Written by James Lee, James Schaffer and Jaclyn Anku, Schaffer & Combs
As the nation’s housing market rebounds, investors have taken notice. But with many still scarred from the protracted economic downturn, questions about risk remain. But what if a real asset investing strategy could earn market-rate returns while simultaneously improving local communities? OpenPath Investments, a social impact real estate company, targets a return of 12-15% (IRR) across its $200 million portfolio of properties and has regularly outpaced this target over the last several years, even through the recent economic downturn.
There is more to this story, however, than solid deal sourcing and expert portfolio management. Ask any of the 2,200 tenants who live in OpenPath’s properties why they prefer their current accommodation and their answer will resoundingly be: community. Through its cutting edge impact program, called “Urban Village,” OpenPath has built social connectivity amongst residents, resulting in thriving, resilient communities — the opposite of the stereotypical “boxed-living” apartment complexes dotting the landscape of every U.S. metro area. And as evidenced by its robust returns, OpenPath is proving that what is good for its communities is also good for limited partners.
Three-years ago, Peter Slaugh, OpenPath’s Managing Director, had a hunch that if residents could come together and act as a traditional community, leveraging economies of scale and developing social connections, OpenPath’s bottom-line would reflect the increase in residents’ quality of life. After convincing his investors of the potential value of such an “impact program,” Urban Village was born. With an eye on long-term profits, Slaugh funded one complex on a pilot basis. As the community garden at the property began to grow, so did net income, driven in part by a 25% reduction in turnover rate. Additionally, fifteen vacant units were filled through resident referrals, rather than direct advertising expenditures, and the property ultimately achieved an overall occupancy rate of 98%. Since then, Urban Village has been rolled out to eight of OpenPath’s portfolio properties across the western United States. When investors receive their quarterly reports, they also see the results of community impacts from the Urban Village program.
OpenPath’s acquisitions are typically “B+” multi-family residential properties located in supply-constrained metro areas with a high desirability index. OpenPath adds value through improving physical and environmental amenities and then layering on the Urban Village template. The program supports a broad-based and participatory approach to building community by inspiring residents to take on volunteer leadership positions — much different than a top-down approach to activities programming at a typical apartment complex. Residents lead classes, participate in ride-share efforts, pool babysitting resources, and organize outings, all of which increases social capital in the community. Additionally, Urban Village features shared common areas where residents come together for activities like gardening, shared meals, and game nights.
The OpenPath team believes that these connections, over time, amount to improved quality of life: reduced household expenditures, a strengthened social safety net, and personal empowerment. As one Urban Village resident shared, “Since I know my neighbors and feel a part of the community, I can call this my home and not just another apartment.” As Slaugh points out, most investors would quickly connect this type of community loyalty to low turnover and thus to a solid bottom line, but many overlook how much residents save in moving costs. Over a period of a year at an average OpenPath property, this can amount to hundreds of thousands of dollars in retained household income.
As a triple-bottom line company, OpenPath delivers environmental improvements in addition to its social impact by incorporating sustainable practices into each property and into the daily lives of residents. Environmental initiatives include: resident education on toxic materials, recycling and reuse programs, central drop-off locations, and the installation of non-toxic building materials and supplies. In fact, for every 1,000 residents, OpenPath estimates that it annually diverts 2,000 cubic yards of waste from landfills and reduces water consumption by 4 million gallons.
By discovering the symbiotic relationship between impact and the economic bottom line, OpenPath is transforming multi-family real estate from bricks-and-mortar income generation to a value proposition that works equally well for resident communities as it does for limited partners. And OpenPath has taken steps to democratize access to this form of impact investing by enabling participation in its acquisitions for a diverse spectrum of investors – from first-time real asset investors to experienced, institutional partners.
OpenPath has proven that a traditional asset class, particularly one that serves millions of people, can be an ideal vehicle for true impact investing. In the next eighteen months, OpenPath will continue to pursue above-market returns and measurable community impact by scaling its model — the firm plans to invest another $100 million in acquiring and transforming multi-family complexes across the U.S.
For more information on OpenPath, or inquiries on impact investing in the real estate sector, contact James Schaffer .