Bringing more than $1 billion to cities and nonprofits by introducing non-grant investment options
In 2009, Kimberly Cornett received a call from a recruiter. A foundation in Michigan was interested in starting what was then called “innovative finance” and wanted to talk. She flew to Detroit to learn more.
Kresge’s then-new president and CEO Rip Rapson proposed that it could have a greater impact with its resources by expanding the foundation’s financial tools beyond capital challenge grants. .
Intrigued by what he heard from Mr. Rapson and board member Jim Bildner, and ready to apply his years of experience in the tax credit market to philanthropy, Mr. Cornett became the first managing director of this new line of work. Became director.
Surprises quickly followed.
“At our first meeting, our advisor said that calling this practice ‘innovative’ was probably going too far,” Cornett said. “Mr. Kresge wanted to do impact investing and programmatic investing, a place that was well-trodden elsewhere but very new here.”
It is very new and not commonly understood or appreciated. Some board members, led by Bildner, supported expanding the financial toolbox, but said lending money to nonprofits and expecting them to pay it back with interest was “absolutely evil.” Some people thought so, Cornett said.
“The first two years were pretty tumultuous,” Cornett said. “There were tensions about impact investing efforts diverting funds from benefits and reducing grant budgets. That was a big challenge we had to overcome.”
What is now called social investment practice is firmly ingrained in the Foundation’s DNA, despite its rocky start. The first impact investments were made in 2008 through a series of interest-free loans to human services organizations struggling to survive the recession. Sixteen years later, more than half a billion of his dollars have been committed to furthering Kresge’s mission through tools such as debt, equity and guarantees. These investments generated more than $1.2 billion in leveraged funds for him.
Non-grants have played a central role in a variety of high-profile Kresge-funded projects, including the transformation of Detroit’s Marygrove Campus into a cradle-to-career education hub and an effort to bring comprehensive community development to the Memphis Medical District. has been fulfilled. Detroit’s Midtown Woodward Corridor, and more recently, efforts to promote a just energy transition by installing solar power in low-income neighborhoods.
Reaching this adjustment point required time, effort, and continued examination of the Foundation’s risk tolerance.
Find early adopters
In Cornett’s view, the social investment practice’s first major successes came through the Health Program and its former managing director, David Fukuzawa. She calls him the hero of the story. While some within Kresge felt that the emergence of forms of capital other than grants was a hindrance, Fukuzawa saw it as an opportunity.
After the Affordable Care Act was passed, millions of newly insured Americans needed a place to get care. Federally qualified health centers, government-supported health centers that serve low-income areas, filled that need. Facing an onslaught of new patients, they needed to ramp up and expand quickly. Subsidies alone wouldn’t be enough to get them there.
“David said, ‘You guys have money over there, and you seem to know something that I don’t,'” Cornet says. “And we have a big problem with newly insured patients coming into our Federally Qualified Health Centers,” and he wanted to help with that problem.
Fukuza recalls. “We adopted social investment as a key instrument or tool very early on as part of our health program strategy. We knew that social investment could make a big difference. Ta.”
This partnership culminated in the Healthy Futures Fund. The fund, founded by Kresge, Morgan Stanley and Local Initiatives Support Corp., started with $100 million and has grown to $200 million. The fund leveraged the Low Income Housing Tax Credit and New Markets Tax Credit to strengthen the health and housing of low-income communities by attaching his FQHCs to affordable housing developments.
The $6 million program-related investment in 2012 was one of the first joint investments between the Kresge program team and the Social Investment Practice. This funding supported federally qualified community health centers in underserved areas and new low-income housing developments integrated with health services.
“That gave it momentum,” Cornett said. “The board believed that with these tools, we could work with a variety of partners to achieve great results.”
2013 brought another early win with the Woodward Corridor Investment Fund. The fund addressed his two major problems hindering development in Midtown Detroit: a lack of commercial lenders willing to take on long-term contracts in a depressed market and a lack of available revenue. sale.
The Woodward Corridor Fund raised $30.25 million to address this challenge, and Kresge provided a credit enhancement guarantee to help traditional investors and CDFI partners commit capital.
“It wasn’t a huge amount of money,” Cornett said. “But it was some of the first institutional money that came back to Detroit. And it was hard. Super hard. When it came to closing, it was a novelty. To Rip’s credit, His statement about being a “guarantor of values” has a truly bold element to it. That was the case with this transaction as well. ”
