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Kaiser Permanente’s Thriving Communities Fund Invests $50 Million in First-of-its-Kind Private Equity Impact Fund Targeting Permanent Supportive Housing With Per-Unit Cost Below $200,000.
The SDS Supportive Housing Fund —a first-of-its-kind real estate impact fund managed by SDS Capital Group — has raised $106 million to build up to 1,800 financially sustainable permanent supportive housing units for people experiencing homelessness in California. As the lead investor, Kaiser Permanente has committed $50 million from its Thriving Communities impact investment fund to significantly grow the new Fund.
Through this model, urgently needed housing will be built for less than half the cost and three times as fast as the average cost and time required to build permanent supportive housing (PSH) in California. The Fund is expected to finance up to 1,800 PSH units statewide, predominantly in the Los Angeles area.
The innovative approach of the SDS Supportive Housing Fund (the Fund) enables RMG Housing (RMG) to rapidly scale its development capacity. RMG can tap the Fund, as its financial partner, to provide 100% of the capital needed beyond RMG’s limited investment requirement. Notably, developments by SDS and RMG typically do not require additional financing or public-sector subsidy. The Fund provides all the capital RMG needs for land acquisition and construction.
“The private-sector capital provided by the Fund must be invested in financially-sustainable projects – which requires virtually all of the units we finance to be built at or below a $200,000 cost threshold,” said Deborah La Franchi, CEO and founder of Fund manager SDS Capital Group. “The Fund seeks to dramatically scale RMG’s development capacity so we can provide so many more PSH units than would otherwise be possible.”
The speed at which the Fund can provide its capital is also a differentiator. It is not uncommon for PSH developers to pursue up to a dozen funding sources to capitalize their projects. This takes significant time and staff resources that can lengthen the development process from five-to-seven years. As a single funding source, the SDS Fund can underwrite and close financing on a new project with RMG in less than 30 days. Once it is fully capitalized, the Fund is projected to finance up to 30 RMG developments in this manner.
“The SDS Fund creates tremendous efficiencies for us,” said RMG Housing Founder and CEO Tim Roth. “RMG and the Fund have one pre-negotiated investment agreement that we will reuse for dozens of transactions, which means we will spend zero time raising capital or negotiating terms. This will allow us to stay laser-focused on finding new sites, identifying cost savings, and overseeing construction and operations.”
The SDS Supportive Housing Fund has funded two investments with RMG to date, a third is imminent, along with a fourth within 30 days.
“More investments in affordable housing means more hope, health, and possibility for our unhoused neighbors,” said Los Angeles Mayor Eric Garcetti. “The SDS Supportive Housing Fund adds a vital financial tool to our City’s unprecedented efforts to build up our stock of supportive units swiftly and efficiently — and give our most vulnerable Angelenos a safe place to call home.”
The newly constructed developments will typically include 40-100 one-bedroom apartments averaging approximately 500 square feet. The developments are expected to provide holistic support and on-site amenities such as gyms and garden space for tenants, as well as community health services and fresh food retail on the ground floors. Developments are also expected to be near transportation corridors and provide case management services. In Los Angeles, most of these services will be provided by Homeless Health Care Los Angeles (HHCLA).
“HHCLA has struggled to place clients in quality permanent and supportive housing,” said HHCLA Executive Director Mark Casanova. “The SDS Supportive Housing Fund’s investments with RMG Housing are the breakthrough we have been waiting for to help accelerate the supply of housing necessary for our clients to build better lives.”
The ability to scale the new Fund came when Kaiser Permanente committed $50 million to become the keystone investor and raise the Fund’s capital above $100 million. Kaiser Permanente leads an array of efforts to end homelessness and preserve affordable housing by making strategic impact investments, shaping policy, and forming innovative partnerships. Its focus on creating affordable housing connects to its mission to improve health outcomes in the communities it serves.
“COVID-19 has greatly increased the need for permanent supportive housing beyond the crisis levels California was already seeing, and we expect it to get worse,” said Julie Miller-Phipps, president, Kaiser Permanente Southern California and Hawaii, Health Plan and Hospitals. “Our social impact investments have allowed us to support many different approaches to increasing the supply of affordable housing. But, we must double down on finding innovative ways to make significant strides to support people experiencing homelessness because only with a safe, stable place to live can people achieve good health and well-being.”
“SDS is grateful – at a time when COVID is exacerbating the homelessness crisis – that our investors have hit the accelerator, providing SDS and RMG with the fuel needed to transform this vision into reality,” said La Franchi.
The initial investments in the Fund were made by Ally Bank, Synchrony Bank, East West Bank, and Western Alliance Bank, and more recently by the Weingart Foundation and Hudson Pacific Properties.
