Rethink Real Estate. For Good.

Investing

Learning by doing.

With any project, learning from success and failure is important. In real estate, paying attention to and making adjustments based on what works and what doesn’t can have a major impact on the success of both current and future projects. This is especially true for projects that involve unique problems or complex issues that lack clear solutions. In these cases, the ability to learn by doing, and to effectively and quickly implement new knowledge, is crucial.

The affordable housing crisis is an example of one such problem. It is becoming an increasingly urgent issue in urban areas throughout the country. It has put millions at risk of losing their homes and their quality of life. Many different factors have had an impact on the current housing crisis over the last few decades and as a result it’s become an increasingly complicated issue with no simple answers.

Innovative financial tools

The good news is that many people are working to find ways to address it. As different communities, organizations and individuals work to preserve and create affordable housing in their own unique neighborhood, we can learn from their experiences. Leveraging the successes (and failures) of different affordable housing solutions is one of the most effective ways for communities to learn multiple and comprehensive solutions to this crisis.

One solution is to address financial issues in building affordable housing.  Rebecca Foster, the CEO of the San Francisco Housing Accelerator Fund, is a great example of this. Her fund focuses on this specific issue – how to innovate financial tools to ensure that affordable housing is produced in the face of a competitive real estate market.

The Accelerator Fund has two primary programs: bridge loans and providing homeless housing.

Bridge programs are supported through a mix of private, public and philanthropic funds. Rebecca’s team understands that public funding is necessary to fund affordable housing in the long-term. At the same time, they appreciate the fact that the private sector’s speed, flexibility and comfort level with risk is needed for the acquisition and development of those projects. By combining private and public funds they can act quickly in order to more effectively preserve and create affordable housing in the Bay Area. Private funds go in first, to acquire properties quickly, and once stabilized public funds provide long term loans so that private investors can be repaid.

Just as with bridge loans, Homes for the Homeless, uses philanthropic capital to create housing for the homeless community. The Accelerator Fund is currently working on a 146-unit project in San Francisco’s Fillmore neighborhood. The project aims to build each unit well-below the market costs in the neighborhood, and on a tight timeline.

Always learning and getting better

At the heart of all of their work, the Accelerator Fund’s focus is first and foremost on how they can help their partners. They have some big hairy goals which include how they can help to get a project completed, how to make sure that a building isn’t lost, and how to make sure that homes aren’t left vacant.

At the same time as they see project success, they remain laser-focused on how they can do better on the next one. They must remain vigilant about lowering costs, reducing the amount of time that it takes to build or rehab housing, and finding better ways to use capital to complete projects. Foster and her team understand that small differences can make a big impact on their ability to fund and complete projects. Thus, learning from successes and failures is a critical part of their process.

The Accelerator Fund’s current goal is to preserve 15,000 units in the Bay Area and to build 30,000 new ones. As Foster and others work to close the gap on affordable housing in the Bay Area, their constant progress and improvement in both funding and building techniques is something that others can learn from and build off of. Listen to our full interview with Rebecca Foster to learn more about what the Accelerator Fund is doing in San Francisco and how this model can be applied to other communities.

Image courtesy of Jonathan Greene

Public-private partnerships and affordable housing.

We are facing a unique and complex set of problems that have combined to create the perfect storm for housing – an affordable housing crisis that is affecting not just US citizens, but people everywhere. We need to find plentiful and innovative solutions. Because the lack of affordable housing is the result of so many different factors, it’s going to take a multi-faceted approach to effectively address the crisis.

One solution is the utilization of public and private partnerships to both create and sustain affordable housing development. These partnerships combine the speed and flexibility of the private sector with essential subsidies and support from the public sector, both of which are needed to acquire, build, operate, and maintain affordable housing projects in urban areas.

In San Francisco, the Housing Accelerator Fund provides a good example of how these partnerships can be used effectively to have a meaningful impact on individuals and a community.

The Accelerator Fund

The San Francisco Housing Accelerator Fund, led by Rebecca Foster, provides “innovative financial tools to preserve and expand affordable housing.” Notably, the Fund was created and developed in the San Francisco Mayor’s office, and from its inception it has been centered around private and public partnerships. Foster is quick to note that these partnerships have been one of the Fund’s essential keys to success.

Using a mix of private, philanthropic and public sector funding to address needs in public housing, Foster’s team has been able to create unique financing tools and use private funding to help with issues that the public sector cannot address on its own. The result has been more permanently affordable housing in the Bay Area.

Why do we need partnerships?

What Foster and her team have learned is that in places like San Francisco you can’t simply finance permanently affordable housing. The reason is that the costs of acquiring or building and then operating such projects are just too high to be covered by middle-income rent, much less low-income rent. What this means is that you need the power of the public sector and the tax base to cover the long-term costs.

Yet, at the same time, the public sector does not move quickly, it is risk-averse, and it cannot deliver capital quickly. So, while the public sector is needed for long-term funding, it’s less effective when it comes to acquiring or building affordable housing.

This is where the Accelerator Fund comes in and bridges that gap. The Fund uses private and philanthropic capital to be the first money into a project. The Fund helps nonprofits compete, even in the face of cash buyers and foreign buyers, offering the flexibility to close within 60 days. This speed and flexibility is essential for acquisitions, especially in situations where residents are at risk of displacement. Similarly, the Fund supports new builds, and offers affordable housing developers the chance to be innovative, fast and creative.

Using this model, the Fund is able to provide funds for the acquisition and development phase of a project. Once a project is under the control of a nonprofit, the government can come in 12 to 24 months later and provide long-term funding.

Every month, Foster is seeing families that are positively impacted by the work that her organization is doing. While she is quick to note how substantial the problem of affordable housing is, especially in California, she is encouraged by the results that she is seeing from her team’s efforts to date. As she describes it, they are “on the ground in a real blocking and tackling transactional way, and in a way where [they] see the impact on families.”

To learn more about the San Francisco Housing Accelerator Fund and how their model is successfully utilizing public-private partnerships, listen to the full interview with Rebecca Foster.

Image by David Bernabo

She’s all in.

Janine Firpo is a writer, values-aligned investor, and entrepreneur. She left a career in the tech world many years ago to pursue a more meaningful work experience. This led her into the world of micro-finance and philanthropy. And now, for the last ten years she has been on a personal mission to invest all of her assets so they create a positive impact. It’s a bold move and she is all in.  

A pioneer in Digital Financial Services (DFS), in 2002, Janine initiated and led a consortium of micro-finance leaders to explore the role technology could play in dramatically increasing the scale of financial services to the poor. In 2008, she became one of the first mobile money experts and advisors to mobile network operators, financial institutions, and other early DFS entrants. In her role at the Bill & Melinda Gates Foundation, where she served as a Deputy Director on the Financial Services for the Poor team, Janine and her team designed philanthropic and impact investments to bring poor people out of poverty by leveraging DFS to bring them into the formal economy.

In 2017 Janine left her position at the Bill & Melinda Gates Foundation to focus on bringing more female investors into the impact space.

She is currently one of the lead investors in the Next Wave Impact Fund an impact angel fund designed to help more women become angel investors, and she sits on the board of Zebras Unite, an organization developing the capital structures, community, and culture that non-unicorn start-up businesses need to thrive.

During her career, Janine worked for Apple Computer, Hewlett-Packard, and a number of technology start-ups. She also ran a non-profit that she spun out of her role at HP. Janine has consulted to corporations, government agencies, start-ups, and non-profits around the world.

You can email Janine at [email protected] if you want to know more.

Insights and Inspirations

  • Figuring out what “impact” means in real estate investing is difficult for someone starting out. It’s impossible to find consistent metrics.
  • According to Janine, not only can you expect financial return when you make a socially responsible investment, you can meet or beat the market! 
  • Only 5% of the US population is a millionaire. That means that 95% of the population does not have access to investment opportunities that are largely available to millionaires. 

Information and Links

  • Some of Janine’s cash is invested in CNote, which offers a 2.75% return with great liquidity after 3 months. Janine loves that their updates track how her money is helping women entrepreneurs
  • Being part of the Next Wave Impact has been a great way for Janine to learn about angel investing in the company of other women, all of them committed to making an impact by supporting women-led companies.
  • Janine is also investing Nia Global Solutions a female-led public equity fund. This fund investing in companies that promote sustainable agriculture, good health, quality education, affordable housing, and sustainable life, all the while beating market returns!  
Read the podcast transcript here

Eve Picker: [00:00:03] Hi there! Thanks so much for joining me today for the latest episode of Impact Real Estate Investing.

My guest today is Janine Firpo. Janine is a writer, values-aligned investor and entrepreneur. Janine’s background is fascinating. She left a career in the tech world many years ago to pursue a more meaningful work experience. This led her into the world of microfinance and philanthropy. She has consulted and lived all over the world. And now for almost 10 years, she has been on a personal mission to invest all of her assets so they create a positive impact. It’s a bold move and she is all in.

Be sure to go to EvePicker.com to find out more about Janine on the show notes page for this episode. And be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small Change.

Eve: [00:01:21] Hello Janine, thanks so much for joining me today.

Janine Firpo: [00:01:24] It’s my pleasure, Eve. Thank you so much for asking me and for being interested in what I’m doing.

Eve: [00:01:30] Yeah, well, you’ve had a really fascinating career, starting with technology companies when they were startups, and are household names now. And you left that path to follow a very different one. But I wanted to ask you how you started your career?

Janine: [00:01:45] I’d be happy to tell you. So, I actually started my career very early in 1981. It’s a long time ago for many people. And I sort of fell into the computer industry, first in Louisiana, and then when I really got into it, I moved back to the Silicon Valley where I was originally from and I’m still here. And I worked in high tech for about 15 years, worked at Apple Computer in the 80s, and then also did some startup work. And then in 1995 I left a job and I did a solo backpacking trip through sub-Saharan Africa. And what was really interesting about that is when I left on my trip, I was in something called the CD-ROM and multimedia industry. And when I came back, everyone I knew was in the Internet industry. So the internet literally turned on in the four months that I was away.

Eve: [00:02:37] Wow.

Janine: [00:02:38] And I was perfectly positioned to get on that ride, that dot com ride. But when I was in Africa, I saw poverty like I had never seen it before. And I decided that I wanted to use my life in a way that had meaning. And so I set out on a track to figure out how could I use the skills I had, technology and business knowledge, to bring change to the levels of poverty that I was seeing in Africa. And so that launched me on then what became a twenty-year career in international development and bringing technology into Africa, Southeast Asia and other parts of the world. And while I was on that trajectory, I got involved in something called microfinance, which is making loans to poor women, primarily in developing countries around the world. And in looking at what is the role that tech could play in really scaling microfinance, it was reaching 100 million people in the world when I started, and the need was to reach two and a half billion people. That inquiry, other people were involved in it as well, led to something called ‘mobile money,’ which is using the cell phone as a bank for the poor.

Eve: [00:03:50] I was at the Bellagio Foundation in Italy, a few years back, with someone who was writing a book about the M-Pesa.

Janine: [00:03:58] Exactly! M-Pesa, which was one of the first incidences of this, it actually started in the Philippines, but M-Pesa was the example that just shot off the charts within the first year. It came out in 2007, and within its first year it had a million people using the service. And in the second year it was many more millions. And it’s now serving, over 85 percent of the population of Kenya uses M-Pesa now, and it has become a de facto way to move money. And now people are getting loans over it. It’s being used as a financial mechanism for all sorts of things. So, it became an amazing industry. There are now over 250 incidences in more than 90 countries around the world.

Eve: [00:04:44] But it really started because people had cell phones. Right? And they needed to move money.

Janine: [00:04:51] They had cell phones, well, actually the way it really started was  the people behind M-Pesa was Vodacom, and they were trying to apply the cell phone technology to microfinance. And they started in 2004 with a microfinance institution in Kenya. And it just didn’t work for a lot of reasons that I won’t go into. But what they found that was really interesting when they were trying to help this microfinance industry scale its business was that people were using the phone just to move money back and forth. And they saw a real opportunity. So, they retrenched. They rethought everything. They set up all the infrastructure that they needed. And then in … February of 2007, they launched M-Pesa as we know it today, which was a money transfer service. Now, super-fascinating the way it all unfolded.

Eve: [00:05:40] Yeah.

Janine: [00:05:41] Yeah. And then so I had this great career for 20 years. I traveled all over the world. I’ve been to more than 80 countries. I worked all over the world. It was amazing. I loved it, but I was also traveling 50 to 70 percent of the time for 20 years. And the industry became huge. And I was always more interested in startups and new things. And so it just became time, a couple years ago, for me to leave that. And so I retired from that career. And along with being involved in all of that, so, I was sort of a social entrepreneur before that kind of word became a thing. And because I was in the Bay Area I was involved in all of these conversations around what has ultimately become known as impact investing. I was working at Hewlett Packard in the corporate social responsibility world. So, part of just that entire conversation about the new philanthropy and different ways of using our money. And about 10 years ago, even though I am not a high net wealth individual myself, I realized I’d made the choices in my life to live and lead from a life of value, and something where I was making a difference in the world, and I realized my money was working against me. And so I decided I was going to figure out how to invest all of my own money, from my cash to my public stocks to private stuff. If I could do that to real estate, all of it, how do I invest all of that in a way that lines with my values and is supporting the world I want to see.

Eve: [00:07:18] That’s a pretty powerful step to take, Janine.

Janine: [00:07:19] Well, it just was really in alignment with who I was. And it was because I was watching, I was going to these conferences and I was seeing these ultra-rich people and financial, you know, foundations and institutional investors doing this. And I thought, well, why can’t, why can’t the rest of us do this? Why is this yet another thing that’s just being left to the very rich? And so I decided to try on my own. And in the 10 years I was working super hard, so I had financial advisors. They didn’t get me where I wanted to go. And so when I retired a couple of years ago, I took a lot of my assets back. And I’ve been working on this myself.

Eve: [00:08:01] Wow.

Janine: [00:08:03] And I have realized that in the 20 years that I was, have been sort of watching this space, it’s really evolved. And I now think we’ve gotten to a point where the goal of investing your money in alignment with your values is becoming mainstream. At this point, one of four dollars that are invested by institutional investors are invested in socially responsible ways. It just hasn’t trickled down enough to those of us who aren’t wealthy. And it shouldn’t be that way, because there are now products across virtually all asset classes that you can invest in a values-aligned way, even if you’re a non-accredited investor, which means even if you don’t have a million dollars in net worth, you can invest this way. And so I have corralled a bunch of the brilliant women I know who are now helping me develop a book, helping people, primarily women, because we have been really left out of the financial services conversation in a lot of ways, to help them think about how to be smarter about their investing overall and how to do this in a way that aligns with their values, too.

Eve: [00:09:12] That’s pretty fabulous. So, just shifting gears a bit, when we talked awhile back, you mentioned that you were interested in investing in impactful real estate, the next step in this process for you. And …

Janine: [00:09:25] Yes.

Eve: [00:09:25] First of all, I’m wondering why that’s an interest now?

Janine: [00:09:28] Because, well, I currently own real estate. So, when I was a kid, I actually learned a lot about money from my mom, and my mom when I was a really young kid, we didn’t have very much money. In fact, we were kind of poor. We didn’t always know where we were going to get food. We were wearing secondhand clothes. My mom was a coupon shopper. And at some point along the way, she decided that she needed to find a way to make more money. And so she got herself into real estate. She became a real estate professional. And she started learning about buying property, buying and selling property. And so she, we’re talking like back in the 60s, I think, she started going to the courthouse steps and buying foreclosed property and sometimes sight unseen. She would buy them and then she would turn my sisters and I into her crew and we would go … we were, like, this is how I spent my summers, my teen years. Ripping up carpets, refinishing carpets, painting interiors, painting exteriors, cleaning, you know, all of that. We were her crew. And then she would rent these properties out. Sometimes she’d sell them. So, I learned about real estate and I’m in the Bay Area. This is a really hot real estate market. And so I’ve, you know, I’ve learned something along the way. And … I bought my first house when I was 30, and have purchased real estate. So, I have those assets. Now, if I am truly aligning all of my money with my values, then that has to include my real estate. And so I’ve gotten to the point where I’ve pretty much figured out a strategy for all of my other asset classes. My cash has all been moved in alignment with my values. I’m working on doing that with my public equity stuff. My fixed income is moving that way. I’m an angel investor. I only invest in socially responsible businesses and I primarily am investing in companies that are started by female CEOs, because women get less than two percent of the private equity capital in this country. So, we need to support more women founders. So, I’m doing that with a lot of my money already. It’s time for me now to start shifting my focus to the real estate. So how do I get out of, so I’m starting to think about, how do I get out of single family residences, and what might have more values aligned real estate set of opportunities look like.

Eve: [00:12:02] That’s really interesting. I have the reverse problem, so I’m going to probably ask for your help in dealing with my other assets.

Janine: [00:12:11] Happy to do that.

Eve: [00:12:12] So, you’ve been looking. And what does real estate impact investing look like to you? What does that mean?

Janine: [00:12:19] Well, that’s a really good question. And I have to be honest that I’m in the early days of this journey. And so I’m just starting to learn and that’s how I found you. Actually, I was out on the Web and I was kind of searching around and thinking, well, who’s doing anything out there in real estate? And that’s how I found you. So, I know a little bit. So, and I’ve invested in a little bit. So, my last job was up in Seattle working through the Bill and Melinda Gates Foundation. And when I was up there, I heard about a company, that basically what they were doing was they were buying distressed property in Seattle, and they were single family, and they were gutting a lot of these places and then rebuilding them green. And could actually tell the buyer this is what you’re energy saving is as the result of buying this house. So, green is one way of thinking about this. I’m also somewhat familiar with affordable housing. And my current financial advisor actually has me in an affordable housing fund. I forget the name right now. I apologize for that. But they had me in that kind of fund. I’ve been aware of the whole opportunity zone set of things that are cropping up around the country. Although I’ve heard varied things about those opportunities. And, you know, those are basically things that I know. I also am invested, a very small amount of money, this particular deal could only take a thousand dollars from each investor. But it’s a woman here in Oakland, the city that I live in, who is basically raising down payments through gathering money from many, many investors. And then she’s getting loans and she’s buying multi-unit properties that already have tenants, low-income tenants, and what she’s doing is, she’s setting up structures where these tenants, as they’re paying rent, are actually in basically a buy-to-own situation. And she’s turning these buildings into cooperatives that are owned by the people that live in them. So, I think there’s some interesting models out there. I just don’t, I only have seen a smattering of them so far.

Eve: [00:14:40] Yeah, actually, I think, I just interviewed Rebecca Foster, who is also in the Bay Area on the Housing Accelerator Fund, which is a different model, they are working on raising money to preserve existing affordable housing in San Francisco. Yeah, I think there’s lots of ways to make impact and you’re just really scratching the surface. Right?

Janine: [00:14:59] Exactly. And there’s a, yeah, there’s a man that I met recently through something I’m involved in who’s in the real estate business out here. And he’s starting to think about building his career around socially responsible real estate. So, he and I have had a couple of conversations. And one of the things that he sort of suggested to me, although I don’t know that I have enough assets to do this, but he talked about wouldn’t it be cool to like have a building where you could have businesses in it and and tenants in it, residential and office space combined. But really determine that you want a certain kind of business. Like create a space where these are all businesses that are run by women, or these are, you know, so … or these are all businesses that are in this kind of vertical and they’re helping each other and that particular vertical is good for the world. That was kind of an interesting thought.

Eve: [00:16:02] I think a lot of people are thinking about this in many very different ways. Like, I built a portfolio of what I believe are socially responsible projects, but really starting before green was the theme. And I focused on underserved neighborhoods and blighted architecture …

Janine: [00:16:26] Right.

Eve: [00:16:27] And so what I think is interesting about the real estate impact investing world is there’s really 1001 ways to make an impact. You just really need to figure out what matters the most for you.

Janine: [00:16:41] I totally agree. In fact, that’s one of the things that I’m talking about in this book I mentioned is I am moving away from the words impact investing and socially responsible investing and all of that, because I think so many people use those words and they mean different things by them. And what I and it’s, so it’s hard to get a clear definition on it. And what I’ve found is when push comes to shove and you talk to people who are thinking about impact investing, they’re usually talking about private deal flow, private debt and private equity. And I’m really interested in looking across all of your assets. So, what I’ve come to realize is even though I believe that if enough of us move our money this way, we can change the economy. At the end of the day this is really about our individual choices and who we think we are as people and how we want our money to reflect who we are in the world.

Eve: [00:17:35] Yes.

Janine: [00:17:36] Right?

Eve: [00:17:37] When you take money, you use it, you spend time on it as well. So, for me, it’s even more than money. It’s how I spend the time around it.

Janine: [00:17:47] Exactly. In fact, I realized the other day, it’s, for me … so much of this conversation about values align or impact investing, it’s always the extra thing that people have to talk about. It’s, like, here’s your financial issues and how you invest in all of that. Oh, and then there’s this impact investing thing. And I realized, particularly for women and millennials, who the vast majority of us want to invest our money this way, it’s not the extra thing. It’s sort of like the icing on the cake. Yeah, you can go out and you can invest your money to maximize return or whatever. But it’s really kind of boring, in a way, to do, at least to me, it’s like, yeh, so my money is out there and it’s doing whatever and I don’t even know what it’s doing, and all I really care about is the return? No, I want more from my money than that. I’ve worked hard to get it. I care about everything I do in my life. Why wouldn’t I care about what my money is doing? And when I get feedback from the people that I invest in about how my money is being used and what it’s doing in the world, that makes me so insanely happy. And it’s really fun to be able to talk to people about the cool stuff that my money is doing. I love it. It changes the game.

Eve: [00:19:08] Are you still getting your return?

Janine: [00:19:10] Oh, my God, yes! This is not about giving up return. This has never been about giving up returns. I can meet or beat the return that you that any other investment is giving. So, for example, if you look at public equities markets, so, one of the things that I’m invested in is the Vanguard Total Stock Market Index. This is like one of the things that people talk about all the time. Go into an index fund, Vanguard is really cheap, blah, blah, blah. Right? Great thing to be invested in.

Eve: [00:19:41] Right.

Janine: [00:19:41] But if you actually look at that from the perspective of environmental sustainability, there is a website out there called As You Sow that ranks, if you look up As You Sow ‘Invest Your Values,’ you will go to a page that you can say, “I care about fossil free stuff” or “I care about gender diversity” or whatever. And you can put your stock tickers into this tool and it will tell you, it’ll show you a grade that that particular holding gets across all of these different variables. And it will show you how much of that fund is invested in the things you don’t want it to be in it. What are those holdings? And so that stock gets a D on As You Sow. Now, I did some homework on As You Sow and I actually found another Vanguard Fund, an FTSE Social Index Fund, and other funds that not only are getting a better grade like A’s and B’s, but they also get better returns over a 10 to 15 year time horizon than what I’m in, that’s getting a D.

Eve: [00:20:54] Wow.

Janine: [00:20:55] So why am I in that?

Eve: [00:20:57] Yes.

Janine: [00:20:57] I’m going to get out.

Eve: [00:20:59] Well, I have to ask, you spent a lot of time on this, right?

Janine: [00:21:02] Yes.

Eve: [00:21:03] What about those who are just trying to find time in between the cracks to figure out where to put our money?

Janine: [00:21:12] Right. Well, that’s why I’m writing a book, because I realized that this shouldn’t be this hard, and people shouldn’t have to do the level of work that I’ve had to do to figure this out. So, the book is going to tell you how to do it. It’s going to basically, what it’s going to do, it’s going to have three different sections, and the mid-section goes asset class by asset class and tells you this is what this asset class is, here’s how it works, here’s how it’s generally thought about, and here’s all the ways you can invest in this asset class in a values aligned way.

Eve: [00:21:42] Wow. Let’s go back to real estate. So, on your journey to find impact impactful real estate … Now I’m feeling very self-conscious about the word … What information haven’t you been able to find? What’s missing out there for someone who wants to figure this out?

Janine: [00:22:00] There is no place that really says these, this is what this space looks like, and here’s all the different kinds of deals that are available. And, you know, this is what’s going on, these are the cool things that people are doing. I mean, I think that you’re trying to do that through your podcast, and I applaud you. And that’s it. I mean, I realize in order to figure this out, I’m going to have to go do serious homework and talk to a lot of people and see what other people are doing and then start to piece together what feels like an interesting way for me to move forward. Finding the information is super, super hard.

Eve: [00:22:46] Yup, it’s very hard. There’s a lot of high level information that I’m aware of that I, that is really for sophisticated investors. I find it difficult to follow myself and, there is sort of an … exclusiveness around it … investing that I agree with use a little bit disappointing.

Janine: [00:23:10] So, there are financial advisers out there who are socially focused, but they don’t share information about the things that they invest their clients in.

Eve: [00:23:21] Oh.

Janine: [00:23:21] Because that knowledge is sort of their intellectual property. Right? So, there has been an opaqueness around this for a long time. And I feel like it’s time to blow that up, too, and just make this stuff completely transparent. There’s no reason why this information shouldn’t be easily available and easily accessible.

Eve: [00:23:43] Well that’s very exciting. So, have you found anything you want to invest in real estate?

Janine: [00:23:48] Not yet, because I haven’t gone far enough down the path. But I will say the other thing that has intrigued me is the idea of co-living or shared housing kinds of situations. I’ve been intrigued by some of the things that you’ve had on your show and, you know, have added them to my list of possibilities. But I’ve been so focused on the other asset classes and just trying to get this book, bringing this book to life, that I haven’t had the time to do the real homework on real estate.

Eve: [00:24:24] I mean, I think if I was starting out now, I’d be making a list for myself and not expecting to check every box, you know? Certainly if I think about moving other assets, top of my list would be women-owned businesses. You know, it’s just things that you, that I care about, that really matter to me that the next person, you’re about something else more.

Janine: [00:24:48] That’s exactly right. And there is there will be a chapter on this book, in this book about private debt and revenue-based financing and private equity and how women can get involved in that. Angel groups that are women-based angel groups, and some new innovative models that are coming out to bring women in, even at relatively small value points, and online platforms that are available now if you’re not accredited investors. So, there’s actually tons of ways to start investing in women, in businesses and things like that for anyone.

Eve: [00:25:24] So, I’m in the early, right at the beginning stage of talking to a group about a women’s development fund, a fund, not a huge one, a small one that would invest in women-led real estate projects.

Janine: [00:25:36] Oh, interesting.

Eve: [00:25:38] It’s going to take a little while to develop, but I’m very excited about that. I think it’s a, you know, a very strong purpose, right?

Janine: [00:25:47] Yeah, no, it’s great. So, I actually have a question for you. Because I seem to remember and I may have gotten this wrong, but I seem to remember in listening to one of your podcasts at one point that you talked about the fact that people who do impact real estate investing aren’t necessarily going to see the same kind of returns as people would in regular real estate deals. So, first of all, did I hear that right? And if I did, could you say more about that and why that’s the case? And also, what do you think is a good return?

Eve: [00:26:21] I think that’s not necessarily true across all types of real estate; affordable housing is the most difficult.

Janine: [00:26:30] Ah.

Eve: [00:26:30] And that’s because the more you return to an investor or a bank, the higher rents are going to be for the tenants.

Janine: [00:26:38] Right. I get it.

Eve: [00:26:39] So, if subsidy goes away as it has been, and we get a bigger and bigger and bigger need for affordable housing, which we have, this gap, ok? And if investors continue to want to be, quite frankly, a little bit greedy and expect 20 percent internal rate of return, I don’t know how you build those projects and keep housing affordable if that continues. So …

Janine: [00:27:09] Yeah.

Eve: [00:27:09] There are many examples of affordable housing projects we’ve done on Small Change that are offering quite generous returns. But they can do that because they have, they are a mixed-use project, they have new market tax credits, they have a grant from the city, they have, you know, historic tax, they do public-private financing, maxxed to be able to squeeze out the best return they can for investors. Very difficult. And so I think that’s not true for all real estate, but definitely for that class of real estate. I think a lot has to happen for it to be kind of a normal market driven …

Janine: [00:27:55] That actually makes a ton of sense. I totally hear what you’re saying. And I think those kinds of things in real estate and other verticals like health and education, perhaps. That not everything is going to deliver market rate returns. I mean, I think one of the fallacies and the problems that have come out of the impact investing movement, if you want to call it that, is the belief, or that’s come out of our very, the way we think about capitalism, is that everything has a market … everything can be done through the market. And that’s just totally not true. There’s a, there are brilliant things that can happen, like what you’re talking about with affordable housing that can deliver a good return to an investor. If there is a subsidy brought in, or if there is a recognition that, you know, this business model is not going to completely wash its face, it’s not going to completely be able to return what it needs to return. But there’s lots of ways that you can bring in guarantees or you can bring in first tranches of money that are willing to take a greater loss. Or very interesting things you can do with a financial stack.

Eve: [00:29:23] But ultimately is it right for a private investor to get a 15 to 20 percent return on a project that will only move forward if there’s tons of subsidy. Kind of wrong.

Janine: [00:29:37] I’m not sure it is because, look at the alternative. The alternative, and this is kind of what happened in the microfinance world. So, in microfinance, it was reaching 100 million people. It definitely was shown to help bring people out of poverty. It was completely driven by grants. And there was, when I got involved in it in 2002, there was this huge battle going on between proponents of, like, the Grameen Bank, of keeping it completely the way it had always been and fully driven by grants, and a new group of players who were saying, yes, but we can actually commercialize these microfinance institutions and turn them into commercially viable institutions. And there was this huge battle between those two. They hated each other, actually. And what ended up happening is the commercial play actually got proven out. It was shown that you can, in fact, commercialize microfinance and you can reach a lot more, and the whole technology piece that I talked about came out of that as well. And now you’ve got, from the time I got started, so that two and a half, in a basically a 10 year span in that two and a half billion people who were previously unbanked. It’s now gone below two billion. So, by bringing capital that was seeking a return into the mix, that whole thing was able to scale in a way that it would never have scaled just on grants. Right?

Eve: [00:31:18] But I think when I’m talking about is, we had an offering on Small Change that was an homeless housing project in L.A., just a small offering. But the developers were determined to open it up to the community. And the funds they get, the rent they get is actually from the government. So, it’s going to be affordable housing in perpetuity. It’s not going to, you know, increase in value and be sold at a profit. So …

Janine: [00:31:48] Right.

Eve: [00:31:49] … was a fixed return, OK, return over years, which was a nine percent return, which I thought was pretty generous. And that offering actually filled up faster than any we’ve had.

Janine: [00:32:01] Yeah. I’m not surprised.

Eve: [00:32:03] So that question to me was, do you think we could offer a little less and still raise money, because that’s hard, to add in a nine percent return to a project like that? And I don’t know the answer.

Janine: [00:32:14] Well, you try. I mean, I’m … I think the thing is, you know, people are going to look at this like anything else. They’re going to look at it from a risk returns scenario. So in my own personal portfolio, I have money in bonds that are returning me three or four percent. Right. So that’s OK, because I know that those are pretty secure and chances are I’m not going to lose my principal.

Eve: [00:32:42] Right.

Janine: [00:32:42] So getting three or four percent is OK. But if I’m going to put money into a private business where in five years, 50 percent of private businesses will be out of business, then my risk is a lot higher because I don’t know that that business is actually going to succeed and I could lose everything. Right? So I’m looking for a better return in a three to four percent. The same thing is going to be true in a real estate deal. I mean, if you’re asking me to invest in something and I’m going to get a five percent return on it, then I’m going to need to feel pretty dang confident that I’m going to get that five percent return and I’m going to get my principal back. And that’s not always possible in a real estate deal.

Eve: [00:33:27] And you get to feel good because you’ll be housing most people, right?

Janine: [00:33:34] Yes. Yes, I get that. And I also get that people need to make enough return on their money to be able to retire and have the things that they want, too. And they’re not going to put that at risk. So, I think there’s a, but I, you know, I talked to a woman yesterday who’s on the other side of this discussion, and I really liked her a ton. She was great. She’s very committed. She is very, you know, in integrity with herself. And she really believes that people should be willing to make investments and get no return if they’re doing good stuff in the world. And that that is the way the world should go and that we should stop even thinking about return at all. So, she’s got a very different perspective on it.

Eve: [00:34:19] I think if you have enough wealth that you can do that with some of your money, that’s fantastic. But you’re right, most people can’t,.

Janine: [00:34:26] No, they can’t.

Eve: [00:34:27] They need to live, too.

Janine: [00:34:29] So, yeah, in fact, in doing the research on this book, I found that in the United States, there are 14 million people who are millionaires, about 14, 15 million people. Right? Five percent of this, five, six percent of the country. So, if that’s true and if 95 percent of us aren’t millionaires, then, you know, asking people to not get a return on their money is a pretty big ask.

Janine: [00:35:03] Yeah. An I don’t think, and I don’t think that one percent of us who really have wealth are sufficient to solve this problem.

Eve: [00:35:15] Yes.

Janine: [00:35:17] So, we have to find ways that the majority of us can participate in solving this problem. And that means that we need to do this in a way that they can feel comfortable with the return they’re getting. And I think subsidizing to help them do that is not necessarily a bad thing. And I actually think that’s where the really rich people could come in, is that they could provide some of those subsidies, so they can take lower return to help other people’s money come in at a higher level of return.

Eve: [00:35:51] So do you think that these new crowdfunding rules, like my platform, Small Change, where we use regulation crowdfunding to let anyone invest? Do you think that is a path towards a solution?

Janine: [00:36:02] I think it’s one of them, and I think it’s, Yes, I do. I think it’s a really interesting path. And I think that people who are non-accredited, it’s been kind of fascinating to me as well how differently wealthy people invest than people who aren’t. And it’s not right that people who aren’t wealthy shouldn’t be allowed to invest in vehicles that can provide them with more direct opportunities to have impact with their money and to provide them with greater return. I mean, there is way more risk, for sure. And some people could make bad decisions. You need to do your homework with this. But there are a lot of really smart people out there who are non-accredited who would put in the time and effort to make the right decisions and they should be allowed to.

Eve: [00:36:56] No, you and I agree about that. And I also, I really don’t like the idea of classes of investors. So that, you know, I’ve had discussions with developers who think that accredited investors want more, deserve more, and I …

Janine: [00:37:14] Yeah.

Eve: [00:37:14] … can’t agree with that. I think money should be given the same opportunity. And unaccredited investors who had absolutely zero opportunity to get, you know, a half a percent return from your bank account if you’re lucky.

Janine: [00:37:26] Right.

Eve: [00:37:26] That’s just not OK. So …

Janine: [00:37:29] No, it’s not. And you know, the truth is, there’s a great book I read a long time ago by a guy named Nocera about sort of the evolution of money. And, you know, actually even before him, if you go back, San Francisco history. So, this is a story I absolutely adore. The Bank of America. Do you know the origin story of the Bank of America? It’s sort of incredible.

Eve: [00:37:53] No, I don’t.

Janine: [00:37:55] So, quick version. So, it started in before 1906. There was an Italian immigrant in the San Francisco, in San Francisco itself, actually, who decided that, at that time, the only people who could have bank accounts were extraordinarily wealthy people. J.P. Morgan, you know, that kind of ilk of person. And so he decided, you know what, I think the average man and woman should have bank accounts and be able to get loans. And so he started this bank. It was called the Bank of Italy. And nobody used him because nobody trusted banks. And so then came 1906, the famous earthquake of San Francisco. And he rushed to his bank. He took all the cash out of his safe. He put it in a wheelbarrow. He put, you know, fruit and vegetables over this thing that he had all his money in. And he carted it out of San Francisco. And then he met with the other bankers and they were talking about what they were going to do for the city. And the other bankers were saying, well, we’ve got to wait six months before we can open our banks. It’s too dangerous. You know, bad stuff is going to happen. And so this man, his name is A.P. Giannini. He took that cart or whatever he had of money and he brought it to Fisherman’s Wharf and he set up a little table using barrels and a log, and he started giving out money.

Eve: [00:39:30] Wow.

Janine: [00:39:30] People came to him and he gave them loans. And all he asked was their signature. He trusted them. And the people were so responsive to that,  they had so much gratitude, that his bank grew and the Bank of Italy became the Bank of America.

Eve: [00:39:50] That’s a great story. Yeah.

Janine: [00:39:51] Right? So, and if you look at the history of money and you look at, what you find is that time and time again, there was some innovator like him who said, “You know what? This shouldn’t only be for the rich.” That’s how we got money, mutual funds, and that’s how we got invested in, that’s how anyone can invest in the stock market. It wasn’t always that way either. That was also just something for the rich. So, time and time again, we have seen these things come online for wealthy people. And then some innovator says, you know what? It doesn’t have to be this way.

Eve: [00:40:32] Yes.

Janine: [00:40:34] And then the rest of us can participate.

Eve: [00:40:35] Fascinating. So given all of that, what do you think the future of real estate impact investing lies?

Janine: [00:40:43] I’m going to take a step back first and say, where does the future of impact or values aligned investing lie first, and I believe it is going to become ubiquitous. I believe that ultimately this is the way people are going to invest writ large, that their values are going to matter to them as much as their return. And they’re going to realize they don’t have to give up both. And I think that the real estate piece of this, because it’s more complicated for people, is going to be a little longer to come online. But I think there will ultimately be a lot of really interesting opportunities, for all of us, to invest in real estate, too, because it is a great diversifier.

Eve: [00:41:23] Yes.

Janine: [00:41:25] And I’m a huge fan. When I was a young girl, my favorite movie of all time was Gone With the Wind. And, you know, I totally love that she always goes back to the land and she realizes that regardless of what’s happening around her, the land is something tangible and real. And it’s something that she can hold on to. And I think that’s still true today.

Eve: [00:41:49] Well, that was some really fascinating conversation. Thank you so much for joining me, Janine. I’m sure we’re going to be talking again soon.

Janine: [00:41:58] My pleasure. Thank you so much. I enjoyed it, too.

Eve: [00:42:03] That was Janine Firpo. Here are some of the things I learned during our fascinating conversation. First, not only can you expect financial return when you make a socially responsible investment, you can meet or even beat the market. Second, only five percent of the U.S. population is a millionaire. That means that 95 percent of the population does not have access to investment opportunities that are largely available for the wealthy. Finally, figuring out what impact means in real estate investing is difficult for someone starting out. It’s impossible to find consistent metrics. You can find out more about impact real estate investing, and access the show notes for today’s episode at my website, EvePicker.com. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Janine, for sharing your thoughts with me. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change.

Image courtesy of Janine Firpo

Accelerating affordable housing in San Francisco.

Rebecca Foster is the CEO of the San Francisco Housing Accelerator Fund.  The Accelerator Fund is a public private partnership that helps to finance affordable housing in San Francisco — in particular the many buildings currently being occupied affordably that are in danger of being purchased, and of their occupants being displaced.

The Accelerator Fund has set itself the challenging goal of preserving one-third of the existing 45,000 affordable housing units in San Francisco over the next 20 years. They plan to do that with a variety of powerful financial tools and subsidies to make sure that rents remain affordable. And Rebecca is working hard to educate and bring new investors into the Fund. In just three years they have saved 319 homes and raised $183 million in capital.

Prior to leading the Accelerator Fund, Rebecca was Director of Social Impact Investment for Mayor Lee, where she led the City’s exploration of results driven contracting and social impact finance, and developed capital tools to address the City’s housing shortage. She started her tenure in local government as a Fuse Fellow in the Mayor’s Office of Civic Innovation in 2012-13. Before that she worked in public sector and infrastructure investment banking at Goldman Sachs for eight years, where she raised capital for local governments, universities, non-profits, and utilities around the country.

Insights and Inspirations

  • The average cost of an affordable housing unit in San Francisco is $500 – $800,000. That’s not affordable.
  • “The number of affordable housing units needed is staggering,” says Rebecca.
  • Rebecca’s team is tackling reducing the cost of housing from many angles — such as lower returns to investors and the use of modular construction to reduce costs.
  • Bridge loans are the key to Accelerator Fund’s financing arsenal. By providing bridge loans to projects that cannot get traditional financing, they ensure a much more rapid preservation of housing stock. When the buildings stabilize after a few years, banks will step in.
Read the podcast transcript here

Eve Picker:  Hi there, thanks so much for joining me today for the latest episode of Impact Real Estate Investing. My guest today is Rebecca Foster, the CEO of the San Francisco Housing Accelerator Fund. The accelerator fund is a public private partnership that helps to finance affordable housing in San Francisco, in particular, the many buildings currently being occupied affordably that are in danger of being purchased and of their occupants being displaced. Be sure to go to rethinkrealestateforgood.co to find out more about Rebecca on the show notes page for this episode and be sure to sign up for my newsletter so you can access information about impact real estate investing and get the latest news about the exciting projects on my crowdfunding platform, Small change.

Eve: [00:00:00] Hi, Rebecca. Thanks for joining me.

Rebecca Foster: [00:00:02] Thank you so much for having me, yes.

Eve: [00:00:04] It’s really great. So I wanted to dive right in and find out all about the San Francisco housing accelerator, which you lead, and I saw that the headline on the accelerator site says, “Innovative financial tools to preserve and expand affordable housing.” And I wanted to ask you, what are innovative financial tools? What do you employ?

Rebecca: [00:00:27] Sure. So, what our goal was in … creating the accelerator fund and I think a key piece in our origin story is actually we were created and incubated out of the mayor’s office in San Francisco. And so we are truly a public-private partnership, and I think, especially in the world of affordable housing, that’s a fundamental component of what makes it effective. So, we bring together private, philanthropic and public sector funds to address gaps in … that the public sector can’t address with its sources of capital alone to achieve its affordable housing goals and so on. And in terms of innovative financial products, what that really means is that, for example, the … you can’t really finance permanently affordable housing, especially in a high-cost city like San Francisco, but really in most places around the country, without permanent subsidy funds from the public sector. Because the amounts that … of rent that are lower, extremely low-income or in the case of the Bay Area, even middle-income person can afford to pay just isn’t enough to cover the cost of building or acquiring a building, let alone some of the operating and services costs if they are extremely low-income and need services support. So you really need the power of the public sector and the tax base, essentially, to cover those long-term permanent costs.

Rebecca: [00:02:06] But it would … it’s probably no surprise that government does not move very quickly and it’s hard for government to deliver on capital, deliver their capital really quickly and to take risk with it. And so that’s where we come in, is with private and philanthropic capital we are able to be the first money in that can, for example, in the acquisition of a building where residents are at risk of displacement, we can help a nonprofit compete with all cash buyers and foreign buyers and close on a loan in less than 60 days, get to approval for a loan in less than 45 days, and that’s really hard for a government to be able to do. So we essentially can provide that bridge. And then once the property … the building is controlled and in nonprofit hands, the city can come in, 12 to 24 months later, with permanent funding. And then we can do something similar with new construction and just really use our capital to be much more innovative and allow the nonprofit housing, affordable housing developer to move faster, be creative, try construction innovation that it’s harder for the public sector to do so.

Eve: [00:03:21] Do you … like, I’ve worked enough in these types of projects to know that the gap can be really substantial, even in Pittsburgh. I think a few years back, it was really a 40 percent financing gap between what it costs to build an affordable unit and what return you would get for that unit. So, 40 percent in government subsidies, I can’t imagine there isn’t a bigger gap in San Francisco in the Bay Area.

Rebecca: [00:03:49] Yes, I mean, it is. You’re absolutely right. It is. Just for order of magnitude, the average cost of a new construction affordable housing unit in San Francisco ranges between 500 and 800 thousand dollars. And depending on the income level of the residents in that unit, the subsidy required can be, if you include the low income housing tax credit, so federal and state subsidies and local subsidies, it can be nearly all of that cost. The local government generally bears, in the case of San Francisco, about 200 to 300 thousand of that total cost. So, a similar percentage, but I think the total costs are … a similar percentage on the local level, but the total costs are probably much higher.

Eve: [00:04:41] And that means the traditional banks don’t want to be involved at some lower level?

Rebecca: [00:04:48] Yes. So they … so, basically in our … so we have many banks actually invested in the accelerator fund as senior lenders and so they are involved in our fund, in the bridging, at a senior level. And then we have below them funds from foundations and from the city of San Francisco itself. But in the permanent financing, yes, banks will both provide a construction loan, but they provide a construction loan when there is clarity on what the permanent, stabilized funding source is, which will include a significant amount of subsidies and often low-income housing tax credit. And then if the project is supportive housing for individuals who’ve been experiencing homelessness, generally there isn’t much revenue that can support a senior mortgage on the permanent. But if it’s a 50 or 60 percent median income project or, you know, workforce housing, if there is enough in rent, then there often will be a bank providing a senior mortgage. It’s just a small, relatively small percentage often of the entire capital stack.

Eve: [00:05:58] So you must get frustrated listening to some of the rhetoric about building affordable housing. And who’s to blame for where we are. It’s a really big problem.

Rebecca: [00:06:12] It is a tremendous problem. But I guess I also … it can be frustrating, but I also, like, part of why I love my job every day is that we are on the ground in a real blocking and tackling transactional way, and in a way where we see the impact on families. We are producing and preserving affordable housing every month with projects. And so that is a counterpoint to the feeling sometimes of how overwhelming the level of systems changes that’s necessary to actually address the hole that we have dug ourselves into, particularly in California, with so many decades of undersupply of housing, especially in urban infill housing, not enough density tax codes that don’t really encourage rental housing and affordable housing. I mean, we have a lot to dig our way out of. And I think we can do it.

Eve: [00:07:12] Yeah. I mean, I just made a little time in Australia talking to an architect who is working on affordable and sustainable housing there. And it was really fascinating to hear the story of what got them to this place where essentially there’s no government subsidy at all. And, you know, the cities, the major cities in Australia are some of the most expensive in the world. So, I think the problem is huge in many places. We, you know, we know it’s huge in San Francisco, but I think people are attacking this in many different ways, which we’ll talk, you know, about later. But I wanted to first know what’s your impact been to date? How long have you been in business, actually?

Rebecca: [00:07:53] Yes, so we are just about at our three-year mark. So, we are still very much a startup. But we have we’ve done a lot and the need has been great in the last three years. So, we have really two primary programs, I guess three primary programs, to date. And the one that we really started with, and then I would say it’s our most significant, is the bridge loans that I mentioned where we help nonprofit or affordable housing developers buy buildings, often, or land that is on the market, on the open market. And in the case of the buildings where the residents are at a very high risk of displacement, and just for a little context there, it is … we have rent control in San Francisco, but there’s no vacancy control. And so, basically when a unit becomes vacant, the rent can go from, if there has been a long-time rent-controlled resident living there, can go from, say, you know, 1500 dollars a month up to market, to 4500 dollars a month, depending on the size of the unit. So, that, in a market like this, means that there are a lot of buyers that are looking to buy five to 25-plus unit buildings and either very aggressively push the existing residents out who are low-income or wait them out. And, so, we are just experiencing tremendous displacement. So, we have with, our bridge loan fund has funded the preservation of 319 affordable homes since we started and that’s across 15 projects, and we have committed across those projects 183 million dollars of capital, across those projects plus an additional vacant land acquisition for the production of new affordable housing.

Rebecca: [00:09:50] And we have also, separately, so that’s our bridge loan fund and we basically raise capital, deploy it for non-profit, to go buy these buildings; also to rehab them, do the structural upgrades so they’re seismically safe; in any instances where it’s possible add new accessory dwelling units, so, turn the garages or the carriage houses in these buildings into new, permanently affordable units. So, we’ve also financed the first permanently affordable accessory dwelling units in San Francisco, in a couple of our buildings that we funded in the Mission. And then we separately have another fund, the homes for the homeless fund, that’s in partnership with a great local organization, Tipping Point Communities, and that is funded with 50 million dollars entirely of philanthropic capital. So, our other capital is impact that basically, but it is not … we have to repay it. And in this case, this month of a 50 million dollar restricted grant and the entire goal for those dollars is to significantly cut the cost and time for the production of supportive housing for individuals who’ve been experiencing homelessness. And we are halfway into the development of a 146-unit building in the Fillmore neighborhood in San Francisco that has 145 supportive housing units and a manager’s unit, and it will, knock on wood, the total development costs for it is going towards under 400 thousand dollars a unit, including land, which is, as I mentioned before, a really significant reduction from the status quo. And our whole schedule is two years and nine months from the time we bought the parking lot until when we should have individuals be able to move in. And that is …

Eve: [00:11:44] Yeh.

Rebecca: [00:11:45] … there are many factors there, but, I say, in both cases, really what we are … you know, we have we’ve deployed a lot of capital and we are, what we’re really focused on is like what can we do with every single project to help our partners, both just get it done and make sure the building isn’t lost and the homes aren’t lost in the case of the empty displacement work and preservation. But also to do it better, every time, and figure out how … we can do the next one a little bit faster at, you know, at a lower cost or with different capital sources that make it more sustainable for the government to support this work over the long term.

Eve: [00:12:28] What about construction in the equation? Are you sort of looking at different construction methods as a way of becoming more efficient?

Rebecca: [00:12:38] Yes. So, for the project that we are working on, that … the new construction supportive housing project, we are using modular construction, and this will be the first permanently affordable modular project in San Francisco. We are working with Factory OS, a modular manufacturer in Vallejo, and that is one of the many factors that is helping us cut the time and the cost for the project.

Eve: [00:13:07] It’s interesting. And so what’s the long term goal for the housing accelerator?

Rebecca: [00:13:12] I mean, I’d say, so when I mentioned that we really focus on three things; we have the bridge lending program, which really is about just helping the, you know, the government, the city, achieve its goals with much more flexible capital and faster, and problem solve. And then, we have a supportive housing work, which is really a more flexible investment focused on bringing down the cost and time of the production of housing. And then, the other big area that we’re focused on increasingly as well is innovation in how capital can be used to really help push the envelope in getting more affordable housing done and getting it done faster. Kind of more of those systems change elements. I mean, I’d say within the circle of the delivery of capital in dollars, which is really are, I think where we’re focused. And so, for a long term goal, we have really ambitious goals about getting to one-third of our existing multifamily building stock in San Francisco, where there are low-income and extremely low-income tenants. We have a 20-year goal, along with our nonprofit developer partners, of getting to one-third of those units being permanently affordable. So, like building more of a social housing stock or preserving more of a social housing stock. On the preservation side, we’re also starting to work with other partners in the Bay Area about how they can build out similar preservation programs in their cities, because unfortunately San Francisco has been at the tip of the spear with displacement.

Rebecca: [00:14:51] And I think it’s rippling out to, you know, a number of other places as well now. And then, I think on the partnership and, you know, that investment and construction side, I mean, we are … we’re looking at any way, as I said, that we can be really creative, and problem solving focus and capital delivery that can cut costs and time so that the long term permanent gap that the government puts for affordable housing can be reduced and that we can get more housing done faster. So, to your question about innovations in construction, we’re looking at are there ways we could support construction innovation where traditional banks and governments aren’t yet comfortable with taking on risks in this industry by, you know, so we’re looking at creating some insurance or backstop products for modular housing.

Eve: [00:15:46] Yeh, interesting.

Rebecca: [00:15:47] We’re also looking at other public-private partnerships, which I think is another key part of our model. So, we’re looking at working with the school district on educator housing and philanthropic partners and, you know, trying to in some ways, you know, and then just getting more done in San Francisco in the work that we’re doing and continuing to improve upon that.

Eve: [00:16:10] So, it’s great hearing you talk about all of this, because I think most people think, you know, an affordable housing unit is just the structure, but there’s so much more to it. There is how do you finance it, and how do you build it, and how do you insure it and all of this, all of those things. Have you estimated, I’m sure you have, how many affordable housing units are needed in San Francisco?

Rebecca: [00:16:34] That is a great question that everyone has. Yes, everyone has different numbers. So, I think on the preservation side, we are focused on preserving through … the lending program 15,000 units in San Francisco. And that’s our, based on the data that’s available, getting it about a third of what seems to be the at-risk, you know, generally rent control, the lower income, extremely low-income units, and on the new construction side, I don’t have the number at my fingertips, but when we started the accelerator fund, the goal was, this was in 2014, 2015, when the initial ideas … for the fund were getting incubated in the mayor’s office, we had set out at the city to to build 30,000 new units of housing by 2020. So, by the end of this year. Which now we’re here, with half of them being permanently affordable. And I think the city will be close to meeting that goal by the end of the year, knock on wood.

Eve: [00:17:41] That’s pretty great.

Rebecca: [00:17:41] And it is clear that it is not nearly enough. I mean, … in the last study I saw, regionally, is that we need about 250 thousand more units of affordable housing in the nine county Bay Area just to make up for what we haven’t produced over the last decade.

Eve: [00:18:00] Wow.

Rebecca: [00:18:01] And so, I mean, the numbers are staggering. And so, we can’t do it if, we have to be reducing the cost and the permanent gap from the government in every possible way we can. And I think, I mean, another piece here to focus on is the revenue side. We also have to, you know, we need to also be addressing how extremely low-income individuals and low-income in our workforce, what kind of opportunities they have to actually be earning enough or be supplementing their income in other ways so that they can afford rent.

Eve: [00:18:42] Right. It’s a huge problem. So, it’s really big, and it sounds like you’re attacking it from all sides. So, what’s your background and how did you get to this position?

Rebecca: [00:18:55] It’s been a meandering path. I’m sure like many people, but … I have always really, have always really loved communities and particularly the way that people interact with their environment and, like, the built environment. And I grew up in a very rural place on the river. My parents had a campground. And although that’s a far cry from the urban landscape, I think that threadbare as it is, in that case, the campground and the river were really a physical gathering place and like a hub of community. And I think similarly, in a place like San Francisco, I mean, this work we’re doing on preservation, you just see, although a building might have five units in it, five families, one of them is the, you know, marine biologist who tends the local community garden. And another family moved here from Central America 27 years ago and have built their live here. And I mean, you just the ripple impact of everybody’s story … in these buildings and what it does to community when they are displaced. We actually, we just helped our partner close on a building in, north of the panhandle of Golden Gate Park on December 23rd that has sick senior citizen African-American couples in the building. And I mean, that’s exactly the kind of situation where they have built their lives here, their friends are here, their communities here. And they are an integral part of what makes the fabric of San Francisco the place that everybody loves. And we, so I think there is that connection, I mean, it’s like the connection of people to place, not just the big fancy architecture, which also is really cool. But the, you know, the homes that make up these communities and how that all ripples out and, you know, makes a place a really unique special place it is, I think that, that is a common thread.

Rebecca: [00:21:12] And then, from a otherwise from a background expertise perspective, after I went to business school, I had an … I went to business school because I had zero background in finance and felt like, I started to realize in my work in urban development that I needed that. And then decided at the end of that to go really try to solidify what I had started to get at graduate school, with real world experience. And I spent eight years at Goldman Sachs as a public sector infrastructure banker in New York, and then in San Francisco, … and then left there to go to the mayor’s office in San Francisco. And so I really feel like now I am in the best professional opportunity of a lifetime to be able to be entrepreneurial and creating something that connects capital to solutions in communities. And it’s been really, it’s been really fun and challenging.

Eve: [00:22:17] It sounds like it. So, you know, I wonder … So we kind of heard what real estate impact investing is happening around the accelerator. But I’m wondering what difficulties you see with it and whether you think people still need to be better educated about what sort of returns to expect, and, you know, what it means to invest in something that isn’t just a commodity. Right?

Rebecca: [00:22:46] Yes. I mean, that is an excellent question and I think one that’s very top of mind right now, because we have had fortunately more of the largest employers in the Bay Area have started to focus on the tremendous need, locally, even though these are global companies and I think often in many ways had not really been focused as much on their local communities. And and are now, I think, both because it’s a real, that the lack of affordability and the housing challenges are a real issue for their workforce across the spectrum of their workforce. And because it’s just, you know, the extent of homelessness is really painful and you can’t exist in the Bay Area and not be feeling every day the impact of the level of poverty. And I think also of the dissonance between being at the center of wealth and innovation, arguably in the world, and the level of poverty.

Eve: [00:23:55] I was going to say that’s the most shocking part. You know, the fact that it’s one of the wealthiest places in the world and has this incredible homeless problem.

Rebecca: [00:24:04] Yes. I mean, and it is that, I mean, we all have to take so much responsibility … like, we got to fix it. And, I think, you know, when we started our fundraising, we talked to a lot of national foundations and it was frustrating at that time. But I get it. Many of them said to us, we’re sorry, we’re not going to invest in San Francisco. You have so much money there. You’ve got to solve your own problems. And, I think, it’s to some extent that’s true. Like we have to address this in the Bay Area. And, I think, that that is becoming more front and center for folks. And that being said, from an, to your point about the kinds of returns you can expect and the education question, we still have some work to do on that front. Because you can’t really, you can’t make money off of extremely low-income people.

Eve: [00:24:57] Yeh.

Rebecca: [00:24:57] Yes. There is the potential to have some, you know, high risk appetite. You get your principal back and get a one or two percent return type funding. We certainly have that sort of capital in our bridge loan fund, but that’s only as valuable as the amount of permanent gap dollars that the public sector has and that are available to address the needs of permanent affordability. And so I think the power of what you can do with flexible philanthropic and private impact-focused capital is take a lot of risk. Try new things. Innovate on construction. Parallel track on your design work before you have your entitlements, like, allow your, like those types of things. And that means you might not always get repaid. It is more risk. And, I think, though, that is, that’s a hard, that’s a hard balance to sort of figure out.

Eve: [00:25:55] It is. And it’s actually something I struggle with. I don’t know if you got a chance to look at my crowdfunding platform, small change, but I get asked all the time how the platform might help affordable housing projects. It’s a very difficult thing to answer for exactly the reason you said. The more return you provide to investors, the more rent you have to charge.

Rebecca: [00:26:15] Right.

Eve: [00:26:17] It’s very problematic. That’s not really the goal of affordable housing. But I’ve seen people tackle it and still manage to get some investment in just some different ways. But it’s really, it’s difficult to watch. I wish I knew with certainty that if we put affordable housing projects on the platform with a two percent return, people would invest.

Rebecca: [00:26:41] Right.

Eve: [00:26:41] But … I just, I don’t really believe that yet. You know?

Rebecca: [00:26:45] Yeah, I think it is a hard, we have talked, we’ve had many brainstorming sessions with various partners about, you know, well, what about like affordable housing and workforce housing? Your risk of turnover is minimal. And so the risk is significantly lower, and so, we have, you know, talked through before, well, could we get, you know, pension funds and larger institutional investors to really look at this more like infrastructure, than like, you know, real estate, market rate real estate returns. So, that’s one angle that we’ve talked about with folks. The challenge still is it’s very low. It’s one to two percent. And it’s long term. And, you know, until there is just …

Eve: [00:27:32] It’s got to be people in institutions with enough wealth that that particular investment isn’t going to impact them too much.

Rebecca: [00:27:40] Right. And where there is, I mean, I think there … and it’s a very true double bottom line. I mean … and where I’ve seen it work, you know, in some cases with crowdfunding, one of our partners, Mission Economic Development Agency, did a crowdfunding raise for a building acquisition that had a beloved mural in Mission Bernal neighborhood, the Precita Eyes Mural. And when there’s some, I think there is a benefit, especially because it’s so local. You know, engaging people who care about a place, and investing in something that makes that place vibrant and diverse, and the community that they, that they love and want to be in. Although, that may be in many cases, I guess, I think the other challenge with crowdfunding is the cost is so significant, of housing, that raising $20,000, which could be a lot of people with a lot of small contributions, is probably more meaningful in terms of engaging people in the work than it is in terms of actually moving the needle financially for the project.

Eve: [00:28:54] Yeah. Although I think of crowdfunding as a couple of different securities rules and you can crowdfund or advertise regulation D, as well, which lets you raise as much as you want. So, but only through accredited investors. So, but I think, you know, the small crowdfunding, retail crowdfunding that everyone can invest in is useful from a community building, asset building point of view. It’s not a way to raise a lot of money, that’s for sure.

Rebecca: [00:29:24] Right, right. Yeah, there’s a … one area we’re looking at where there could be overlap a little bit with the crowdfunding ideas, how we could create a product for investing in affordable housing that’s coming through donor-advised funds.

Eve: [00:29:42] Yes.

Rebecca: [00:29:42] There really is already the dollars that people have allocated to philanthropy and generally there is a lower desired return threshold, or they’re just not as focused on it. And so, and there are there are a lot of dollars in donor-advised funds, nationally, of course. So, that’s an area that we started to look at more, that it would be great to, for us to continue the conversation on.

Eve: [00:30:08] Absolutely. Absolutely. So do you think socially responsible real estate is necessary in today’s development landscape? I know you’re focused on housing, but in general?

Rebecca: [00:30:16] I mean … to the extent, and you can help me with the definition of socially responsible real estate …

Eve: [00:30:25] Oh, I don’t even really know it myself. I mean, I think there are a bunch of different definitions out there. Mine is, you know, something that makes life better for people. It might be a building that houses services that they need, or it could be a building that, or a space that is created that they can use. I mean, I think there’s many ways to define it, in real estate. For me.

Rebecca: [00:30:52] Yes, I mean, absolutely. I think especially in these, I mean, the trends toward urbanization. And we just, there are so many more people and I think probably will continue to be so many more people that are living in an urban environment. And it is, I think as we, everyone feels like, viscerally yourself, what your day to day interaction is with the space that is your home, and your community, and your walk to transportation, or your commute to work, and your interaction and your place of work with the space that you’re in. I mean, those that’s what makes up a big portion of people’s lives. And so I think it is totally fundamental that we are, that we, you know, are all thinking about making that positive and thinking about it in all of the ripple impact ways, from a sustainability and climate perspective and, you know, how people interact and as an affordability perspective. I mean, there’s so many elements in addition to affordable housing that improve the quality of someone’s life versus their rent cost …

Eve: [00:32:11] Right.

Rebecca: [00:32:11] … that also are very much tied to space, their commute, their job environment, the quality of their schools. And these are all tied to urban design, and the use of space, and the buildings that fill the space.

Eve: [00:32:27] And I think the ability to live somewhere and not have to have a car is like absolutely critical. Transit …

Rebecca: [00:32:34] Yes.

Eve: [00:32:35] … being able to walk to amenities, walk to work, walk to school. It’s really critical for living affordably. Actually, I wonder how successful you’ve been, where you’ve been sort of making your numbers extremely lean in, in getting the units to be very energy efficient. Has that been hard?

Rebecca: [00:32:57] So, a lot of the work we do is, as I said, is helping … developers buy existing buildings. And part of the upgrades are focused, whenever there’s enough, you know, capital budget for it on window upgrades and kind of those types of weatherization, and other things that will improve energy efficiency. And then in the new construction buildings, I mean, our, we are not a developer, but our developers are definitely focused on those things. And I think just by nature of, I mean, there’s no parking in affordable housing … There’s always bike storage. There is, you know, they’re generally, luckily, in San Francisco, like near and have great access to transit options. And, I mean, you know, one thing that is, we are doing to bring down costs in the, our new construction project is the individual unit sizes are smaller than most supportive housing studios are. Yes.

Eve: [00:34:05] Yeah. Interesting. Okay. Yeah, it’s a little bit harder when you have older buildings, you have to retrofit them because … you just can’t seal them as well.

Rebecca: [00:34:17] Yeh.

Eve: [00:34:17] You can’t really get as much energy efficiency as in, you know, a modular box that you’re thinking about that from day one. They just weren’t built that way. Yeah.

Rebecca: [00:34:26] Yeh. Right.

Eve: [00:34:27] So. Wrap up question. Where do you think the future of real estate impact investing lies?

Rebecca: [00:34:35] I mean, I think, definitely, as I said, where I think that private capital can be, from an affordable … from my lens, an affordable housing can be the most impactful, is in really coordinating closely, working with somebody like us, or others, that coordinate their dollars and the repayment of their dollars very closely with public sector dollars that are the permanent financing, which is a huge risk mitigation for their investment. And so, you know, I think in the case of San Francisco, it had the triple-A credit rating. So, investors really should feel comfortable as bridge lenders with taking on a fair amount of risk if they know that the city is a partner of ours. And so, and that can then allow us to help the, you know, the nonprofits move much faster and have one single funding source that could be extremely high loan to value ratio, for example, and not have to pull together many different funding sources, just anything that we can do with bringing in that private capital. And then really understanding how mitigated their risk is by the existence of the permanent capital at the back end. I think then can, you know, can help us deliver on greater efficiency and get them their goals of repayment and also get moved towards our goal, bringing down the permanent gap and getting more housing done faster and more cost effectively.

Eve: [00:36:11] So you’ve you’ve really bitten off a huge project. And I’m really, I’m really impressed and very grateful that you took the time to talk to me.

Rebecca: [00:36:22] Well, I love the work you’re doing, and it’s so great to be able to lift my head up sometimes and hear about what others are doing, innovating in this space around the world. So, with your, much appreciate the … documenting and sharing you are doing with the project.

Eve: [00:36:40] Well, thank you very much. And we’ll sign off. Thanks a lot. Bye.

Rebecca: [00:36:44] All right. Thank you. Bye.

Eve: That was Rebecca Foster, CEO of the San Francisco Housing Accelerator. What a huge challenge she has set herself. The accelerator wants to save one third of the existing 45,000 affordable housing units in San Francisco over the next 20 years. And they’re using a variety of financial tools to make sure that rents remain affordable. In just three years, the accelerator has saved 319 homes and raised $183 million in capital. You can find out more about impact real estate investing and access the show notes for today’s episode at my website rethinkrealestateforgood.co. While you’re there, sign up for my newsletter to find out more about how to make money in real estate while building better cities. Thank you so much for spending your time with me today. And thank you, Rebecca, for sharing your thoughts with me. We’ll talk again soon. But for now, this is Eve Picker signing off to go make some change. 

Image courtesy of Rebecca Foster, San Francisco Housing Accelerator

Investing for good.

More and more, investors want to do more than make money. They want to invest in triple bottom line projects that are socially responsible as well. Environment, Social and Governance (“ESG”) investing is a rapidly expanding investment category and already offers a wide array of opportunities, many of which produce competitive returns. Unfortunately, many investors still fear that investing in an impactful project means sacrificing returns.

It’s time to get over that. There are lots of opportunities for investment in projects that do good as well as provide a competitive or even above-market return. Just like any other investment, there are some basics to keep in mind when looking for and making socially conscious real estate investments.

How can I make sure a project offers impact?

What exactly is Socially Responsible Investing (SRI)? It means investing in companies or projects that have ethical practices and positive social impacts. Simply put, this means investing in ventures and companies that work to have a positive impact in their community.

Just because a company or a project claims to have a positive social impact doesn’t necessarily mean that it does. You’ll need to evaluate that impact for yourself. You can do that in any number of ways that make sense to you. In real estate you might be interested in affordable housing, energy efficiency, elimination of blight or supporting a neighborhood project. Everyone has their passion project and you will have yours too.

At Small Change we’ve developed our own set of measures called the Small Change Index. These measures are built around three impact pillars – mobility, economic vitality and community. Any project that lists an offering on the Small Change platform must score at lease 60% on our proprietary Change Index survey. This provides some flexibility and quite a variety of impactful projects to choose from.

How should I evaluate return?

When you consider investing in an SRI, you’ll be thinking about two things – the social impact that the project makes and the potential for a return on your investment. These two goals are not always compatible. It’s a balancing act. One may be more important than the other to you. It’s important to consider them independently, weigh each carefully and make your investment decision accordingly. Sometimes the scale may tip towards doing good, and sometimes the scale may tip towards doing well. If you’re lucky, you’ll find projects with perfect balance.

What are some examples?

For example, you may want to invest in a project in your neighborhood. Perhaps it’s a building that fills a lot that has been vacant for many years and has been a neighborhood eyesore. The return on this investment is most likely to be much greater than just a financial return to you. This building promises to improve your neighborhood, and along with that perhaps improve the value of your house. Or maybe you want to invest in an affordable housing project, because you care about housing security for everyone. Affordable housing is an especially difficult socially responsible investment class. The greater the return on equity invested, the higher the end rent the tenant will pay. High returns and supporting housing security may not go hand in hand. You’ll need to decide which matters more to you with an affordable housing investment opportunity.

At Small Change we’ve had first-hand experience with high impact projects that have provided competitive financial returns to investors as well. To date the balance has been pretty well perfect, with not one project that has returned less than 10% per annum to date, and the most successful returning an extraordinary 21%+ IRR. These are competitive returns even for projects that don’t provide any social returns. And take a look as well at the creative ways that Jorge Newberry and his team at American Homeowner Preservation are working to help thousands of Americans stay in their homes, all the while providing handsome returns to their investors.

All that to say, there are plenty of investment options that are socially conscious and that offer investors a good return on investment as well.

Why should I care?

There are plenty of social issues that plague our planet. Climate change and the affordable housing crisis, to name just two, are on everyone’s mind today. When you invest in an affordable housing project, you are taking action to help solve the problem. When you invest in a net zero or a transit-oriented building project, you are taking action to help solve climate change. Similarly, when you invest in your community, you’ll reap the benefits and so will your neighbors. And so on.

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Socially responsible investment is not rocket science. It’s common sense. Go ahead. Invest in something you care about.

Image of building in San Anonio, Texas, by Eve Picker