Blended Financing for Impact: The Opportunity for Social Finance in Supportive Housing

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Blended Financing for Impact: The Opportunity for Social Finance in Supportive Housing

  1. 1. Blended Financing For ImpactThe opportunity for social finance in supportive housing Presented by Hadley Nelles and Adam Spence Stakeholder Webinar March 21st, 2013
  2. 2. SummaryWhat is the objective of this presentation?  What is the background for this project?  What is social finance?  Why is social finance important for supportive housing?  What are examples of social finance in affordable housing?  What are the challenges and opportunities for social finance in supportive housing?  What are actions that can be taken to acquire or develop more supportive housing?  How can you learn more? Pg 2
  3. 3. What is the background forthe project? Pg 3
  4. 4. Project BackgroundWhat is the background on our project?Core Objective: Social Finance ForSupportive Housing InitiativeFollowing the release of the Turningthe Key report, the objective of thisproject is to provide a clear pathwayfor supportive housing providers tolearn about and engage in alternativemethods of financing for improvingand developing new supportivehousing units in Canada. Pg 4
  5. 5. Objective:100,000 supportive housingunits in ten yearsThe project was coordinated by the MaRS Centre for Impact Investing andHousing Services Corporation (HSC) and led by a number of supportivehousing providers and mental health organizations in Canada.
  6. 6. PartnersSocial Finance Working GroupA number of supportive housing providers inCanada struck a Social Finance Working Group toexplore impact investing opportunities in thesupportive housing sector. This Working Group’sfocus is supportive housing for individuals livingwith mental illness or concurrent disorders.
  7. 7. What is social finance? Pg 7
  8. 8. AboutWhat is social finance?Social finance (or impact Profitinvesting) is an investmentapproach to solve social orenvironmental challengeswhile generating financialreturns. This includesinvestments that range fromproducing a return ofprincipal capital to offeringmarket-rate or even market-beating financial returns. Planet People Pg 8
  9. 9. Planet Bean Coffee in Canoe-Creek Hydro inGuelph BC• $250k loan & share • $5M loan for the issue for expansion First Nations plant• Revenues grew • generate annual from $500k to revenue of $1.6M $2.6M Regent Park in • power for 1,700• increased global & Toronto homes local impact; • $1B revitalization doubled co-op • $450M worth of membership market-rate bonds at 5% per year over 40 years • over 6,000 mixed- income housing units & community facilities Pg 9
  10. 10. Two Key Features Energy efficiency Prime + 2% Poverty reduction Social housing units Impact + Return 8%Carbon reduction Jobs for marginalized 1% p.a. over three years populations
  11. 11. AboutWhat are the characteristics of the social finance marketplace? Global marketplace is estimated at $100 billion, projected to grow to $400 billion over next 10 years Canadian marketplace estimated at ~$2 billion in assets, projected to grow to $30 billion over next 10 years History: Canada has a long history of social finance activity Key sectors: Clean technology, sustainable agriculture, and affordable housing Strong interest amongst governments and institutional investors, with pioneering efforts from leading foundations and individual investors
  12. 12. AboutWhat is the spectrum and source of social finance investments? Project or program Loans, loan guarantees, real estate Private equity, grant funding, mortgages, patient debt and equity, public equity, fixed general donations community bonds, housing bonds, social income impact bonds, etc. Below Market Rate Market Rate Impact SUPPLIERS OF CAPITAL Conventional  Mainstream Banks Grants Impact Investments Investments Investments  Community Development Finance and Credit Unions  Foundations (Mission-related investing)  Government  Community Loan Funds  Alternative Financial Institutions and Funds  Private Equity Funds Social Enterprise Funds  Individual Investors (Angels, VCs, wealthy individuals) Negative Expected Financial Return Market Rate Expected Financial Return
  13. 13. AboutWhat are potential products and financing sources for housing providers?Products Mortgages and second mortgages Loans and loan guarantees Bonds and debentures (including community bonds)) Fund EquityFinancing Sources Mainstream Financial Institutions (eg. RBC) Alternative Financial Institutions (eg. Alterna) Alternative Lenders including funds, and foundations (eg. CAIC, IO) Private Offerings (eg. Community bond, promissory note) Internal Equity Pg 13
  14. 14. So what?Why is social financeimportant forsupportive housing? Pg 14
  15. 15. AlignmentWhy is social finance important for supportive housing providers? Housing demand: There is significant demand for new supportive housing stock in Canada, with 520,700 Canadians living with mental illness that are inadequately housed. 154,000 Ontarians are on the waiting list for housing. Financing needs: There have been a number of identified financing needs amongst individual housing providers, including mortgage financing, project bridge financing, and matched financing. There is tremendous need for stock maintenance and improvement and opportunities for energy efficiency retrofits. Government revenues: Capital funding support is restricted, and operating funding growth is constrained. Early adopters: Growing number of affordable housing providers turning to alternative financing to tackle these problems and turning to investors/lenders for funding. Financing leverage and revenue streams: You have potential revenue streams and assets for leverage to obtain financing. Pg 15
  16. 16. AlignmentWhat are key advantages for supportive housing providers in the social financemarketplace?Advantages Signature impact investments have been affordable housing investments. TCHC Housing Bond, YWCA Community Housing Bond. There is demonstrated interest in affordable housing by investors. 75% of impact investors would be interested in affordable housing bonds Social housing is a proven impact investment with a track record. Asset performance over last 30 years in Ontario. Supportive housing has the potential for scale that matches investor interest and capacity. Investment sizes in millions and tens of millions of dollars in real estate. Pg 16
  17. 17. What are examples of socialfinance for affordablehousing? Pg 17
  18. 18. YWCA Elm Centre is an innovativeresidential community located in theheart of downtown Toronto. TheYWCA Elm Centre (an $80M project)offers 300 affordable apartments forlow-income women and theirfamilies, women living with mentalhealth and addiction issues andfamilies of Aboriginal ancestry.Innovative Financing• Community Housing Bond• Infrastructure Ontario Loan• Municipal Loan• Government credits/rebates• Cash flow driven by rent supplements Pg 18
  19. 19. Case StudiesYWCA’s Elm Centre Project CHART: FINANCING BREAKDOWN FOR YWCA ELM CENTRE PROJECT City Municipal Loans, $8.5m, Rebates, $3.6 Provincial 11% m, 5% Mortgage Grant, $12.6m , 16% Fundraising, $ 15m, 19% Provincial Rebates, $1.3 m, 2% Federal Grant/Rebates YWCA , $11.6m, 15% Housing Bond, $1.5m, YWCA 2% Mortgage IO, $24.8m, 31 Pg 19 %
  20. 20. Centretown Citizens OttawaCorporation (CCOC) is the ownerand developer of Beaver Barracks: a254-unit affordable housing projectlocated on Metcalfe, Argyle andCatherine Streets in downtownOttawa. The $65 milliondevelopment of Beaver Barrackstook place in twophases, comprising five buildings.The project mixes bachelor, 1-bed, 2-bed and 3-bed apartmentsand townhouses.Innovative Financing• Equity (Internal financing)• Infrastructure Ontario Loan• Government credits/rebates• Alternative Lender (Religious Pg 20 Order)
  21. 21. 25 Leonard Avenue is a four-storybuilding close to Toronto WesternHospital that was original built asdoctor’s offices. St. Clare’sMultifaith Housing converted thedoctor’s offices into smallapartment units (Phase 1).Subsequently St. Clare’s addedtwo floors with 26 prefabricatedapartments (Phase 2). Intotal, there are 77 units in thecomplex, with a development costof $8.1 million.Innovative Financing• Alternative Lender (CAIC)• Leveraged equity by extending amortization of first mortgage Pg 21
  22. 22. Case StudiesWhat trends did we observe in our case studies?Trends• Housing providers have been experimenting with unique and innovative alternative financing approaches for over a decade.• Alternative financing arrangements in social housing require long-term planning and cultivation of internal and external supporters.• Sophisticated fundraising operations can be required to support large-scale projects.• Governments are moving beyond traditional grant funding and using other levers to support the development of affordable housing. Pg 22
  23. 23. Case StudiesWhat trends did we observe in our case studies?Trends• Housing providers require blended sources for capital funding, including grant and debt financing. Pg 23
  24. 24. Case StudiesWhat trends did we observe in our case studies?Trends• Rent supplements have been used as stable revenue streams to support financing. FIGURE: MODEL MONTHLY COST & FINANCING FOR HOUSING UNIT Pg 24
  25. 25. What are the challengesand opportunities for socialfinance in supportivehousing? Pg 25
  26. 26. ChallengesWhat are key challenges for supportive housing providers in use of social financeamongst supportive housing providers? Stable revenues: Challenges financing current stock, some funding sources are winding down, and the ability to generate income from new and current sources is limited. Financial capacity: Capacity to service debt and strength of balance sheets. Organizational capacity: Financial literacy and technical expertise. Policy barriers: Federal and provincial policy barriers can increase costs, increase the time for development, and reduce the capacity of providers to build new units. Capital supply: Familiarity with and Photo Credit: Kevin Van Paassen , The Globe and Maill aversion to nonprofit housing providers. Pg 26
  27. 27. OpportunitiesWhat are opportunities to advance social finance in supportive housing? Models: There are a number of models that can be adopted or adapted to local contexts. Constituency: There is a strong, motivated constituency of supportive housing providers, mental health advocates, government representatives and financial leaders supporting a common aim. Strategic Solutions: There are a number of strategic, pragmatic solutions that could have a significant impact on the ability to grow the stock of supportive housing in Ontario. Capacity-building: There are great tools and resources that can be shared through strong, ready-built networks to share recommendations, models and lessons learned. Pg 27
  28. 28. What are actions that canbe taken to acquire ordevelop more housing tohelp meet the 100,000unit goal? Pg 28
  29. 29. Priority ActionsWhat actions can be taken by the federal government?Federal government actions Increase the ability and frequency of using grant capital funds as leverage for philanthropic contributions and private capital (lending or investment capital). Existing federal or provincial government capital raising institutions and facilities should be employed to raise financing for a Supportive Housing Capital Fund to support acquisition, development, and operating efficiency improvements such as retrofits to lower energy costs, for supportive housing providers in Canada. This would employ models like Infrastructure Ontario (IO), which issues debentures to bring new funds for social housing and other projects. Pg 29
  30. 30. Priority ActionsWhat actions can be taken by the federal government?Provincial government actions Increase the number of rent supplements provided to supportive housing providers through long-term agreements (from 5 to 20 years) and allow housing providers to use rent supplements as leverage for financing the development of new units. Provincial governments should consider implementing models like Infrastructure Ontario, making additional debt financing available to supportive housing providers through existing programs.Municipal government actions Increase the usage of loan guarantees, free or low-cost municipal land allocation, permit rebates, development fee elimination, and other incentives/inducements for supportive housing providers. Eliminate property taxes for at least ten years on new supportive housing projects. Pg 30
  31. 31. Priority ActionsWhat actions can be taken by the federal government?Housing provider actions Collectively examine the feasibility of creating a Housing Development Corporation serving the entire sector or geographic regions, providing technical expertise on development and financing for new units. Collaborate on a capital fundraising campaign to create a multi-million dollar National Supportive Housing Trust that could provide supplementary operating support for the financing of new housing stock. Establish an Equity Leveraging Working Group amongst large housing providers to share lessons and explore new mechanisms for leveraging existing stock for financing new unit acquisition and development. National, provincial and territorial associations/organizations should adopt social finance as part of their ongoing campaigns and capacity building efforts. Pg 31
  32. 32. How can you learn more? Pg 32
  33. 33. Moving ForwardWhat existing resources are available and where do we go from here?Resources Primer: Social Finance and Supportive Housing Costs for Housing Detailed & Short Case Studies Additional Innovative Financing Strategies How To Guide Supplementary Resources www.socialfinance.ca/housing Pg 33
  34. 34. Thank You http://impactinvesting.marsdd.com aspence@marsdd.com

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