid=e34589702400&gclid=CjwKCAjw1tDaBRAMEiwA0rYbSHcW6MFPRzIApn20cotGg2bPBSfTx0YfjbvRTcdxAYgR-GSwQ52FuxoC168QAvD_BwE&gclsrc=aw.ds

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What is Socially Responsible and Sustainable/ESG Investing?

• Environmental issues – Climate change, carbon emissions, air/water pollution, energy efficiency

• Social issues – Labor standards, supply chain management, health and safety, gender diversity

• Governance issues – Board and executive compensation, lobbying, business ethics, political contributions

Why consider ESG investing?• While ESG investing used to carry the stigma that its investors needed to make

certain concessions in order to participate, research shows you don't necessarily have to sacrifice performance or price when choosing investments that make a positive impact.

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Pay for Success (PFS) Social Impact Investing

Pay for Success: An approach to government {social service program} decision-making that supports policies and funding decisions that focus on outcomes over inputs and outputs, incentivize innovation and emphasize prevention, that help unlock resources, and that support the development of and access to data.*

Pay for Success Contracting: A type of performance-based contracting that provides payments in part or entirely based on the achievement of outcomes. Usually, these contracts are between government and strong service providers or providers’ representatives in which impact is measured rigorously and government makes “success payments,” or increases a provider’s market share, when outcomes are achieved within a specific timeframe. Also referred to as Pay for Performance or Outcomes-Based Contracting. * * https://www.thirdsectorcap.org/what-is-pay-for-success/

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TRADITIONAL VENTURE CAPITAL• High Net Wealth Angel Investors• Venture Capital or Private

Equity Firms− Early Stage− Mezzanine− Growth− Family Offices

MOTIVATIONS• Financial - Looking for outperformance• Portfolio – Potential for lower return

investments at lower risk to balance higher risk/higher return investments

SOCIAL IMPACT CAPITAL• Foundations• High Net Wealth Individuals • Families & Family Offices• Major Pension Plans – CalSTRS, CalPERS.

BOPUMC

• Insurance Companies – Prudential

• Financial Advisors• Philanthropic Consultants• Investment Banks – JP Morgan, Goldman

Sachs, Morgan Stanley

MOTIVATIONS• Financial AND Social/Environmental• Tangible Impact – beyond intent• Alignment with values• Use all assets – financial and non-financial

Who is investing

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• The 2018 Global Impact Investing Network survey of 229 investors identified $46 billion in impact investments under management. The 82 investors who participated 5 years ago, grew their SIF platforms by 13% annually. The 2018 respondents plan to increase their investments by 8% from 2018 to 2019.

• SIF market is tiny relative to $210 trillion value of the world’s equity market capitalization and outstanding bonds and loans

• SIF Market potential is “$3 trillion of venture capital and private equity” (Chair of the Global Social Impact Investment Taskforce)

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Relevant Conclusions from 2018 GINN Survey• The market is diverse: Variety of organization types, targeted geographies,

targeted returns include below-market & market with both private equity & institutional investor participation. (Family offices active.)

• The impact investing industry is growing: 84% surveyed said “more!”• Impact investors demonstrate a strong commitment to measuring and

managing impact. (76%) set impact targets for some or all of their investments. • Overwhelmingly, impact investors report performance in line with both

financial and impact expectations. The majority of respondents indicated that their investments have met their expectations for both impact (82%) and financial (76%) performance since inception (Figure v). Another 15% reported outperformance across each of these dimensions. Only 3% reported impact as underperforming and 9% reported financial performance as underperforming.

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2018 Reported SIF Returns since inception

DM=Developing Market. EM=Emerging Market

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Major SIF Investors with affordable housing investment Experience

Citigroup: 2005 (Citi Microfinance and Community Development)

Deutsche Bank 2013 (Head Office for environmental, social and governance- ESG)

Goldman Sachs 2001 (Urban Investment Group - UIG)

JPMorgan Chase 2007 (Social Finance)

Morgan Stanley 2009 (Global Sustainable Finance Group)

• Calvert Social Investment Foundation • Church Pension Fund

• TIAA-CREF Global Social & Community Investments

• Community Impact Capital

• Snow Mass Capital

• Community Reinvestment Fund • Canyon-Johnson Urban Funds

• Low Income Investment Fund • Wespath Investment Management

Surveyed SIF Intermediaries/Investors active in affordable housing

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• Only 20% of the 2018 Assets Under Management (AUM) were in US & Canada. But, 48% of respondents had investments in US & Canada

• Only 8% of the 2018 AUM was in the housing sector, but 45% of respondents had investments in housing. 2019 planned allocations down to 7%.

• Investments in Child Welfare, education & healthcare combined are above 10% but not prominent. However, 45% of respondents do invest in these sectors. Problem is scaling up in these sectors.

• Dominant Sectors (Energy, Microfinance, Financial Services (42% of AUM) have longer history and are more easily scalable based on established delivery systems. But, not always so-Microfinance had significant challenges.

• Lesson for Resident services integrated into Affordable Housing: Limited direct precedent but certainly enough familiarity and certainly resident services established enough to aggregate into scalable format.

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Pay for Success (PFS) Social Impact Investing

1. GOVERNMENT identifies a critical social issue with historically poor outcomes such as recidivism, chronic homelessness, or early childhood education.

2. PRIVATE FUNDERS {IMPACT INVESTORS} such as foundations, banks and businesses, provide upfront capital to a high-performing social service provider that is helping a specific at-risk target population. (IMPACT INVESTORS)

3. SERVICE PROVIDERS deliver services to key at-risk communities, in an effort to reach or exceed predetermined outcomes for success.

4. EVALUATORS rigorously measures outcomes to ensure providers achieve impact.5. GOVERNMENT repays private funder’s initial investments only if project is successful in

achieving positive outcomes.6. PROJECT MANAGER conducts, facilitates, and advises the overall process. The project

manager is sometimes called the Intermediary or Technical Assistance Advisor (like Third Sector).

* https://www.thirdsectorcap.org/what-is-pay-for-success/

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Top Issue and Program Topics

In a 2015 survey of US investors, GINN found investor demand for SIF products in affordable housing, Health and Human & Social Services. See the next slide for reasons for constraint and lack of progress. Source: Figure 5. The Global Impact Investing Network (GIIN) "Scaling U.S. Community Investing: The Investor-Product Interface" Oct. 2015

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Top Issue and Program Topics: Pay For Success Projects

Pay for Success Program Type # %Youth Recidivism 5 25%Homelessness 5 25%Early Childhood Education 2 10%Adult recidivism 2 10%Early Childhood Mother/Child 2 10%Environmental 1 5%Mental illness 1 5%Workforce Development 1 5%Reducing incarceration 1 5%

Source: Nonprofit Finance Fund/Pay for Success: Tables for Projects in Progress. Data tables profiling twenty Pay for Success projects showing partners, evaluation strategies, outcomes metrics, and more.http://www.payforsuccess.org/projects/comparison

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Overview of Financing VehiclesFinancing

Vehicle

Primary

purpose(s)

Demonstrated

strengths

Potential

Limitations

Capital sources and

financial returns

Example Program, Fund or Investment

Below-

market

debt funds

Acquisition of

land and

existing

subsidized

affordable

Properties and

new

development;

often not

limited to

housing.

As revolving funds,

provider of a

continuing source

of capital

Facilitator for

affordability-

focused developers

to compete in hot

markets.

Complex

administration;

significant

startup costs

General

dependency on

availability of

permanent

“takeout”

financing.

Local public

agencies, financial

institutions Interest

rates to senior

lenders generally

range from 2 % to 6

%, depending on

capital source and

fund structure.

Denver Regional Transit-Oriented

Development Fund Since 2010 the Fund

has closed 11 transactions, investing

over $16 MM in 900+ units, at a rate of

2% to 6%. $24 MM in capital still

available.

Private

equity

Vehicles

Acquisition of

existing

subsidized

and/or

“naturally

occurring”

afford-able

Properties

Ability to act at

market speed.

Scale of Capital

Varying

degrees of

commitment to

long-term

affordability

Less

transparency in

structure,

returns

Financial institutions,

pension funds,

university

endowments, high-

net-worth

individuals,

foundations Cash-

on-cash returns to

investors from 6 %

to 12 %

Enterprise Multifamily Opportunity Fund

Since 2013 this Fund has invested over

$15MM in 1,300 workforce housing

units. Short-term funding on a 10% cash

on cash basis

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Overview of Financing Vehicles (Continued)Financing

Vehicle

Primary

purpose(s)

Demonstrated

strengths

Potential Limitations Capital sources

and financial

returns

Example Program, Fund or

Investment

Real estate

Investment

Trusts

Acquisition of

existing

subsidized

and/or

“naturally

occurring

"affordable

Properties

Strong focus on

preserving

affordability.

Facilitator for

affordability

focused developers

to compete in hot

markets.

Considerable technical

(legal, accounting,

security regulations)

expertise required to

manage (only two exist

that focus solely on

workforce-affordability

sector)

Foundations,

financial

institutions, CDFI's.

Total return to

investors generally

from 4.5 % to 8 %

Housing Partnership Equity Trust (HPET)

acquires & preserves MF-housing for LI

tenants, offering investors 4.5% to 8.0%

returns & social outcomes. Formed by the

Housing Partnership Network (HPN), w/ its

12 non-profit developer members w/ over

60,000 affordable units

Other

Emerging

Vehicles

(Blended

Funds)

Raising Capital

for

Development

Leveraging

different investors,

funds, programs &

grants to write

down cost of capital

Blended return =

different investment

objectives

Range from private

equity returns of

10% + to 0%

return for grants.

Objective is below

market.

The Massachusetts Housing Investment

Corporation (MHIC) and the Conservation

Law Foundation (CLF) are joint sponsors

of the Healthy Neighborhoods Equity Fund

(HNEF). HNEF invests in high-impact

projects. HNEF I provides patient, early-

stage capital for catalytic residential,

commercial, and mixed-use projects

leveraging its $30 million all equity fund

target blended returns to a 6% to 8%

IRR to Class A Investors (80% of capital)

and lower returns to foundation-supported

and public funding (20% of capital).

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Investment Types categorized by social purpose

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Capital Stacking in Social Impact Financing Fund Structure

Combine different sources of capital with different risk tolerances, impact goals, and return expectations.

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Flow of Capital for Social Impact for Pay for Success Financing

*Adapted from figure 1 in Pay-for-Success Financing Playbook, Bank of America and Social Finance, © 2014 Bank of America Corporation.

(A complicated by complete diagram)

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Pay for Success Defined

Impact Investor:Provides Capital Repaid in

5-10 Years

Government Agency: Provides Payment for Successful Outcomes

Evaluator: Measures Success

Sponsor & Service Provider:

Structures Transaction & Delivers intervention

Customer:Elderly Residents

Source: Recap Real Estate Advisors

(A less complicated series of diagrams to describe each of the participants and main components of a PFS project)

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Sponsor & Service Provider


Elderly CustomerImpact

Investor

Evaluator

Government Agency

Sponsor structures the transaction and is the party ultimately accountable for success

Service provider – also known as the Program Intervention Provider (PIP) –implements the service delivery model. (It could be a vendor to the Sponsor.)

Customer base must be clearly defined, relatively constant over time, likely to respond to the intervention and currently expensive. Perceived as “deserving” helps.


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Elderly CustomerImpact

Investor

Evaluator

Government Agency

Service-enriched housing is an ideal environment for SIFs

• Manage chronic health conditions in a context as independent as possible

• Offer health status monitoring (24 hour staff, medication administration, emergency response)

• Assist with daily activities (food service, housekeeping, laundry)

• Structure social supports (communal meals, activities, transportation)

• NCR study documented $2,223 per month per person savings compared to nursing home care


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Government AgencyGovernment

AgencyElderly Customer


Impact Investor

EvaluatorPay for Success (P4S) Contract

• Government pays for results rather than activities

• Government needs to resist the temptation to dictate means and methods

• Contract allocates a percentage of actually realized savings to Sponsor

• Savings is measured by comparison to similarly frail elderly

Recap model indicated that every 200 service-enriched elderly housing units could save Ohio over $1M per year*

*Recap modeled a payment of 75% of savings to the Sponsor as a success fee over a 10-year PS4 contract.


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Impact InvestorImpact Investor Elderly Customer


Evaluator

Government Agency

Impact Investor lends to or invests in Sponsor’s work

• Debt or equity bridges the Sponsor’s cash needs until receipt of P4S governmental payment

• Lenders or investors will impose credible return expectations

• Initial lenders or investors are likely to be philanthropies until there’s more comfort on how to underwrite the probability of achieving results

• Alternatively, philanthropies could provide a guaranty or other credit enhancement

• Syndicators or brokers could create funds to spread investor risk


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Impact InvestorImpact Investor Elderly Customer


Evaluator

Government Agency

Recap modeled a $15.5M investment

• $77,500 per unit in construction (including common areas)

• $22,020 per unit in annual operating costs

• Operating costs paid from a sinking fund capitalized by the investment

Investor would receive an 8% priority return and 95% of residuals over a 10-year period

Sponsor would receive a services management fee, a transaction fee and 5% of residuals


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EvaluatorEvaluator

Elderly Customer


Impact Investor

Government Agency

Evaluator– a neutral third party – determines whether success has been achieved. No appropriations risk.

•Multi-lateral contract among sponsor, government agency, lender/investor & Evaluator governs outcome measurement

Savings is measured by comparing the nursing care costs or general Medicare/Medicaid costs of the participants and the statewide comparison group of similarly frail elderly (normalized, for example, by RUG scores*)

*Resource Utilization Groups (RUGs) scores are mutually exclusive categories that reflect levels of resource need in long-term care settings, primarily to facilitate Medicare and Medicaid payment


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Pay For Success: Established & Evaluated Projects

Recall this List of PFS Program Types from an earlier slide. The Non-Profit Finance Fund examined Pay for Success projects launched in the United States; projects that have finalized contracts and financing, and initiated service delivery.

Question for Session Participants: Do you see similarities among existing PFS program types and the types of resident services provided by your organizations? This suggests relevant crossover and applicability to our sector.

Pay for Success Program TypeYouth RecidivismHomelessnessEarly Childhood EducationAdult recidivismEarly Childhood Mother/ChildEnvironmentalMental illnessWorkforce DevelopmentReducing incarceration

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Pay for Success: The First Generation. A Comparative Analysis of the First 10 Pay for Success Projects in the United States A report by Nonprofit Finance Fund® April 2016

1. The PFS market has established itself as a small but rapidly growing and evolving

feature of the social sector landscape.

2. Initial goals to attain proven interventions and cost saving are being achieved.

3. Early projects demonstrate that practitioners have applied the tool creatively,

and in ways that depart from the initial construct of PFS, to help advance

solutions to persistent community issues and needs.

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Pay for Success: The First Generation. A Comparative Analysis of the First 10 Pay for Success Projects in the United States A report by Nonprofit Finance Fund® April 2016

4. Investors and Funders for the projects studied, ranged from Banks, investment banks, established non-profit financial intermediaries, endowments, foundations to family funds

5. Financial structures include loans, equity, stacked funds with multiple sources, partnership structures with multiple levels of obligations and returns.

6. The first ten PFS projects initiated and studied since 2016 only scratch the surface when it comes to the greater potential that PFS has to spark innovation in delivery, evaluation, contracting and financing.

Do we see the applicability of program designs, program participants, financial structuring and social purpose to the Affordable Housing, Resident Services and Community Development Sector?

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Pay for Success: Third Sector Capital & SIPPRA

• The future of Pay For Success impact programs received a big boost when the

Bipartisan Budget Act of 2018 passed in February including $100 million in funding to

expand Pay for Success and outcomes contracts via the Social Impact Partnerships to

Pay for Results Act (SIPPRA).

• SIPPRA was created from bi-partisan legislation, four years in the making with

support from many social impact program supporters as well as a national coalition

called America Forward.

• SIPPRA not only provides funding but enables state programs to pay for outcomes

and creates a new Interagency Council on Social Impact Partnerships, led by the

Office of Management and Budget.

• Show on the next slide is an overview of SIPPRA based on the passed legislation.

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A copy of the law and a summary can be found at https://www.law.cornell.edu/uscode/text/42/1397n-6

Additional information can be found at

Organizations such as Third Sector Capital believe this is a big win for the PFS movement

for outcomes-oriented government for two reasons:

• The funding starts to address the “wrong pockets” problem for locally implemented

outcomes contracts in areas such as education, health and child welfare, where

benefits or savings accrue to funding streams at the Federal level. With this program,

states and local governments can apply to get outcome payments from the Federal

government for progress implemented locally, and;

• SIPPRA is housed within the Department of the Treasury with Office of Management

and Budget leadership, which means a faster path to spreading the enabling,

incentivizing, and requiring of outcomes-oriented approaches across Federal agencies

and funding streams.

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• Addressing issues like economic opportunity, dually-involved youth, homelessness, and

recidivism through an outcomes-based model will provide communities the

opportunity to innovate and continuously improve service delivery.

• Third Sector Partners has helped grow the Pay for Success movement in the United

States has grown exponentially with over 50 communities exploring and engaging in

outcomes-driven contracting.

• Third Sector is a partner in those communities, and directly support 6 of the 15

launched PFS projects to date in Cuyahoga County, Massachusetts, Salt Lake County,

and Santa Clara County.

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• These Pay for Success programs are using a data-driven decision making to achieve

outcomes for community members who are most in need of support.

• Third Sector Capital has developed a site for those interested in working with them

regarding SIPPRA: mailing list: (See web site reference below.)

• America Forward is the nonpartisan policy initiative of New Profit, a national

nonprofit venture philanthropy fund. New Profit has invested over $150 million in

scaling innovative organizations' impact. America Forward unites social

entrepreneurs with policymakers and advances a public policy agenda that fosters

innovation, rewards results, catalyzes cross-sector partnerships, and translates local

impact into national change.

https://docs.google.com/forms/d/e/1FAIpQLSftpiyVx4JaICmpltnjWgwyzukpRbz4pLyJa6UBbzRYK19JlA/viewform

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The America Forward Coalition: Supporting nationwide efforts at expanding PFS across all social impact sectors

The America Forward Coalition is a network of more than 70 social innovation

organizations that champion innovative, effective, and efficient solutions to ourcountry's most pressing social problems. Coalition members are achievingmeasurable outcomes in more than 14,500 communities nationwide, touchingthe lives of 8 million Americans each year, and driving progress in education,

workforce development, early learning, poverty alleviation, public health, Pay forSuccess, social innovation, national service, and criminal justice reform.

Coalition organizations leveraged $1.5 billion for social innovation driving millions offederal resources along with resources leveraged from donors and philanthropy

toward programs that are achieving measurable results for those who need themmost.

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Since 2007, America Forward’s community of entrepreneurs has played a leading

role in driving the national dialogue on social innovation and advocating forlasting policy change.

Third Sector Partners has been working closely with America Forward since 2014

to pass this legislation. The budget also enables state home visiting programs topay for outcomes, and creates a new Interagency Council on Social ImpactPartnerships, led by the Office of Management and Budget.

More information regarding America Forward initiative can be found at : (http://www.americaforward.org/wp-content/uploads/2016/08/2017-America-

Forward-Pay-for-Success-Platform-with-Signatures-1.pdf )

The America Forward Coalition: Supporting nationwide efforts at expanding PFS across all social impact sectors

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(2) Understand the linkage among affordable housing, resident services and SIF.


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What do Investors Want? Why Resident Services & Affordable Housing?

Important Factors to Investors All Investors

Reliable and meaningful social impact 7.2

Clear information concerning the social impact of the investment

5.1

Clear information concerning the financial performance of the investment

4.8

Attractive risk-adjusted returns 4

Low loss rates 3.6

Liquidity/ability to exit investment 1.7

Compliance of the investment with external regulations on your organization

1.5

Low transaction costs 0.9Investment ratings from third parties 0.4Other factors 1.4

Table 1 from the shows the previously referenced, GINN “Scaling U.S. Community Investing: The Investor-Product Interface" showed the scoring of 10 investment criteria by investor survey respondents. A score of 10 indicates that all respondents ranked the criterion as their most important out of the 10, while a score of 0 would indicate that all respondents ranked it as their least important.

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Existing Successful linkages among affordable housing, resident services and SIF.

Three Examples of Established and Successful Affordable Housing Funds using social impact investment*•Stimulating and supporting innovate strategies to design, deliver, and measure the impact of Resident Service Coordination for families through the Strong Families Fund (SFF - https://www.naht.org/news/strong-families-fund)

◦ Affordable housing acquisition and preservation using non-LIHTC private equity raised by the Housing Partnership Equity Trust. (HPET https://hpequitytrust.com/

◦ Massachusetts Housing Investment Corporation’s (MHIC) Fund for developing moderately priced housing while cultivating healthy neighborhoods. (HNEF: http://www.hnefund.org/)

* These three examples were chosen because leaders of each organization were interviewed and because fund/program data was provided. Other quality and established funds exist but were not profiled because of space limitations

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Strong Families Fund

The Kresge Foundation, the Robert Wood Johnson Foundation, KeyBank and

Goldman Sachs, have committed more than $70 million to launch the Strong Families

Fund (SFF).

• The largest Housing-Services pilot pay-for-performance project to finance social-

services coordination and quality, affordable housing for low-income families.

• Development and Financial Intermediary participants include Community

Development Trust, Cinnaire, National Affordable Housing Trust Inc., Stewards of

Affordable Housing for the Future and the Corporation for Supportive Housing.

• SFF is a -year initiative combining LIHTC for capital development with a pay-for-

performance model to provide access to up to 10 years of incentive payments for

developments.

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Strong Families Fund

• To continue receiving the incentive payments, developments must provide on-site

social-service coordination targeted to improving resident and property outcome

measures in five areas, including health and wellness, housing stability, and

education.

• The goal is to build on the body of evidence citing improved outcomes for families

and children from high-quality affordable housing with well-defined links to

services.

• It is expected that Fund coordination of quality housing and services will also lead

to a reduction in other public-sector costs.

• The first two developments in the fund include the renovation of Abbey Church

Village in Dublin, Ohio, and Hillside View Apartments in Schenectady, N.Y.

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Healthy Neighborhoods Equity Fund 1 LP (HNEF)

Responding to a Social Investment Challenge

• Provide Capital in Gateway and transitional urban neighborhoods

• Transform these neighborhoods through impactful housing and community development – place targeting with human impact

• Strengthen community and environmental health

• Promote regional equity

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Fund Characteristics

Sponsor is a Non-profit state equity fund, the Massachusetts Housing Investment Corporation (MHIC) which has a long term history of LIHTC and NMTC investing

HNEF I is a $30 Million all equity fund with a quadruple bottom line

Financial Returns

Community Benefits

Environmental Benefits

Health Benefits

Target Return 6% to 8% IRR to Class A Investors (80% of capital)

Lower returns to Foundations and Public funding (20% of capital)

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Access to jobs and

economic mobility

Safer, more walkable

neighborhoods

Improved health and

well-being

Increased real

estate values

Improved

tax base

Lower healthcare

costs

Reduced GHG emissions

Reduced

VMT

Increased transit

ridership

+ Economic

+ Environmental

+ Community Returns =

Healthy Communities

Quality housing for

all income levels

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HealthScore range: 0 – 100

HealthScore rating is a weighted average of the following:◦ Neighborhood score: measures the need and opportunity for

healthy development (25% of total HealthScore)◦ Project score: measures how well the project meets the need

and captures the opportunity (75% of total HealthScore)

Minimum HealthScore to be considered for investment: 50

Projects meeting the minimum receive a tier classification:◦ Moderate Impact: 50-65◦ High Impact: 65-75◦ Very High Impact: 75+

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Housing Partnership Equity Trust

Housing Partnership Equity Trust (HPET) is a social-purpose real estate investment trust created by nonprofits to raise capital for affordable housing.

• HPET’s works collaboratively with its Partners to enhance the lives of its residents and its communities by acquiring and preserving affordable and sustainable rental housing.

• Acquisition targets include existing HUD and affordable housing, but also conventionally financed and operated housing that is Naturally Occurring Affordable Housing (NOAH). HPET’s goal is to maintain resident affordability to a minimum of 80% AMI.

• The Equity Trust is a social enterprise formed as a real estate investment trust (“REIT”)

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• HPET acquires and preserves multifamily buildings serving low and moderate income renters

• It offers investors the ability to earn stable returns as well as promote measurable social outcomes

• Formed by the Housing Partnership Network it leverages the resources, experience and geographical reach of its 12 nonprofit members that operate over 60,000 affordable units

• The HPET now owns 14 properties serving over 3,000 families at rents affordable at 57 percent of area median income.

• According to the HPET 2017 Annual Report cash distributions in 2017 were $4,548,537. https://hpequitytrust.com/wp-content/uploads/2018/05/Annual-Report-2017-Digital.pdf

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Organization:

Resident Service:

AH

C, I

nc.

BR

IDG

E H

ou

sin

g C

orp

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Financial Literacy and Asset Building l l l l l l l l l l l l

Childcare Programs l l l l l

After-School Programs l l l l l l l l l l l l

Health and Wellness Programs l l l l l l l l l l l l

Other l l l l l

Information and Referral l l l l l l l l l l l

Adult Job Training Programs l l l l l l l

Adult Education (ESL) l l l l l l l l l l l

Adult Education (GED) l l l l l l l l l l l

Adult Education (Computer Literacy) l l l l l l l l l l l

Adult Education (Financial Literacy l l l l l l l l l l l

HPET participants are Partnership Network Members who are non-profit developers with the following resident service initiatives at their properties.

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Measuring Impact

Measuring Impact is most important to Impact Investors

• As shown earlier, in the GINN “Scaling U.S. Community Investing: The Investor-Product Interface" report, impact investors provided the highest scores (7.2 and 5.1) respectively to two questions regarding what investors most seek from an impact investment: “Reliable and meaningful social impact” and “Clear information concerning the social impact of the investment.

• According to the GINN 2018 Investor Survey, Impact investors demonstrate a strong commitment to measuring and managing impact. (76%) set impact targets for some or all of their investments.

• Most respondents reported using a mix of tools or systems to measure their social and environmental performance.

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Measuring Impact: Opportunity

• Most commonly, respondents use proprietary metrics and/or frameworks that are not aligned to external methodologies (69%), qualitative information (66%), or metrics aligned with IRIS (59%). Further, two years after the ratification of the Sustainable Development Goals (SDGs) by the UN, three out of four investors report tracking their investment performance to the SDGs or plan to do so in the future (Figure iv).

• Impact investors actively seek to place capital in businesses and funds that can provide solutions at a scale that purely philanthropic interventions typically can’t reach. This presents another reason for measuring social impact.

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Why Measure Impact?

•Program directors need feedback to improve service.

•Enables investors to compare opportunities beyond the financial return and may give your investment a competitive advantage.

•As an evolving industry accumulated “good stories” about investments showing significant impact creates momentum for sharing successful concepts thus increasing investor interest.

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Indicators of Measurement

▪Agriculture - healthy food delivery or farming

▪Education – early childhood, employment training

▪Environment – reduce pollution, conserve or restores natural resources.

▪Financial services –Stabilizing Household income & wealth through counseling & training

▪Health – access to medical care, improved living conditions, nutritional education

▪Housing – Foreclosure prevention, green building, low income housing

▪Water – conservation, quality of water, access to water, storage, delivery.

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What are the outcomes?

Restoration of land−improved vitality of wildlife and vegetation.

Decreasing poverty−measuring income level adjustments

Lowering child abuse−decrease in child welfare referrals, children’s attendance at school,

Decreasing carbon emissions

Decreasing the use of fossil fuels−providing renewable energies or technologies that use renewable energies

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What are the outcomes?

Improving health−access to healthy food and measuring health of families (doctor visits, ability to work

or go to school),

Increasing education −Pre-school & after school learning, graduation from school, gaining employment

Green building−health aspects are tremendous in addition to environmental aspects.

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Choosing a Measurement Standard

•Currently, there is a lack of consistency in measuring value across multiple investment opportunities.

•Several organizations are focused on closing this gap (IRIS, SROI, SM, etc.)

•Important to utilize a measurement standard that can be independently verified.

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Resources for Measurement

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Impact Reporting Systems: IRIS▪Grew from a 2009 initiative of the GIIN

▪IRIS focuses on a broad range of impact from an activity based perspective.

▪Provides an independent and credible set of metrics for organizations to use when reporting their impact.

▪IRIS indicators span an array of performance objectives and include specialized metrics for a range of sectors including financial services, housing, health, agriculture, and energy.

▪IRIS metrics are used by leading impact organizations from around the world, including investors, investment funds, enterprises, foundations, among others. Click on https://iris.thegiin.org/users? to view the growing list of registered IRIS users and the IRIS metrics they employ.

▪The IRIS metrics are available for free.

▪ https://iris.thegiin.org/

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Impact Reporting Systems: SROI Network

▪Social Return on Investment (SROI) Network focuses on impact from an accounting perspective. ▪ For example, if we help a child graduate from school, which will in turn help him

get a job, the value of that could be measured by the taxable income he/she generates back to the community.

▪ For example, if we energy retrofit a building, we can save $X dollars annually on the energy efficiency.

▪SROI calculates a financial incentive to positive impact.

▪http://www.socialvalueuk.org/what-is-social-value/sroi-self-assessment-tool/

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Impact Reporting Systems Success Measures▪Neighborworks Success Measures

▪Success Measures primarily focuses on community development organizations.

▪Outcome-based evaluation module for conducting full-scale participatory evaluations of programs to improve neighborhoods and communities.

▪Historically used by non-profits, but gaining traction within the investment realm as communities becomes a central focus of investment impact.

▪https://successmeasures.org/

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Impact Reporting Systems: Blended Value.org

BlendedValue.org discusses the measurement of financial return and the additional environmental/economic/social return to create a “blended value” return to the investor. −Example

◦ A philanthropic grant creates 100 units of value◦ An investment strategy creates 50 units of value◦ If the “blended strategy” of the positive impact + the investment opportunity

attracts 3x the amount of capital, together it would generate more overall value without sacrificing financial return.

Incorporate the cost and opportunity of the investment externalities into a Total Financial Return.

http://www.blendedvalue.org

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Choosing your Impact Reporting Systems

• Stable and accepted measurement systems create a financial incentive to generate consistent and significant impact

• Choose a system applicable to your service/product type but acceptable to your investors.

• Choose a system that is broadly accepted with available support, benchmarks and potential for growing with your needs.

• Consider software and hardware needs.

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Syndicator Financial Intermediary SIF Leadership *

The CAHEC Foundation is a nonprofit affiliate of the Community Affordable Housing Equity Corporation (CAHEC),

• Started in 1992 {?} and named “Community Programs”, CAHEC has a more elaborate residential services program but shifted their community investments focus to improving resident qualify of life through investments of wellness and education.

• Since 1992 more than $13 million has been invested towards assisting residents and ($3.5MM) heir communities – over $5 million of which has been dedicated to wellness and education ($2.5 MM) alone.

CAHEC FOUNDATION: http://www.cahec.com/cahecfoundation/)

* A sampling of syndicator, developer, investor and property management organizations with a social impact and resident services orientation are provided in the next few slides. These organizations were interviewed and provided documentation but do not represent the entire universe of organizations that might be profiled.

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Syndicator Financial Intermediary SIF Leadership2017 Community Investments: 2018 Community Investments (Goals):CAHEC FOUNDATION: (http://www.cahec.com/cahecfoundation/)• Education:

o Post-Secondary Education - $57,500 (19 scholarships)o Youth Leadership Initiative - $21,000 (sponsored 30 campers this year)

• Wellness:o Active Lifestyle Grant - $210,000 (roughly 28 playgrounds)o Rex Williams Wellness Grant - $44,000 (roughly 7 wellness rooms)o Nutrition Assistance - $50,000 (goal = 80,000 meals)o Disaster Relief – no allocated funding; will disburse upon request if needed

• New Markets Community Grant - $50,000• Open Doors Homeownership Grant - $50,000

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Developer SIF Leadership

The JB Brown Fund and USA Properties Fund*

• The JB Brown Fund is a philanthropic partnership between USA Properties Fund, Inc. and LifeSTEPS.

• In 1996, USA teamed up with Riverside Charitable to offer social services to residents through the LifeSTEPS program.

• The Fund provides USA communities residents with academic, financial and after school participation programs.

• As of October 2017 they’ve raised over $930,000 with 100% allocation to resident programs and not administrative costs.

*https://www.jbbrownfund.org/ and http://www.usapropfund.com/

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• The fund has five focused areas:1. Scholarship Fund: A $1 million fund to grant scholarships for college. Ten

residents now have degrees.2. The Fund has paid school sport assessment fees for over 200 resident

children.3. Resident financial counseling.4. After school activities. 5. A pilot nursing care program in three senior communities with 670

households. ( Administered by LifeSTEPS) a. Health monitoring, Preventive care and on-site servicesb. Life Steps is measuring impact by monitoring specific “Outcomes for

Senior Health”, as shown on the next page.

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Life Steps Outcomes for Senior Health

Healthcare Presentation/ServiceAlzheimer's/Dementia, Education forCOPD, Education forCare Plan CreatedChronic Kidney Disease, Education forDepression Management BegunDepression, Education forDiabetes Management BegunDiabetes, Education forER UsageFall PreventionHealth Care Plan CreatedHealth Needs AssessmentHealth prevention servicesreceived

Heart Disease, Education forHigh Blood Pressure Managedw/in Good RangeHigh Blood Pressure ManagementBegunHigh Blood Pressure, Education forHome Environmental AssessmentHome Modifications CompletedHospital ReadmissionLS Staff Outreach to Health CareProviderMedical home, connected toMedical provider, connected toMedical services receivedMedical, new medical provider received.

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Life Steps Outcomes for Senior Health. Example of Outcome Levels: Chronic Disease Enhanced Outcomes: Arthritis

• Arthritis Managed w/in Good Range: Ability to live independently and safely with supports

and disease management.

• Arthritis Management Begun: Visit to health care provider to treat arthritis, including

medication, physical/occupational therapy, exercise, anti-inflammatory diet, weight loss,

joint replacement surgery.

• Arthritis, Education for: LifeSTEPS Education Materials, CDC Materials, Arthritis

Foundation Materials.

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Life Steps measurement of Outcomes for Senior Health, with a selected level of outcome measurement, can be related to the Pay For Success model.

• Various levels of intervention into a Chronic Disease can be associated with reducing the need for extra care and cost.

• Then preventing cost at a next level while also reducing de-generation and quality of life, can be correlated to direct health care cost reduction.

• Will a private or public pay system compensate a service provider for enhanced service and prevention?

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Developer SIF LeadershipPreservation Of Affordable Housing (POAH) Community ImpactAffordable and healthy housing is only part of the answer.

POAH’s goal is more comprehensive, to employ services and supports to challenge poverty and barriers to opportunity.

POAH Approach: 1. POAH Stable Housing Operations2. Informed Decision-Making: Use data to measure & improve Impact3. Partnership Development: Create & sustain partnerships in communities. 4. Community Driven Solutions: Residents & on-site management develop goals. 5. Ensuring resident Housing Stability. 6. Community Engagement

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Developer SIF LeadershipPreservation Of Affordable Housing (POAH) Community Impact (Continued)

7. Education: Childcare, after school & adult education.8. Employment: Partnerships with employers and educational institutions. 9. Health: Supporting access to quality.10.Financial Stability: Encouraging the use of quality financial products, coaching,

savings and planning for the future11.Family Self-Sufficiency Program: Working with Compass Working Capital and

partners like Community Services League to offer participants on-site support and resources where they live.

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How to Fund and Sustain this comprehensive approach to improving resident livelihoods by integrating Affordable Housing with a complete array of resident services? The POAH Fund

POAH is raising a $6,000,000 fund to improve the lives of their residents• Funding the 11 programs through Strategic investments to grow promising

practices and strengthen partnerships in POAH communities.• A Five year plan to leverage public and private resources to improve the lives of

POAH residents. • POAH is targeting local, regional and national foundations who share POAH’s

strategic priorities to coordinate and maximize POAH investments.

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Investor Leadership: Investors active in Affordable, Social Services, Housing and Social Impact Financing

As a participant in a number of social impact investing assignments, I’ve worked with, met with or interviewed the following institutional investors who invested in LIHTC as well as non-housing social service-oriented programs with as SIF investors.

• Prudential (https://www.prudential.com/links/about/corporate-social-responsibility)

• TIAA CREF (https://www.tiaa.org/public/why-tiaa/how-we-invest/responsible-investment)

• Wespath Investment Management (https://www.wespath.com/investment_philosophy/positive_social_purpose/)

• Church Pension Group (https://www.cpg.org/global/about-us/investment-

profile/responsible-investing/positive-impact-investing/)

• Goldman Sachs Urban Investment Group (https://www.goldmansachs.com/what-we-

do/investing-and-lending/impact-investing/

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Property Management/Resident Services SIF Leadership

http://www.cpoms.org

Community Properties of Ohio –CPO Management

CPO Management is tenant-endorsed, community based management company that is dedicated to meeting the needs of residents and the community. CPO manages 36 total partnerships with Resident Services nearly 2700 units. Resident Services are provided for residents in project-based Section 8 properties (extremely low-income). CPO Impact is a 501(c)3 organization established to support resident services and initiatives. Supportive Services operates as a department of CPO Management

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•CPO Impact developed a Impact/Strategic Logic Model that starts with Key Objectives → Strategies → Goals. Key objectives are:

1. Stabilized Housing2. Safe Neighborhoods3. Successful Children4. Resident Growth (moving beyond poverty when possible)5. Community Learning

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Property Management/Resident Services SIF LeadershipCPO Impact Program Overview

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Property Management/Resident Services SIF LeadershipCPO Impact Individual Program: At-Risk Resident Intervention

OBJECTIVE INITIATIVE/PROGRAM RECENT OUTCOMES

Stabilized Housing

• At-Risk Resident Intervention

• 95% of residents who enrolled in at-risk program were able to prevent eviction in 2012

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4.0%

17.7%

2.4%

2.5%

18.2%

1.2%

13.1%0.3%

5.4%

12.7%

21.5%

1.0%

Serve Ohio

Annie E. CaseyFoundation

The ColumbusFoundation

Godman Guild

OCIC

The Orix Foundation

OSU Research Foundation

The Siemer FamilyFoundation

United Way

$3.2 Million 2018 budgetThe KEY is leveraging community resources &

investments:

• Develop new services only if they do not already exist (or existing services do not work for your residents)

• Example: CPO’s workforce development program

• Help other organizations do their job effectively

• Example: Hire outreach staff for United Way’s child development assessment project (Columbus Kids)

• Use investments in housing & resident services to attract and leverage external funding

• Example: Investment from Annie E. Casey foundation in one of CPO’s neighborhoods

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(3) How to integrate SIF into your strategic plan.


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Integrating a Social Impact Financing plan into your strategic plan.

Associations and Affordable Housing/Resident Services/Financial Intermediaries participating in the Affordable Housing, Community Development and Resident Services Sector need to create a plan for integrating a social impact financing plan into their Strategic Plan. This is not just a “Funding” challenge, but a comprehensive way of doing business that links your goals with your clients, customers, members and your financial supporters.

A Suggested Four Module/One Day Facilitated Session to develop any organization’s social impact financing plan.

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4 suggested Module/Steps for a One Day Facilitated Session

1. Developing the organizations broad successful impact stories (no detail or technical info yet) into a summary for evoking investor interest and motivating the organization.

2. 2. Conveying status of SIF market through tools, resources and articles using a themed PPT presentation that explains and connects with the organization.

3. Organization provides technical program info of its programs-4P's: 1.People served, 2.Programs provided (with jurisdictional info) 3. Partners involved, and 4. Places involved and impacted

4. Meet with key decision-makers to synthesize connections from 1-3 and decide on next steps for building an internal SIF platform within the context of the organizations current Strategic Plan. (Not designing the platform, but creating the process for potentially building it internally.)

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Step One (Module One) 1. Developing the organizations broad successful impact stories (no detail or technical info) into a summary for evoking investor interest and motivating the organization internally.

• Develop stories about the organization's community or service activities across numerous affordable housing communities, low-income neighborhoods and states. The longer term goal here is to use these stories to contrast with other organizations trying to access Social Impact Financing

• Brainstorm, research & document the activities by program, geography & partners. • Rohan Potdar describes on YouTube how storytelling can be a differentiator for

your social impact brand. https://www.youtube.com/watch?v=HBRmJh-ai0o&feature=youtu.be

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Step One (Module One) Developing the organizations broad successful impact stories (Continued)

• Rohan suggests five steps for developing and expressing your successful impact stories.

• These 5 steps include:• 1. Identifying Stories To Tell• 2. Determining The Format For Telling Your Stories• 3. Working out The Budget For Telling Your Stories• 4. Planning The Outreach Channels For Your Stories• 5. Setting Expected Outcomes Of Your Stories

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Step Two (Module Two) Conveying status of SIF market through tools, resources and articles using a themed PPT presentation that explains and connects with the organization.

• Develop the organization's understanding of the resources and tools available from the evolving Social Impact Finance market and its potential applicability to improving the organization's mission.

• Seek someone in your organization or hire a social impact investment professional who would provide informational materials beforehand and conduct the facilitation during Module Two.

• During the session review a presentation/summary of that information that sets up a discussion on the organization's potential participation in the SIF market.

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Step Two (Module Two) Conveying status of SIF market (Continued)• Reference previously distributed information, as needed, during the discussion.

Goal is for organizational participants to acknowledge the technical terms and resources, and to understand they can be studied during the entire period of plan evolution.

• A leader from the Organization should work with organization members to cultivate internal expertise, interest in the strategies, resources and approaches discussed with a goal to develop internal leadership to guide informed decision-making.

• The purpose is not to provide a scholarly introduction into SIF, nor is it to design an SIF program for the organization. The purpose is to provide enough of an understanding to the organization participants so they can make an informed decision on the when, if and how of taking next steps, and how those steps are relevant to the organizations overall Strategic Plan.

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Step Three (Module Three) Organization presents/provides technical program info of its programs-4P's: 1.People served, 2.Programs provided (with jurisdictional info) 3. Partners involved, and 4. Places involved and impacted

• Once the session team has obtained a general understanding of SIF and the organization's community and/or services Success Stories, a discussion is facilitated regarding the linkages and overlaps among the resident (participant), apartment complex (or other asset or service center location), and neighborhood, city and/or regional impacts from the organization's community or resident service activities.

• Acknowledging and recording those linkages, discuss and record on a flip chart, white board or an interactive overhead word document (participants should also take notes) those prominent and reinforcing aspects of the organization's mission, business and strategic plan, and its evolving vision.

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Step Three (Module Three) Organization presents/provides technical program info of its programs-4P's: 1.People served, 2.Programs provided (with jurisdictional info) 3. Partners involved, and 4. Places involved and impacted. (Continued)

• Consider the linked, prominent and reinforcing aspects of the organization's mission, business and strategic plan, and its evolving vision to its services or development program that could benefit from or possibly conflict with the organization embracing a plan to tap into Social Impact Finance resources and tools.

• These discussions should be very open-minded and free flowing, with an eye towards exploring all current organization core strengths and external partner touch points to evolve a very general framework of how the organization might approach development of a Social Impact Financing plan.

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Step Four (Module Four) Meet with key decision-makers to synthesize connections from 1-3 and decide on next steps for building an internal SIF platform within the context of the organizations current Strategic Plan. (Not designing the platform, but creating the process for potentially building it internally.)

• Regroup with a smaller leadership team of session participants from the organization order to synthesize what was discussed and discuss next steps.

• Meet with functional leaders for the development or service activities to focus on how the evolving plan may impact their programs or projects.

• Wrap up the day with a meeting of selected senior organizational leaders and functional activity leaders, along with the CEO/Organizational Leader to discuss next steps for adapting the strategic plan to a social impact financing planning program.

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Douglas P. Koch, MAI, AICPAdvisory Affiliates, LLC [email protected]

CONTACT & FOLLOW-UP

Questions, Dialogue & Next Steps

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Documents

Linking Resident Services to Affordable Housing to Access ...€¦ · In a 2015 survey of US investors, GINN found investor demand for SIF products in affordable housing, Health and