This post is written by Brenna McCallick, Project Coordinator on the PCV InSight team.
Given the culture of learning at Pacific Community Ventures, it was fitting that I marked my one month anniversary here by attending a policy briefing at the San Francisco Federal Reserve. The topic of the day was “New Paths to Housing and Transportation Affordability in Transit Served Communities.” The event brought together stakeholders from several different sectors, including health, environment, transit, housing and finance. While varied, the group was united in the common goal of making our communities more equitable and accessible. The first two panelists presented on collaborative efforts between the nonprofit and for-profit sectors to develop affordable housing near transit lines, reducing the need for cars while making housing more accessible and commuting more convenient. Significantly, the last panelist closed the day’s discussions by speaking about one of the mechanisms that makes it all possible: an impact investing fund designed to provide capital for affordable, transit-oriented development (TOD).
I was especially excited to hear about impact investing tools being used to meet the goals of stakeholders across multiple sectors. The talk resonated with me particularly because of my work on The Impact Investor: People and Practices Delivering Exceptional Financial and Social Returns, a research project funded by Omidyar Network and undertaken by InSight in partnership with CASE at Duke University and ImpactAssets. The project – which will result in both a series of detailed case studies and a definitive “how to” book of best practices – will profile multiple highly successful impact investing funds. Specifically, the publications will demonstrate exactly what it is that leading practitioners of impact investing are doing right – and how others can learn from their example.
The fund featured at the event was Morgan Stanley’s Bay Area Transit-Oriented Affordable Housing (TOAH) fund. While not the subject of a case study for The Impact Investor, TOAH provides a prime example of the type of activities that will be profiled. Not only has TOAH demonstrated structural innovation and early success, its creators and investors faced many of the same challenges even the most successful impact investing funds battle: capital deployment in an ill-defined market, unclear or untested processes, the struggle to involve both the public and private sectors, and the need for a more enabling and supportive policy climate.
Lindy Hahn, Vice President of Morgan Stanley, introduced TOAH and spoke about its successes and struggles. The fund – now with $50M to deploy – was set up to address the need for equitable transit-oriented development. It not only provides capital for both market-rate and low- to moderate-income housing, but also for the development of childcare centers, charter schools and healthcare facilities – all located conveniently near transit hubs.
While the fund has many promising components, Lindy Hahn spoke also of the challenges Morgan Stanley faced in creating it. Namely, the fund was expensive and time-consuming to build. Further complicating matters, TOAH addresses the needs of an evolving and unproven market. Processes for capital deployment for TOD projects remain unclear because of this lack of market definition. Hahn stressed the need for more clarity on TOD business plans, greater collaboration between the public and private sectors, and increased involvement from public officials. Finally, she pointed out the need for market innovation. All entities involved in TOD projects must realize that development changes, such as drastic parking reduction, do not equal a decline in property value.
The theme of rethinking traditional market strategies was threaded throughout all the discussions that day. Market innovations that solve environmental and social challenges require new ways of thinking about the markets themselves. Issues like the urgent need for increasing affordable public transportation close to schools, daycares, health centers and housing should not be seen as roadblocks to development and progress, but opportunities for new business models and innovations. In order to identify these new models, it will require engaging a plethora of stakeholders – from community advocates, developers, investors, and policymakers. For that reason it was exciting to join the spectrum of participants at the SF Federal Reserve Event and see the power of impact investing mechanisms in action.