Article originally appeared in the April 2015 edition of the Western Real Estate Business
Combine investors, investments and goodwill, and what results are socially responsible investments (SRI). When a company’s operations directly affect social and environmental factors in its micro- and/or macro-communities where it operates, the product is known as social impact.
Impact investments, socially responsible investing (SRI), triple-bottom-line investments (TBLI) or people planet profit (PPP) are investment phrases and ongoing trends that will continue to have an impact on our market throughout 2015 and beyond. They have become a popular way to fund social programs via academia, as well as the private and public sectors. Financial firm Goldman Sachs has created financial products for these types of investors. Its website offers an info graph that shows the of investing in its “social impact bond,” which is an innovative and emerging financial instrument that leverages private investment to support high-impact social programs.
The trend is not only prevalent in social programs initiated through bonds and other private investment modes, but there has also been an emergence in the real estate industry. OpenPath Investments (OPI) has been acquiring value-add Class A, B and C apartment complexes for more than a decade in Utah, Texas, Arizona, Oregon and now Colorado, and has had a vision for socially responsible investing. OPI’s vision was realized when it created the Urban Village concept and implemented the programs at each of its apartment complexes, which became a platform for its current approach to real estate investment and asset management.
Urban Village adds value and empowers all residents at the apartment communities by providing opportunities to engage in social activities, take on leadership roles, live in newly redesigned spaces, congregate in community rooms and participate in ecological initiatives. It also encourages intra-communications and shared consumption behavior that ultimately reduces residents’ cost of living. This has created a successful long-term income stream in each of our 11 apartment complexes, which has resulted in lower resident turnover, and invites collaboration between residents and on-site management. The benefits reach all stakeholders, from residents to management to investors.
The direct environmental impact on these Urban Village communities has been measured by the following: about 30 residents participate in the gardening program (increasing to 60+ in 2015); recycling at all complexes, with nearly 500 apartment households of about 2,000 actively recycling; recycling awareness events to improve this rate; and 10 green-friendly events last year, including Earth Day, a swap meet, Harvest Days, recycling awareness events, garden demonstrations and recycling contests.
The social impact created by the Urban Village has fostered about 2,000 social connections in 2014, which includes the number of residents participating or attending events each month, with an average of three events at each property. This is estimated to be 3,000 connections by the end of 2015, with an average of 30 residents in leadership positions like Resident Council and Ambassador positions. Ambassadors in each community are responsible for meeting one-on-one with five households a month to welcome new residents and to learn about existing tenants’ needs and offerings.
Although one of the newer investment styles, socially responsible investments or impact investments does not mean the investors compromise goodwill for investments that have a low ROI. On the contrary, OPI has had a historical IRR of 17 percent to more than 20 percent, while targeting 14 percent to 16 percent for future acquisitions. The company is continuing to generate above-market investment returns along with measurable social and environmental impacts in its communities.
OPI is one of the many businesses making SRI a priority. There have been some challenges implementing socially responsible practices into a real estate business that revolve around forming the initial community at properties where none existed prior to the Urban Village program. OPI has now developed an 18-month rollout strategy that steps through the process of gathering residents, establishing guiding principles, and developing self-governance and participation from the residents themselves. The Urban Village program forms Resident Councils, recruits Ambassadors at the properties work closely with on-site management to support participation and communication amongst the residents. This is all facilitated by the Urban Village Director who oversees all aspects of implementation and scale of the program across the OPI portfolio of properties.
The trend of impact investments is becoming more mainstream in many business sectors today, including real estate. The value of socially responsible investing can be measured directly through the ROI and social initiatives that the funding establishes. The impact these investments have on the people in these communities is immeasurable.
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