Housing Foundation: Building homes and building communities

Assisting New Zealanders into their own secure, stable and healthy home is at the heart of the Housing Foundation’s mission. A charitable social enterprise housing trust, they provide affordable partnership-based options for people to become independent homeowners and build strong communities while delivering financial returns to investors and reinvesting in new housing projects. Dominic Foote, the Housing Foundation’s General Manager: Operations, explains.

What was the original goal of the venture?

The Housing Foundation’s original concept was to help other organisations deliver affordable housing, but we quickly realised we needed to demonstrate it ourselves.

Our goal remains to provide housing for low income, working families trapped in rental accommodation and unable to transition to their own homes due to debt, income, being unable to save a deposit, or other factors.

We started in 2006 by trialing our new ‘Affordable Rental to Ownership’ and ‘Shared Owners’ products with a small number of houses, in order to demonstrate they would work and be accepted by banks and households. Our first major project was just off West Coast Road on the edges of Glen Eden. We obtained a resource consent to develop 73 houses with 49 set aside for the foundation and 24 for a mix of other community providers and private investors leasing to Housing NZ.

The thing about families trapped in renting, particularly low income households, is they have unsustainable rental tenure – they don’t know when their landlord is going to renovate, demolish or increase the rent until it’s unaffordable for them.

Our solution is two core products at present. Our shared ownership model is where a family can afford more than 60 percent of a purchase price and the foundation owns the rest. The second is an affordable rental where, over a five-year period, a family rents from the foundation while they receive financial planning assistance to reduce debt and save a deposit to buy into the shared ownership model.

How was the investment structured, who were the investors?

The catalyst was the Tindall Foundation who wanted a step change in affordable housing. They invested several million dollars in the form of a low interest loan to enable the development and construction of the original 73 houses in the West Coast Road development. It was structured on the basis the land was purchased and developed by the Housing Foundation for affordable housing with a certain percentage of the houses being supplied as rent to own and shared ownership.

In the beginning, it wasn’t impact investment as such – it was a combination of philanthropic organisations and Government funding – but it was a good model. Now it is clearly impact investment delivering a good return, both financially, albeit below standard commercial returns, and recirculating funding to future housing projects.

What challenges were faced in securing the deal?

The key issue is always finding partners that are prepared to invest without requiring traditional commercial returns, as the Housing Foundation cannot pay investors a market dividend from its affordable housing portfolio.

How were these challenges overcome?

The Tindall Foundation were motivated partners. They were happy with the commercial agreement and confident in the proof of concept. The arrangement between The Tindall Foundation and Housing Foundation was set out in a financial agreement with agreed affordable housing outcomes incorporated.

In terms of satisfying wider investors, they need patience and to take a long-term view. They are also reliant on how the housing market goes. If the market drops, it is their risk. However, generally the housing market rises.

What would you do differently next time?

We need a model that works well for philanthropic organisations or high net worth individuals who want to leave a legacy. That means we need to consider a mix in our affordable housing portfolio that offers investors a blended yield, recognising it will be below market yield. However, we believe a blended investment model could be attractive to a wider range of investors.

We’re looking to how we can support other communities with lower incomes and lower priced housing. It is part of our kaupapa to grow – we want to replicate this model to other places.

What impact has been achieved?

For West Coast Road, more than 30 families have moved into full ownership. It gives them stability, roots, permanence. They can focus on their jobs and school. They have economic growth in their families, they get used to financial management and planning, and they can take on a bit more – take more control of their lives and remove the stress of rental uncertainty.

Overall, we’ve built more than 750 houses with 130 households progressing to full ownership and 280 households being in our assisted ownership programmes.

For the foundation, the key benefit (other than providing affordable housing) is that the funding is recycled as equity into new affordable housing. This is achieved when the household buys more equity from the Housing Foundation, the purchase is always at the current market price of their home. As the family buys more of their home over time, the foundation is able to recycle the equity freed up into another affordable home or affordable housing development. Our approach of recycling funds invested in our shared ownership homes demonstrates that we can build a succession of houses, building on the initial investment.

We have designed qualitative surveys to follow up every three years to understand what else is happening for these families and the community. Some have sold to the open market, so the make-up of the community changes. We want to track the value of the strength and connectivity of the community.

Dominic Foote is the General Manager Operations for the New Zealand Housing Foundation. Responsible for the operational growth and day to day operations of the Housing Foundation, and with a particular focus on delivery of developments, contractor performance, management of households, community group support, securing capital funding for developments and equity funding for affordable housing products, overseeing household management and transitioning of households from renting to ownership tenures, and promoting Housing Foundation activities.

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The following Case Study featuring Michelle Sharp, CEO of Kilamarnock forms one part of Financing the Future, our dynamic content project exploring the market opportunities for impact investment in Aotearoa New Zealand. The project is produced by Pure Advantage and promoted in association with the Impact Investing National Advisory Board Aotearoa New Zealand and the Responsible Investment Association of Australasia. Access the full project here.

Kilmarnock: Empowering people through employment

Changing attitudes through education and employment, and empowering people with disabilities to lead purposeful and dignified lives is Kilmarnock Enterprises’ focus. They provide a supportive paid work environment through a variety of contracts with commercial organisations plus teach adults the skills needed to transition into open employment. Chief Executive Michelle Sharp shares their recent impact investment journey.

What was the original goal of the venture?

Our core purpose hasn’t changed in 60 years – we are about providing a pathway for school leavers with disabilities into a meaningful life through the vehicle of education and employment.

Five years ago, we reinvented ourselves and created a real tangible and exciting venture through the act of working in itself. We shifted our mindset from being a charity to being a business with a heart. We are using the tools of business to lift our social impact.

Through this period we realised we needed to exit our 50-year-old site as it was no longer fit for purpose. Since underpinning our operation with a commercial lens, we have had huge success attracting industrial contracts but our site just didn’t suit that. We quickly realised that given our unusual needs, nothing already existing would work for us. So we designed and commissioned a bespoke NZ$12m Basecamp. It contains four unique businesses in one, with an office block, plus the Academy with a classroom and exercise/wellbeing rooms.

How was the investment structured, who were the investors?

Before I went to the 2016 Social Enterprise World Forum in Hong Kong, I had no idea about impact investment. I knew that our mortgage repayments would be less than rent, plus we would have an asset. So I wanted to find a way to make that happen – it didn’t make sense to be stuck renting when we could afford a mortgage, but it was getting it approved that was the challenge.

Basically we have a concessionary mortgage with the BNZ. Every aspect of the mortgage has been adapted – the interest rate, the terms, and in lieu of full commercial returns, we also report our social impact. They want to see the results that they are helping us achieve through this agreement.

We’re not able to share the details at this time but BNZ is still receiving a return and we’re grateful for their support.

What challenges were faced in securing the deal?

We approached all major NZ banks to seek finance for our build and they all said no. It was really tough – there was an assumption that we must be socially-minded, goody-goody types, with no commercial acumen.

We tried again with the BNZ and got a second meeting. While I suspect the bank originally thought to decline us a second time, albeit politely, we ended up spending five and a half hours together. This meant the bank got to understand what we did and could see that we stood up as a business. In essence, we simply choose to reinvest our profits to create more social impact.

We also had challenges to convince our board and did a huge amount of financial modelling to show that we weren’t taking on too much risk.

Challenges continue now because we need to keep making sure that we are not put back into the business as usual box. Initially, we’ve relied on the strong primary relationships we’ve built, but it can’t rely on individuals – we need to help make this type of investment mainstream. It needs to become integrated with all the bank’s systems.

How were these challenges overcome?

Success has really been about the power of personal connections with the biggest risk lying in the breakdown of our key relationship, which is held by me. We need a succession plan and to ensure this is never reliant on a single person, no matter the role.

To mitigate that risk, we need to make sure we upskill all employees so our strong business footing is broader. We need to develop that solid foundation. It’s not just investors that need to integrate this different thinking, we need to keep adapting as well.

What would you do differently next time?

Like many, I was scared of failing. In hindsight, I can look back and see that I wasn’t prepared to be vulnerable. Finding the right professional people and partners around you to support facing those challenges is a way to conquer that fear.

In this case, it was a push from the then head of Ākina Foundation (and lead author of this report) Alex Hannant who helped me persist.

After the original wave of funding declines, I had put my head in the sand. I had a business case that I hadn’t shown anyone, but I shared it with Alex while we were at the Social Enterprise World Forum in Hong Kong and that was the turning point. Next time, I would be braver, sooner.

What impact has been achieved?

We have a range of metrics, with the majority covering our social impact, but also a number of environmental measures like reduction of tonnes of waste to landfill and of course standard financial ones.

We have 100 working at Kilmarnock, with about two-thirds of our employees having a disability. Last year we had 10 graduate from our Kilmarnock Academy, with 20 on track for this year, and another 20 next year. The number of our people who have contracts off-site, which is a great stepping stone, varies from month to month, but we have hit a peak of 11 per month in recent times.

Some of our contracted services deliver benefits in themselves too, like our refurbishing products and e-waste recycling.

When Michelle first joined Kilmarnock in 2010 she did so with great ambitions. To change attitudes towards people with disabilities and create a diverse, and inclusive community that respects the fundamental dignity of each and every one of us and celebrates our individual abilities.

Prior to joining the disability sector, Michelle spent over one and a half decades working in the Telecommunications sector, gaining a wealth of business experience at both a national and global level. Commencing her career within the Corporate Sector, Michelle’s entrepreneurial hunger gave life to an extremely successful business venture in the early 2000s, which saw the rise of Timico Ltd, one of the fastest growing B2B Telecommunication providers in the UK. In 2009 Michelle and her family, made the decision to leave the UK, in order to pursue a better work life balance, and have been enjoying living in New Zealand ever since.

In early 2013, Michelle was appointed as CEO of Kilmarnock Enterprises, a not-for-profit organisation, who provide a supportive, dynamic and connected environment where adults with intellectual disabilities can realise their individual value as a contributing member of their community.

Driven by business excellence and social change, Michelle embarked on the daunting challenge of transitioning Kilmarnock from a charity based model, to one of New Zealand’s leading social enterprises. Michelle has transformed Kilmarnock’s culture into one that is creative, aspirational, and enthusiastic. She turned the dire financial situation around by diversifying and stabilising contracts and introducing new, previously unimaginable, revenue streams.

Transitioning to a Social Enterprise has enabled the organisation to leverage business excellence to greatly enhance its social value while providing a fun, connected environment where the team is inspired to take command of their future and show the community that we all have strengths, regardless of our disabilities.

Michelle demonstrates enormous passion for the disability sector, craving social change, and understanding that to do so, changing attitudes is paramount. Further to her role as CEO, Michelle has since joined the governing Board of Inclusive New Zealand as Vice President, an umbrella group which promotes social enterprise, innovation and diversity. She is also an Independent Chair at BNZ, Trustee of Akina, Director of Nutrient Rescue, Treasurer at City Harvest, Trustee at St Josephs and an Edmund Hillary Fellow.

The post Case Study: Kilmarnock – Empowering people through employment. appeared first on Pure Advantage.

The following Case Study featuring Bob Penter, CEO of Waikato River Authority forms one part of Financing the Future, our dynamic content project exploring the market opportunities for impact investment in Aotearoa New Zealand. The project is produced by Pure Advantage and promoted in association with the Impact Investing National Advisory Board Aotearoa New Zealand and the Responsible Investment Association of Australasia. Access the full project here.

Acquiring and converting dairy farms to organic status to access price premiums whilst delivering reduced environmental impact and strong investment returns is the concept behind the Waipā impact investment initiative. Two years in development, the Waikato project is nearly ready to launch. Waikato River Authority CEO Bob Penter expands.

What was the original goal of the project?

Improving the quality of the Waipā River catchment without relying only on regulation and grants was the original driver for this project. The Waikato Regional Council Healthy Rivers Wai Ora Plan set a pollution reduction target of 10 percent over the next decade for the four main water quality contaminants – sediment, E.coli, Nitrogen and Phosphorus. The Waikato River Authority funded the Regional Council to study the feasibility of impact investment to tackle this.

Priority ‘environmental hotspot’ areas in the Waipā catchment that were disproportionately affecting the overall catchment were identified. At a purchase value of more than NZ$150m for these farms, the Authority couldn’t justify spending half its clean-up fund on just these farms. But we were discovering that we could get significant environmental gains, plus a commercial grade return, through private capital.

This set the scene to explore whether buying conventional dairy farms and transforming them to higher value organic dairy with low environmental impact practices like retirement into native forest, sediment traps, wetland creation and riparian planting, could be part of the answer for the Waipā and in turn the Waikato. We could transform current land use to sustainable management practices, reduce stocking rates and still get an attractive financial return for investors while protecting their capital.

How is the investment structured, who are the investors?

The structure relies on a new company to raise the capital for purchasing farms, to manage the conversion process, and to do the environmental and social monitoring required. The first step is likely to be acquisition of two or three farms that are already on the market and have been subject to due diligence.

The second stage is to scale the impact investment to achieve the catchment-level impact sought. We’re working with investment specialists to develop a 10-year hybrid debt-equity bond with attractive financial returns. We hope to have this ready for investment in the second quarter of 2019. It will be structured to provide a guaranteed fixed interest payment every six months (the debt part of the hybrid) alongside a share in capital gain from the eventual exit after 10 years (the equity part of the hybrid).

Likely investor types include Waikato-based trusts, funds with a focus on impact investment, philanthropy, and the likes of Kiwisaver and similar funds. These organisations are motivated to pursue change over long term and deliver transformation in the community.

What challenges were faced in securing the deal?

It’s not been easy – it has required lots of conversations as we’re still building general awareness in New Zealand of impact investment. But we’ve assessed the appetite and know there is not enough of this type of investment available to satisfy the market.

The key challenge is its ‘newness’ and therefore perceived risk. This includes a lack of understanding of the concept here and the need to guarantee investors that they will receive the financial returns offered through interest payments. This will be challenging over the initial three-year window before farms are certified organic and can access the price premium, so we need an entity to act as underwriter for the six-monthly interest payments to investors as there is a potential shortfall in cash flow. The ability of the management company to execute the conversion process, environmental change and run the farms profitably is also essential.

The willing seller, willing buyer component is less of an issue. We know farms are finding it harder to perform and more are on the market than ever before. Smart farmers are analysing what they need to do – they may not be able to reduce their outputs and still have a profitable farm. This model offers an exit pathway.

How were these challenges overcome?

It’s still to be overcome but several regional organisations are actively behind this project. We’ve got people thinking in a different way and realising the potential. This is no longer simply about grant funding restoration projects or regulation – we can achieve significant outcomes at pace through impact investment. There will be an immediate benefit of a 20% herd reduction and change in pasture mix – nothing else works at that pace. Also, by understanding opportunities at catchment level we can build track record and scale up to attract impact investors as well as conventional investors. 

What would you do differently next time?

I would have brought in overseas experience earlier. It is new to us but it’s been around for 20 years in North America and Europe. We don’t need to start from scratch – we can show it’s been tried and proven. Boards are often more cautious when they’re out in front, but this could be transformational.

Our purpose is to protect and restore the river but we’re not going to follow a linear path over the next 80-100 years. We will need waterfall moments. Without those, our current trajectory will fall short. Impact investment offers a step change.

What impact will be achieved?

The modelling shows we’ll achieve environmental gains across the four priority water quality contaminants, plus greenhouse gases, of 40-50 percent over 10 years. We’ll also produce significant social benefit through new skills and employment, and will be supporting local Māori-owned businesses. For the Waipā, where sediment reduction is a key focus, we can meet half the council’s 10 percent improvement target through this alone, while also delivering profit for investors.

Overall that could lead to a 2 percent sediment reduction for the whole Waikato catchment, which doesn’t sound like much but it is huge considering we’re dealing with an area of 11,000km2.

Bob Penter is the CEO of The Waikato River Authority created via legislation as an independent organisation to oversee the restoration and protection of the Waikato River – New Zealand’s longest river.

The post Case Study: Waipā Agri-Impact Fund: Maximising environmental and investment returns at catchment scale. appeared first on Pure Advantage.

The following Case Study featuring Brianna West, CEO of Ethique forms one part of Financing the Future, our dynamic content project exploring the market opportunities for impact investment in Aotearoa New Zealand. The project is produced by Pure Advantage and promoted in association with the Impact Investing National Advisory Board Aotearoa New Zealand and the Responsible Investment Association of Australasia. Access the full project here.

Commitment to sustainability is everything for 31-year-old Ethique founder and managing director Brianne West. New Zealand’s highest scoring B Corp, Ethique has been operating since 2012, producing solid bars for hair, face and body in simple cardboard packaging for Kiwi and global customers. It has successfully used crowdfunding twice as its investment structure.

What was the original goal of the venture?
My original public goal was to rid the world of plastic bottles, perhaps a bit airy-fairy. But as we near our first milestone of saving one million plastic bottles, I’ve got no plans to rest on my laurels. The figure of one million was in my head from the word go. It seemed too big, but we’re nearly there.

Officially, the company’s goal is to be the world’s most sustainable cosmetics company. Ethique means ethics in French. Our status as a BCorp, or benefit corporation, demonstrates our level of social sustainability and environmental performance.

How was the investment structured, who were the investors?
We have run two crowdfunding rounds. In the first round, we offered 16 percent of the company for $200,000, with 130 people signing up. The second time, we went higher, but in hindsight, probably not high enough.

We started with a $1 million target but split it into two lots of $500,000 when we were approached by some angel investors. They received 4.7 percent of the company with the same again for the crowdfunding campaign.

Our second crowdfunding raised $500,000 in 90 minutes – we were overwhelmed. So we now have 352 supporters.

What challenges were faced in securing the deal?
Overcoming fear of the unknown was the hardest step in raising capital. In our first crowdfunding round, I perceived the hoops we needed to jump through as alarming. But in reality, PledgeMe, our crowdfunding host, walked us through it.

Our sustainability commitments do cost more. If you look at palm oil specifically, as just one component, it’s easy for people to underestimate how difficult it is to be palm oil-free. That’s why we’re one of the few. We had to convince some of our suppliers to make these ingredients out of coconut or rice bran oils, rather than palm.

However, compromise is unacceptable. If you can’t do it properly, then you shouldn’t do it at all. Running a business ethically is not only the right thing to do, but critics are naive about how important values are to a business. We will lose clients if we step away from our values. They are fundamental to our business.

How were these challenges overcome?
In the end, the capital raise was relatively easy for us. Yes, it was a bit of ‘just do it’, but you still have to make sure you have your ducks in a row. And a strong recognisable brand is essential. Plus we’re now getting venture capital funds approaching us.

What would you do differently next time?
If I could do it again, I would have set higher targets in both crowdfunding rounds. We should have sought at least double. The funds really don’t go far.

The next step for Ethique is a massive retail expansion into the USA, and parts of Asia and Europe. We have a significant capital raise planned for next year, and a range of events in mind, both to build market profile and to make sure Ethique’s reputation as a genuinely New Zealand-owned business remains strong.

In the near future, we will be looking to partner with a strategic investor; someone who has more than just money on their mind for our growth. We want to find someone who lives and breathes the same (or at least similar) values as us.

Overall, our key advantage is having a strong team with complementary skills and experience. We care about our products, from start to finish, and making a genuine difference is the critical ingredient in our success.

What impact has been achieved?
In addition to designing our products to remove plastic bottles, we are a living wage employer, run a zero waste office and offset the business’s carbon emissions through Climate Friendly. We also significantly reduce water use thanks to our products being solid bars – you only add water when you’re using them.

The ingredients in our products are vegan, partly for animal welfare reasons and partly a reflection of the contribution of animal agriculture to climate change and deforestation.

Ethique donates 20 percent of its profit to charities each year, with the theme of protecting animals and the environment continuing through our partner choices of Helping You Help Animals, World Animal Protection, The Orangutan Project and International Animal Rescue.

Ethique is palm oil-free, due to our concerns about the environmental impact of palm oil and the inability to confidently source certified product. Instead, we work with the Women in Business Development co-operative in Samoa to sustainably harvest coconut oil, ensuring fair pay. Sourcing coconut oil through our Samoan partners is overwhelmingly positive – plus we’re helping them become a more sustainable business. They’re expanding and now sell to more companies.

Even Ethique’s packaging is carefully designed. It is plastic-free and compostable with no chemical coatings, designed to breakdown quickly, with the stock from Forest Stewardship Certification forests.

Brianne West is founder and CEO. She started Ethique in 2012 out of frustration with the disgraceful amount of packaging produced by the cosmetics industry. A qualified scientist, Brianne formulates our products and runs the show. Brianne has started and sold two other small companies but is now devoted to ridding the world of plastic bottles (well the cosmetic ones anyway.)

The post Case Study Ethique: Proving ethics in business work. appeared first on Pure Advantage.