Pay close attention to this phrase if you’ve been thinking about investing directly in renovation or urban redevelopment projects. While "mission-driven development" may sound like a bleeding-heart, emotion-driven way to approach real estate, it’s actually a strategy for fast-tracking development approvals and unlocking various tax incentives.
Why and how does mission-driven development work?
Projects that serve the public good in measurable, needed ways may be partially funded by BID grants, city funds, and social-impact bonds. They also grant the developer and investors a shiny halo of social responsibility and good corporate citizenship. And yes, they hopefully bring a sense of satisfaction for meaningfully contributing to the world.
The PR buzzword versus the practical application
Mission-driven development has always existed -- inasmuch as there have always been people who want to build for the greater good, not merely for profit. As with many similar terms, it’s thrown around probably too often in a PR and marketing context, leading many experts to be wary of projects and proposals that hang themselves on it as a buzzword with little context.
But, the flip side of this -- especially as applied to housing development -- can be examined in detail on Freddie Mac’s web pages dedicated to the GSE’s Low Income Housing Tax Credit (LIHTC) equity investments. Since re-entering this market in 2017, Freddie Mac has announced closing on more than $668 million in LIHTC equity investments -- all in partnership with construction and development partners. Each of the funded projects has a broad mission and a specific one: For example, Brown Proctor in Winchester, Kentucky, is part of a group of investments intended to increase affordable housing units and strengthen community in Middle Appalachia, while the project itself is historic rehab, repurposing a former historic hotel into 49 homes for low-income families.
While Freddie Mac is the largest funder of affordable housing in the country, many cities, counties, and neighborhoods are beginning to partner with private developers on a smaller level that still is very impactful -- and proving to be profitable to the development partners. Examples include Des Moines, Iowa, where the Iowa Economic Development Authority awarded $10 million in Workforce Housing tax credits over the past year, as well as city-funded programs for first-time homebuyers.
It is certainly worth noting that building partnerships between nonprofit housing organizations and private developers are becoming more common and that the nonprofits are branching out to partner with innovative newcomers as well as established providers. The need for housing, healthcare, and services for the most vulnerable is reaching a crisis point in many communities, and old, slow ways of addressing it need a new energy infusion.
Social impact investing is very likely to be on the rise in upcoming years, what with the incoming Biden administration’s promise to focus on environmental responsibility and income equality. Every investor right now is studying companies that seem the most promising in sectors like renewable energy. But Freddie Mac’s partner page clearly states why mission-driven mixed-use development has always appealed to those who understand it: "Investors like it because they get a tax credit. Developers like it because they receive much-needed cash for their rental properties, which keeps them from having to take on more debt."
And community leaders like it because it ensures roofs over more people’s heads.