Creative Financing for Affordable Housing
This case example appeared originally in Essentials of Impact Investing: A Guide for Small-Staffed Foundations.
Investor: O.P. & W. E. Edwards Foundation
Investee: Mountain Springs Villa
Asset Class: Private Debt
Investment Amount: $100,000
Impact Sector(s): Housing
Date of Investment: 2010, renegotiated and extended in 2014
Projected Exit: 2015, extended to 2020
Financial Return Goal: Below Market Rate
Investee: Mountain Springs Villa
Asset Class: Private Debt
Investment Amount: $100,000
Impact Sector(s): Housing
Date of Investment: 2010, renegotiated and extended in 2014
Projected Exit: 2015, extended to 2020
Financial Return Goal: Below Market Rate
The foundation had just received a construction loan pay-off of $100,000 from Habitat for Humanity when it learned that low-income residents of a Red Lodge manufactured home park had formed a cooperative with the help of NeighborWorks Montana and had purchased their park. The new cooperative needed to blend below-market-rate financing with its conventional bank financing to achieve loan payments the residents could afford.
The foundation made a $100,000 loan that bought out NeighborWorks Montana’s interest in Mountain Springs Villa, the cooperative. Initial terms were five years, 2 percent interest only with a balloon paymentat term. The loan was renegotiated in 2014 for six additional years to a lower interest rate (0.5 percent), so that some principal can be repaid while keeping payments at an affordable level.
Process
The foundation also had a good relationship with NeighborWorks Montana, which is part of the NeighborWorks America affordable housing network. The foundation has been making loans to high-quality grantees for years and is comfortable using debt as a philanthropic tool. Its sole staff member handled the process in conjunction with board members. The loan was documented with the foundation’s standard one-page agreement.
Partners Involved in Investment
NeighborWorks Montana assisted the cooperative with formation and financing and provides ongoing technical assistance. This work is carried out with ROC USA, which helps form manufactured home cooperatives throughout the United States. First Interstate Bank is also a lender to the cooperative.
Projected Impact
Members of the cooperative were able to blend conventional and mission financing sources for an overall affordable loan payment. This loan empowered the residents of Mountain Springs Villa to stay in their affordable manufactured housing and become property owners who control their own land and cooperative enterprise.
On-the-Ground Insights
The foundation emphasizes the importance of obtaining a borrowing resolution from the full board of directors of an investee to ensure the investment and its terms are fully understood by all the stakeholders in the investee’s organization. In addition, the foundation is now building principal repayment into the terms of most investments, setting up the expectation that loansare not “evergreen” and must be repaid.
