Putting Capital In Communities (Corporate Responsibility Magazine)

Non-profit CEO Terri Ludwig unlocks potential in underserved areas through impact investments.

by Elliot Clark

Prioritizing corporate responsibility can mean creating hiring diversity initiatives or reducing a company’s carbon footprint, but for some, it radically reshapes the way they do business. Case in point: Terri Ludwig. This financial aficionado and president and CEO of Enterprise Community Partners decided to use her Wall Street smarts to give back to underprivileged communities through investments in low-income housing. As a result of her efforts, she won the 2015 Responsible CEO of the Year Award at the COMMIT! Forum in October 2015.

Here, she discusses the reality of poverty in America, her 15 years in the community investment market, and what she’s doing to reach her goal of housing 1 million low-income families by 2020.

Elliot Clark: You started life in southern Illinois but now you’re in the Big Apple. And you went from investment banking, which is usually perceived as sort of a heartless business in many respects, to low income housing community investment. So how did social responsibility become important to you? How did this issue become the focal point of your work’s passion?

Terri Ludwig: I think one of the privileges of being in capital markets is that you are able to see how markets function or how they don’t function for certain people and places. And I’ve loved the opportunity to work in a capital markets environment specifically in emerging markets and foreign currency. That part of my career allowed me to really see the world as well as to think about how capital flows. We know that that’s closely related to what’s happening in the economy, happening in the political environment, and happening from a macro standpoint, as well as a micro standpoint. So, for me, it was a fascinating opportunity to see why markets are shaped and how they’re shaped.

But, when I was working overseas, I would go to places and see pretty dire poverty. I had grown up in a small town. My dad was a small-business owner and my mom was a teacher, and all of our lives we’ve learned a lot about what it’s like to live in a small community. My mom, in particular, was a huge influence on me because she was a teacher, and both my parents taught us to give back to the community.

In fact, other than my father, my family members were all teachers. There is a sense of service that comes from being surrounded by teachers who are about helping kids. In particular I think that also taught me about how to help people that don’t necessarily fit into the system well. It is important to really help somebody because it empowers.

I think when I was sitting on Wall Street thinking about doing my job, I was always like “what’s this about? What’s this going to translate to?” There came a point in time where I felt like I was fortunate enough to have achieved my goals on Wall Street.

But the goal that was really unmet was “how are you really serving people?”

I went back to the Kennedy school at Harvard to think about how I could use my financial skills in a more compelling way to help people that are in need of help.

EC: Was there a particular moment, professional influence, or mentor that triggered your thinking to do something socially impactful with your business career?

TL: Yes. Maria Otero, who was then the CEO of Accion, a firm that pioneered the micro finance services market. I met her while I was in grad school. Maria is sort of a superhero to me, because she’s incredibly smart, has a great sense of humor, and understands people in just extraordinary ways. She gave me the opportunity to work on a project with her. And, I really learned a lot about microfinance and how you could use business models that could help people on a large scale. She later left Accion and was under-secretary for Hillary Clinton. I marvel at her incredible strength whether it was in the board room or whether it was strength on site in a community which was quite poor. She could really navigate the breadth of relationships, and that was really high impact for me. She is extraordinary so I would say as a female CEO, she inspired me.

I went to ACCION, and later I learned to think about how you empower people to really become more self-sufficient. What are the tools that are needed? A small amount of capital or support can go a long way. It allows someone to have a business, and to grow their business and then to be able to pay for the expenses of the family.

EC: Yes, most people don’t appreciate poverty until they’ve left America. Poverty in the emerging world is far more abject than poverty in America. Not that negates the scars of poverty in any nation on earth, including the U.S.

TL: It’s true, though I would also say when you look at a domestic context, it is pretty surprising. For example, our work in the San Francisco area is in six of the most distressed communities, all surrounded by incredible pockets of wealth. These are places that have such deep poverty and the related poor educational outcomes, health outcomes, and the deep trauma that goes with that.

That’s embedded and that’s sitting in the midst of incredible wealth. So there needs to be a fundamental intervention. The stability of home is one such fundamental intervention. What we do through public/ private partnerships is to provide homes. We can build community assets like healthcare clinics and charter schools in these communities. People need the stability of a home, or a place to go home and rest their head at night. We know that stability has immediate positive effects on children. Stability and educational and health outcomes are highly correlated.

EC: The tragedy of U.S. poverty is that it’s imminently avoidable. What do you see as the approach and the contribution of Enterprise Community Partners?

TL: Poverty is solvable. I think that’s the most important point. It’s a matter of will and choice. But if you look at something like housing today, the federal government spends $200 billion a year on housing. But it’s spent, largely, on people with higher incomes. So we have a choice to make as a country about where we invest our resources.

I think that’s one of the reasons some of the tools we use have received strong bipartisan support. For example, the low-income housing tax credit has received strong bipartisan support because it incents the private sector to partner with the public sector in an enterprise such as this, which is an $8-billion operation. Much of our funding comes from the big banks and insurance companies. Private capital comes in first; you build housing, and then you must make sure it’s occupied by the folks that it’s intended to help. Once that is done and there is real success on the ground, then government comes in and delivers its capital and takes out the private capital for a return. It’s a public/private partnership where you have success and data on the positive outcomes before government money is ever invested. This is a great model where you bring private capital in to get something done. It’s a smart program; the foreclosure rate is basically nonexistent. It’s a fantastic performance and we have more opportunities to partner with state and federal entities than we can fund.

There are actually new “pay-for-success” bonds called social impact bonds that aren’t really bonds per se but social impact financing and pay for success financing. We recently did such a program using social impact bonds in Ohio. The system puts homeless moms and fostered youth, In two different systems. The impoverished wind up on trajectories that are hurtful and terrible in terms of the human outcomes and equally as poor in terms of economic outcomes. In addition, you’re paying two huge systems costs. But we’re showing through housing investment, if you actually get the housing and you put the services on top, and you get the kids reunited with their families, you get a much improved social outcome. We also get the great economic outcome.

EC: You’ve been in this community investment market for 15 years now and it was unusual for anyone to have a community investment program back then. What are some trends and advancements that have taken place in a macro sense?

TL: I wonder how to answer that. ESG investment has become a prominent and dominant lens for people. What we’re seeing is a lot more companies that are interested in more; how can you drive environmental outcomes or social outcomes in ways that are sustainable? And, we see companies wanting to use their whole footprint to drive positive change.

They’re thinking about their philanthropic focus—for example, how to use their pension fund to benefit the workers and the community they live in. It’s a more integrated part of their governance.

Also, the other thing that’s changed is that people no longer look at a solution as a “one trick pony”. With a more integrated view of community development, you realize it is not just housing. It’s that we need housing connected to jobs and good education and healthcare and transit. And, we have to make sure that housing is green. There’s a lot of environmental benefit that you can drive from just “greening” housing. If you start to look at the numbers and the “built environment”, you can shift the environmental footprint quickly. You can also see that if you’re greening affordable housing, there are other community welfare benefits. Our initial study showed that by greening a home, we saw as high as a 66 percent reduction in asthma. You think about the health outcomes, and it’s incredible. So we’re doing a seven-year, longitudinal study with an important partner of ours, and Mount Sinai is the lead researcher on it. It’s amazing; it’s looking in San Francisco, Chicago, and New York. This research shows the effect on respiratory health—mainly asthma—and also the cost savings. So it’s going to be a very important project.

EC: Enterprise Community Partners is a unique version of public/private partnership. Can you describe how Enterprise works? The organization is a nonprofit led by many former investment banking executives. Are you operating a non-profit that views community investment as though you are a banking entity?

TL: Many social enterprises are now trying to achieve their mission using business discipline as markets or public/ private partnerships. The way we’re set up is that, from a tax-reporting standpoint Enterprise is a non-profit. But, we are a social entreprise whose product is social impact using invested funds like a banking firm. We have an investment company as one of our subsidiaries, which uses as it stagline “capital on a mission.”

One mission is to build and finance community elements like housing, charter schools, primary care facilities or health centers. We bring the financing and infrastructure to the community in a way that also drives return for either private or government investors. We also generate revenue as the investment fund. The proceeds from that revenue gets channeled back to be used in the things that we do in the non-profit that are to further our mission. We’re delivering approximately $6 billion dollars in capital in the coming year. We also have a development arm that’s in the mid-Atlantic that is very concerned with making sure that we’re ensuring the preservation of affordable housing. For example, our developers have been working with senior housing options. Their ability to have a safe and affordable home in a community is critical for neighborhood stability.

EC: So, through the for-profit investment fund that is donating its money to make direct investments, whether it’s real estate development or charter schools or real estate development for low-income housing, how are you funding the non-profit entity? Because it’s a combination of, as I understand it, a private contribution, public grants, etc.

TL: Yes, it’s an economic model where we have a blend of earned revenue and then public contracts—the government, and then philanthropic grants supporting community development. Many of the foundation leaders reading Corporate Responsibility Magazine may already be partners of ours. They do this so we can help them achieve their community development objectives.

Here is example of something we’ve done in Baltimore. There’s a great organization there called Seawall Development, which we partner with. They own an old manufacturing warehousing business in an area called Remington not that far from Johns Hopkins. The Remington area is one that would benefit from community investment. We brought in a lot of financing capital there. And what we’ve been able to do is bring in the early capital, which is really hard capital to start to get. We will then bring in equity capital, and then taking advantage of a government programming called “new markets tax credit,” we can attract business to create mixed use environments, housing, maybe retail establishments, and local jobs.

In this effort in Remington, we also partner with Teach for America to create schools that are functional, practical, and safe in a mixed-use environment. So we really helped finance this project to make sure that the teachers had what they needed to be comfortable and functional.

There is even a very nice cafe on the first floor of the center. These are the ways these pieces we provide need to work together. The desired outcome of this project is to bring in retail at the same time you bring in education. The creation of these assets also generates incredible job creation. The whole notion of housing should be like any infrastructure build. In fact, we want to work with HUD to make housing part of the new infrastructure investment program that has been discussed.

You build housing and you’re creating jobs and you’re driving tax revenue and creating economic power. The multiplier effect of what we do is often not considered because our society doesn’t systematically tabulate it. We have done some in depth studies, which are really interesting and demonstrate this impact.

EC: What should for-profit companies that want to do community development learn from watching Enterprise Community Partners in action? You make a lot of impact and actually make money doing it. What can they learn from your approach?

TL: That’s a great question. I think what we’ve demonstrated is that you can unlock potential in a community by making investments. I think the most important thing would be for firms to think about what is now often referred to as “impact investing”. Some of the largest firms like BlackRock or Morgan Stanley are talking about what their impact investing strategy should be.

There is more demand, somewhat driven by the millennial generation—as consumers or potential employees—for companies to have a stronger ESG focus. But I think in particular, they want to know how you’re investing in your community. I’d love to see corporate leaders engage in thinking about what’s in my immediate community where I can invest. They can invest the people, hours and the philanthropic donations, etc. There’s also the ability to offer financing through organizations likes us.

An example of that would be, we offer an Enterprise Community Impact Note which is essentially a short-term money market that you can invest from two years to 10 years. Investors get your market rate of return. The dollars go toward financing housing, charter schools or healthcare clinics, and the other infrastructure aspects that we’ve been talking about. In fact, we’ve just started something in the mid-Atlantic region where investors are directing us in their local communities. It’s called “Our Region, Your Investment.” We’ve got a 100 percent repayment rate. I am an investor myself, because I get more money on that than I do my money markets, that’s for sure.

EC: Corporations could invest through your platform and have social impact within a region where they have operations if Enterprise Community Partners has a program there. Do you also partner with corporate investors to initiate in a region they want to support?

TL: We do partner with many that want to do something very specific in the communities where they operate. This is a way they can put corporate or foundation money into a fund and be able to look at it like a portfolio like any investment, but have it impact their local community. The names that you would see investing are well-known corporate or financial brands.

EC: You described the communities as “communities of opportunity.” How do you ensure when you design these communities that they actually generate positive outcomes? What are the things you have learned about community design that makes them successful?

TL: It’s really interesting because we talked earlier about the need to have a more integrated model. I think you’re seeing businesses go with more integrated models, working as part of an ecosystem. When you live in a community, it’s part of an ecosystem as well.

We are trying to use a more data-enabled strategy—big data. For example, we’ll be launching this year, an online tool, which really for the first time allows us to look at our projects in relation to infrastructure, environment, and economic mobility factors like education, transportation, and jobs.

We actually have an opportunity, with this tool that we’ll be releasing, to both measure impact and change the conversation. We have a beta test of that going on, which will allow us to be able to look at a community and ask, “how opportunity generative is this community?” And, then ask “what can we do to make it more and unlock more potential?” I would say that we are trying to make sure that we are looking at the broader ecosystem using data and then using really high-potential partnerships to be able to drive outcomes.

EC: So you will actually be able to generate a rating on, let’s say. Queens versus Baltimore versus Bedminster etc.?

TL: Yes, and we know there are a lot of these types of tools out there. I think ours will be unique because it actually uses housing as a more central model. The data that most decision makers get today is very old census data. We’ll be able to use real-time data.

And, the other distinction will be that it will be “ground truth” if you will. We will get the local resident’s engagement. We’re hoping these various features would create an analytical and competitive advantage. You could think about an investment in a community in a much more integrated and leveraged way.

For example, I have a pediatrician on my board. She describes “housing” as a vaccine. It helps keep the kids healthy. But, we need to stock the pharmacy as we don’t have enough housing. While someone with her background may be focused on health outcome, without housing healthcare outcomes are nearly impossible.

Same thing is true with education. Teachers will tell you that children who are homeless and lack stability have little chance for success. So, I’m hoping that something like the online tool that we are releasing would allow us to not only use big data, but also allow government entities and corporate investors to see this more structured ecosystem that we live in.

EC: There’s an estimated 19 million-plus low-income families in the U.S. You set a goal, by 2020, housing 1 million of those families. That’s 5 percent of the total market. Enterprise Community Partners would be one of the largest housing providers in the world. Or from the investment perspective, you would be one of the largest housing “investment” providers in the world. Do you both own and operate or just invest?

TL: We own and operate some housing assets, but our model is to really make sure that we do three main things. We’re aggregating, leveraging capital, and bringing that into communities. That’s about $6 billion of invested capital per year.

Then we’re trying to figure out what works on the ground because with a lot of these things, if it were easy, it would have been happening long ago. So, it requires some capacity and infrastructure consideration on the ground for communities to be successful. And then we work with policymakers on housing-related issues.

We set this mission to end housing insecurity. In addition, there are more than 600,000 people who are homeless. Of the ones who are insecure, you need to include the people who are paying over half of their income to their housing costs because we know it’s not sustainable. Part of this population is homeowners and another part is renters. Renters earn about half the income of homeowners on average. They’re really vulnerable. They’re making these terrible, toxic tradeoffs every day. “Do I pay rent? Do I pay utilities? Do I put food on the table?”

That’s why we’re focused on this notion of how do you provide more security, just like other kinds of economic security or food insecurity. It’s really an issue, but it can be addressed in multiple ways. I would say we’re making real progress on that goal. We wanted to demonstrate that we could double our own impact, but we’re also seeing that the issue keeps growing. We do some of that through financing and some through direct provision. Some can be addressed through policy. So, obviously with the new administration, we have a very large policy agenda to make sure that we continue to see that housing as critical and other elements of community development. We’re not just about housing; we’re about housing and a thriving community.

EC: What would you need to raise in private investments to make this goal attainable?

TL: Well, we’re going to need to raise more. If I look at the type of capital it takes to make this work, it really is the whole range of capital. We have an equity fund that’s called the “Enterprise Multifamily Opportunity Fund.” We look at capital markets, and we need to offer elastic capital or attract philanthropic foundation investors where we can structure debt to equity products or other formats. To continue to grow and offer positive returns we need individuals, corporations, or other non-profit foundations to invest equity. It’s really been fantastic in that we can actually generate the proverbial “triple-bottom- line” return with the environmental social and financial benefits.

The type of capital Enterprise brings to a community program is that full spectrum [of benefits] depending on where we are in the development cycle. And we’ve been fortunate because we’ve had great partners. In fact, we’ve delivered approximately $24 billion in capital. Some can be challenges to design and be pretty complicated financing models. This is the reason why we have so many financial or former investment banking executives here with skills to manage varying categories of financing businesses, real estate development, asset management activities and property management operations.

EC: And now the final question: so you’re in one of the largest home building and management firms in the world. Do any personal experience hanging sheet rock and are you good with tools?

TL: I love my power tools! Absolutely! They call me “Hammer Drill Terri”! I have pictures of me with goggles on, and I’ve got power tools—in this case it was a big giant power sander! Crazy…

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