Presentation on social finance and social housing including background on MaRS, the Centre for Impact Investing, motivations, case studies, public policy implications, and areas of interest for housing providers. As presented at CHRA Pre-Congress in May 2012.

1. Finding Money, Renewing Mission:
Social Finance & Affordable Housing
CHRA PRE-CONGRESS 2012
St. Johns, Newfoundland
May 1st, 2012

2. PRESENTATION SUMMARY
 ABOUT US
 SOCIAL FINANCE OVERVIEW
 AFFORDABLE HOUSING SECTOR DRIVERS
 CASE STUDIES
 PUBLIC POLICY IMPLICATIONS
 AREAS OF INTEREST
 DISCUSSION

3. ABOUT US

5. ABOUT US
MaRS Centre for Impact Investing (CII)
builds upon the foundational work of MaRS and Social Innovation
Generation (SiG), including the landmark report of the Canadian Task
Force on Social Finance
national hub focused on increasing the awareness and
effectiveness of social finance to catalyze new capital, talent, and
initiatives dedicated to tackling social and environmental problems
in Canada
a global connector for Canada into the emerging field of impact
investing

6. Pillar Description Strategic Initiatives
Pg 6

7. SOCIAL FINANCE OVERVIEW

8. SOCIAL FINANCE OVERVIEW
Social finance is an investment Profits
approach which aims to solve
social or environmental challenges
while generating financial return.
This includes investments that
range from producing a return of
principal capital to offering
market-rate or even market-
beating financial returns. Planet People
Synonyms: Impact investing, community investing,
and mission-related investing for foundations.

9. SOCIAL FINANCE OVERVIEW
1. Entrenched social and environmental problems Challenge: Strengthen
from persistent poverty to climate change. an emerging
2. Government revenues constrained due to marketplace by
mobilizing capital and
modest economic growth and budget pressures
establishing
(deficit and rising core costs like health care). institutions and
3. Growing number of charities, non-profits, co- regulations that will
ops and for-profit companies building business more efficiently
models and turning to investors for financing to connect people and
launch and scale up innovative new programs, their innovative ideas
become sustainable, and stimulate economic to the private capital
they need to tackle
growth. complex societal
4. As a result, new investment opportunities problems, create jobs
emerging offering investors positive financial and strengthen
returns and social and environmental impacts. communities.
5. Growing base of interest and pool of talent
from youth and mainstream finance leaders.

10. SOCIAL FINANCE OVERVIEW
Social Finance Marketplace
 Current market size in Canada estimated at ~$2 billion, projected to grow to
$30 billion over next ten years
 Global impact investing marketplace is estimated at $50 billion, projected to
grow to $400 billion over next ten years
 Funds: Over $250 million in funds (and foundation investments) with proven
track record; 30 funds operating or in development
 Key sectors: Clean technology, sustainable agriculture, microfinance and
affordable housing
 Strong interest amongst governments and institutional investors,
particularly foundations, HNWIs, and wealth managers (Recent investor
survey: 70% interested in public housing bonds)

11. Example:
Planet Bean Coffee
Fair trade organic coffee co-
operative
Investment Type: Debt via loans
Purpose: Infrastructure
improvements (new roaster) and
retail expansion (new location)
Terms: Five (years) at 8%
Deal Size: $75,000 (part of
$250,000 expansion from debt and
equity [co-op shares])
Investors: Retail and institutional
Impact: Revenue growth ($500k-
$1.7M), new worker co-op
members, positive local and global
impact.

12. Example:
Centre for Social Innovation (CSI)
Multi-purpose co-working space
for nonprofits
Investment type: Debt via
community bond*
Purpose: acquisition and re-
development of new facility.
Terms: Variable over three series
from 5-15 years (prime + 1.75%,
prime + 2.25%, & fixed 4.0%)
Deal Size: $2.0 million**
Investors: Retail & institutional
Impact: Facility to catalyze social
change
* Similar models implemented by Skydragon Worker
Co-operative and TREC’s Solar Share initiative.
** Investment was secured by City of Toronto

13. Example:
Access Community Capital Fund
A not-for-profit fund located in
Toronto providing $5,000
microloans to budding
entrepreneurs that are otherwise
excluded from mainstream
financial markets.
Investment Type: Debt via
promissory note
Purpose: Financing for loan fund
Terms: 0-2% with variable terms
Deal Size: Variable
Impact: Poverty reduction,
employment creation

14. Energy efficiency
Prime + 2%
Poverty reduction
Social housing units
Impact + Return
8%
Carbon reduction
Jobs for marginalized 1% p.a. over three years
populations

15. HOUSING SECTOR DRIVERS

16. HOUSING SECTOR DRIVERS
There are a number of factors that drive potential interest in social
finance (new capital seeking impact) for housing providers:
Housing demand: There is significant demand for affordable housing
in Ontario, with 152,000 Ontarians on the waiting list and hundreds of
thousands struggling with poverty. Thirteen (13) per cent of Canadians
are in core housing need.
Stock maintenance and improvement: There is tremendous need for
stock maintenance and improvement, given the significant levels of
deferred maintenance, and opportunities for energy efficiency
retrofits.
Demonstrated financing needs: There have been a number of
identified financing needs amongst individual housing providers,
including mortgage financing, project bridge financing, and matched
financing.

17. HOUSING SECTOR DRIVERS
It is not just a money problem.

18. CASE STUDIES

19. CASE STUDIES
1. SECTOR FUND: NYC ACQUISITION FUND
2. GOVERNMENT SUPPORTED BONDS: US AFFORDABLE
HOUSING BONDS
3. LARGE-SCALE DEAL: TCHC BOND ISSUE
4. SMALL-SCALE DEAL: COMMUNITY BOND PILOT

20. Case Study:
New York City Acquisition Fund

21. CASE STUDIES
 Motivation: formed in 2006 to address the shortage of affordable
housing in New York City
 Goal: support the development of 30,000 low income housing units
in New York City
 Target ventures: for-profit and non-profit affordable housing
developers who refurbish existing units or build new housing
 Fund size: ~$200 million
 Investment size and term: Up to $7.5 mil (new build) or $15 mil
(acquisition); lending period of up to three years
 Interest rate: variable interest rate currently indexed to prime
(minus 40 – 60 basis points)
 Impact: $151M invested and 4,384 units created or preserved

22. CASE STUDIES
 Partners/Investors: Collaboration with the City of New York, major
foundations (ie. Ford Foundation, Rockefeller Foundation), and
private investment groups (ie. JP Morgan Chase Bank)
 Layered: Bank consortium provides senior debt as lending capital
while other investors provides guarantees in the form of low-
interest subordinated loans

23. CASE STUDIES
 Contribution: Borrowers must contribute five (5) per cent of pre-
development or acquisition costs as equity
 Max. loan value: for-profit developers are eligible for loans up to
95 per cent of the lesser of appraised value or purchase price while
the number goes up to 130 per cent for non-profit developers
 Other fund models:
 JP Morgan Urban Renaissance Property Fund: $175 mil. fund
with market returns targeting urban development and
redevelopment of affordable using using "green" specs from
solar heating to recycled building materials

24. Example Recipient:
Serviam Gardens (Fordham
Bedham Housing Corporation)
•243-unit green, affordable
housing development for low-
and moderate-income seniors
•Purpose: Acquisition and
predevelopment financing for 10
unit complex rehabilitation and
73 unit construction
•Deal: $3.6 million loan
•Term: 36 months

25. CASE STUDIES
US Affordable Housing Bonds
 Long history: concept of a public housing bond first emerged in
New York City in the 1930s
 Model: Basic structure often meets same characteristics as other
Tax Exempt Municipal Bonds
 Issuers: cities, counties, special-purpose districts, and any other
governmental entity below the state level
 Exemption: Interest income received by bondholders is exempt
from federal and state income tax
 Other countries: China is now working to speed approval of these
types of bonds
Aside: Build America Bonds increasingly popular amongst housing authorities: issuers can
choose whether they offer a tax credit for the buyer or a direct payment from the federal
government equal to 35% of the interest costs.

26. CASE STUDIES
Example: Chicago Housing Authority
 Federal support through the Capital Fund Financing Program (CFFP):
to raise funds to accelerate major modernization projects. To date,
157 US housing authorities have received approval for bonds or loans
totalling more than $3.7B, allowing them to use a portion of their
annual capital funds for debt servicing.
 Purpose: Public housing authority (PHA) bond proceeds provide low-
rent housing through new construction, rehabilitation of existing
stock, purchases from private builders or developers, and leasing from
private owners.
 Tax exemption: Interest on the bonds is exempt from federal income
taxes and may also be exempt from state and local income taxes.
 Term: Investment term typically no longer than 20 years

27. CASE STUDIES
 HUD Contribution: The agreement provides that the federal
government will loan the local authority a sufficient amount of
money to pay principle and interest to maturity. (ie. debt service
payments)
 Security: The loans or bonds are obligations of the PHA. HUD does
not guarantee or ensure these loans or bonds.
 Deal: In 2001, CHA became the first PHA to gain HUDs approval for
a rated bond transaction. The deal was worth $291 million, with an
AA Rating from S&P.
 Goal: Support its Plan for Transformation to replace over 18,000
distressed units with 25,000 new or modernized units (Focus:
Rehabilitate 9,400 units of seniors housing)

28. CASE STUDIES
 Challenge: Economic downturn of 2008 slowed construction plans
for CHA
 On the road to success: As of the end of FY2009, CHA has
completed 17,812 public housing units or 71.25% of the Plan for
Transformation’s overall unit delivery goal of 25,000 units.
Timeline for achievement moved to 2015.
 Additional offerings: CHA also issued $25 million in Build America
Bonds (10 year bond at 6.29%)

29. Case Study: Toronto
Community Housing
Corporation Bond:
Regent Park Revitalization

30. CASE STUDIES
TCHC Bond Issue
 Regent Park Development Initiative: six phases of development
over 15 years for mixed housing, including 2,083 Rent Geared to
Income (RGI) units, 700 affordable rental units, 3,500 market rental
units, and 250,000 sq ft. of commercial space
 Total cost: $1 billion [TCHC and the City of Toronto: $450 mil., Priv.
interests and commercial service providers: $500 mil., Fed. and
prov. govts: $60 mil.]
 Motivation: flat, fixed revenues; aging buildings with significant
capital repair needs; poorly planned community in need of
revitalization
 Nontraditional financing provided flexibility and scale

31. CASE STUDIES
TABLE: ANATOMY OF THE TCHC DEAL
Major partners: Fasken Martineau, Ogilvie Renault, Major Fis, Morrison Park Advisors

32. CASE STUDIES
TCHC Bond Issue: Lessons
 Canadian capital markets are supportive. There was strong
interest and high level involvement in the deal from many major
capital market players.
 Canadian banks were very supportive with major financial
institutions involved in the deal. Asset security not important, City
of Toronto funding agreement eliminated perceived risks.
 Process took time, money, and management attention. The deal
took three years from start to finish, with a significant amount of
energy becoming familiar with the intricacies of
 Support of stakeholders was critical. Board of Directors kept
informed at every step of the way; despite arm’s length
relationship, City of Toronto ultimately had to sign off on the
transaction.

33. CASE STUDIES
YWCA Community Housing Bond
 Purpose: Support partial financing of
large scale affordable housing project
in Ontario (~300 units)
 Proposed Terms: 4% fixed over 10
years
 Investment Type: Debt via promissory
note (unsecured)
 Deal Size: $1 million
 Investors: Accredited investors with
focus on foundations and high net
worth individuals
 Model: CSI Community Bond

34. CASE STUDIES
Motivations
 Cost Savings: The bond will reduce the annual cost of debt
servicing and the total cost of financing by hundreds of
thousands compared to current financing regime (Infrastructure
Ontario).
 Demonstration of leadership: Opportunity for provider to show
leadership in emerging social finance sector
 Platform & Development Opportunity: MaRS and SVX provide
platform to develop product and identify investors
 Model Issue: Development process and materials can be used
as template for other housing providers.

35. CASE STUDIES
Early Lessons
 Small scale investments are possible: Despite lessons from
TCHC deal, it is possible to structure smaller scale deals for
affordable housing providers.
 Investor profile: At present, it is both costly and difficult to
create an investment opportunity for the retail market. The
ideal approach is to target a small number of accredited
investors, particularly foundations and HNWIs.
 Deal Terms: A smaller scale deal requires a relatively short
investment term (less than 15 years) with the capacity for
investors to exit.
 Return: Given the sector profile and the current performance of
the market, investors are willing to consider more modest
returns (~2-5%).

36. PUBLIC POLICY IMPLICATIONS

37. PUBLIC POLICY IMPLICATIONS
 Governments have more potential tools at their disposal to
support the financing of social housing.
 Governments can incentivize investment in affordable
housing. (ie. Build America Bonds or tax exempt municipal
bonds)
 Governments can play a role as guarantors to increase
investment likelihood. (ie. TCHC/CSI Bond issue)
 Governments can re-allocate a portion of grant funds towards
debt servicing to leverage larger pools of capital for acquisition
or repair. (ie. Capital Fund Financing Program)
 Governments can provide financing to leverage other investors
for larger capital pools. (ie. NYC Acquisition Fund)

38. PUBLIC POLICY IMPLICATIONS
 Governments across Canada are considering social finance. From
the Government of Ontario to the Government of Canada, social
finance is becoming a part of mainstream government strategy.
 The housing sector should determine the potential opportunities
and risks of the movement towards alternative financing. There is
an identified need for the sector to engage in research and policy
development in this emerging area, for both government and
individual housing providers.

39. AREAS OF INTEREST

40. AREAS OF INTEREST
There are a number of initiatives MaRS is engaged in that could be of
interest to affordable housing providers:
Educational Resources: Educational tools, webinars and events for
interested investors, investees, and individuals interested in learning
more about social finance.
Product Development: Initiating a practice for the development of
impact investing instruments and best practice toolkits.
Investment Platform: SVX, a platform to connect the supply and
demand for capital in the impact investing marketplace in Ontario.

41. DISCUSSION & QUESTIONS

42. Thank You
http://impactinvesting.marsdd.com
aspence@marsdd.com