Social Enterprise Perspectives: Making a Difference in the Mile-High City
Brooke Borgen (OG), Contributing Writer
Issue date: 11/14/05 Section: News
Determining which investors were best suited to purchase the tax credits was a two-way value proposition. The institutions were evaluating our office's pipeline of potential real estate development projects in qualified census-tracts that could meet their expected returns (investors could receive additional returns beyond the tax credits if the portfolio of projects was profitable). Simultaneously, the city wanted to choose the best possible investor based on its required equity return and governance stipulations (i.e.: the number of seats required on our board and/or investment committee) and the timeline for converting their equity positions in our projects to cash down the road.
Although I completed my internship during the implementation planning period of this partnership, I was able to see the mutually beneficial outcomes that each party expected. For the city, it was an opportunity to channel private dollars into targeted low-income communities while ensuring the metrics for affordable housing units, job creation and neighborhood preservation were met. The housing and finance authority and community development lender gained access to equity that could provide lower-interest gap financing to real estate developers for projects on a much larger scale than previously feasible. The institutional investors are able to lock-in a 39% return over seven years and their investment can boost their national Community Redevelopment Act ratings (not to mention being the equity investor in $40 million of development in the city). Finally, the real estate developers in the pipeline will be able to lower their cost of capital and begin developing mixed-use space in neighborhoods that were not previously financially worthwhile.
In addition to having an amazing opportunity to work with a great civic leader like Mayor Hickenlooper and to be part of a unique public finance deal, I learned two very important lessons during my Social Enterprise Fellowship that I believe will stay with me throughout my career. First, the concepts and skills we learn at HBS are absolutely applicable across sector lines and second, converging the knowledge, capital, and capabilities from each sector can create a sum that is, in fact, greater than its parts.
Although I completed my internship during the implementation planning period of this partnership, I was able to see the mutually beneficial outcomes that each party expected. For the city, it was an opportunity to channel private dollars into targeted low-income communities while ensuring the metrics for affordable housing units, job creation and neighborhood preservation were met. The housing and finance authority and community development lender gained access to equity that could provide lower-interest gap financing to real estate developers for projects on a much larger scale than previously feasible. The institutional investors are able to lock-in a 39% return over seven years and their investment can boost their national Community Redevelopment Act ratings (not to mention being the equity investor in $40 million of development in the city). Finally, the real estate developers in the pipeline will be able to lower their cost of capital and begin developing mixed-use space in neighborhoods that were not previously financially worthwhile.
In addition to having an amazing opportunity to work with a great civic leader like Mayor Hickenlooper and to be part of a unique public finance deal, I learned two very important lessons during my Social Enterprise Fellowship that I believe will stay with me throughout my career. First, the concepts and skills we learn at HBS are absolutely applicable across sector lines and second, converging the knowledge, capital, and capabilities from each sector can create a sum that is, in fact, greater than its parts.