Bridging the Disconnect between Housing & Services: Social - - PowerPoint PPT Presentation

Bridging the Disconnect between Housing & Services: Social Impact Financing

Tom Davis, Recap Real Estate Advisors, Boston, MA tdavis@recapadvisors.com 617-502-5939

Introduction to Recap

• Affordable housing consulting firm
• Transactional project management for over 1,000 Section 8, public

housing and LIHTC multifamily housing recapitalizations

• Portfolio strategy and redevelopment planning
• Policy analysis and program development
• Capital needs assessments & energy audits by On-Site Insight
• Health and Housing Experience
• Program design and seed fundraising for service pilots
• Social impact finance modeling for Enterprise, Cathedral Housing,

National Church Residences, Massachusetts Housing Partnership and the Massachusetts Department of Housing and Community Development

Health vs. Housing Budgets

• Neither system pays for prevention
• Medical system doesn’t typically reimburse non-medical services;

housing system doesn’t typically pay for enhanced facilities

• Delayed nursing home care for dual eligible (Medicare & Medicaid)

elderly saves public funds and improves elders’ quality of life

• Service-enriched elderly housing delays nursing home admissions
• Pilot programs to access health dollars to

fund service-enriched elderly housing

• Medicaid Waivers
• Social Impact Financing, also known as Social Impact “Bonds”

Social Impact Finance

• Social Impact Finance (or “Bonds”) can

fund service-enriched elderly housing

• Focuses on outcomes through Pay for Success (P4S) contracts, allowing

government to get past concerns about which funds pay for what

• Imposes accountability for results on the service provider, who decides

which interventions will achieve the desired outcome

• Elderly are a particularly good target

population for the SIF/SIB concept

• Large, high-cost population that is already physically clustered in

senior housing communities

Social Impact Finance Structure Overview

Impact Investor:

Provides Capital Repaid in 5-10 Years

Government Agency:

Provides Payment for Successful Outcomes

Auditor:

Measures Success

Sponsor & Service Provider:

Structures Transaction & Delivers intervention

Customer:

Elderly Residents

Sponsor & Service Provider

• Sponsor structures the transaction and is the party

ultimately accountable for success

• Service provider – also known as the Program

Intervention Provider (PIP) – implements the service delivery model. (It could be a vendor to the Sponsor.)

• Customer base must be clearly defined, relatively

constant over time, likely to respond to the intervention and currently expensive. Perceived as “deserving” helps.

Sponsor & Service Provider Elderly Customer Impact Investor Auditor Government Agency

Sponsor & Service Provider

• Service-enriched housing is an ideal environment for SIFs
• Manage chronic health conditions in a context as independent as possible
• Offer health status monitoring (24 hour staff, medication administration,

emergency response)

• Assist with daily activities (food service, housekeeping, laundry)
• Structure social supports (communal meals, activities, transportation)
• NCR study documented $2,223 per month per person

savings compared to nursing home care

Sponsor & Service Provider Elderly Customer Impact Investor Auditor Government Agency

Government Agency Elderly Customer Sponsor & Service Provider Impact Investor Auditor

Government Agency

• Pay for Success (P4S) Contract
• Government pays for results rather than activities
• Government needs to resist the temptation to dictate means and methods
• Contract allocates a percentage of actually realized savings to Sponsor
• Savings is measured by comparison to similarly frail elderly
• Recap model indicated that every 200 service-enriched

elderly housing units could save Ohio over $1M per year

• Recap modeled a payment of 75% of savings to the Sponsor as a success

fee over a 10-year PS4 contract.

Impact Investor Elderly Customer Sponsor & Service Provider Auditor Government Agency

Impact Investor

• Impact Investor lends to or invests in Sponsor’s work
• Debt or equity bridges the Sponsor’s cash needs until receipt of P4S

governmental payment

• Lenders or investors will impose credible return expectations
• Initial lenders or investors are likely to be philanthropies until there’s

more comfort on how to underwrite the probability of achieving results

• Alternatively, philanthropies could provide a guaranty or other credit

enhancement

• Syndicators or brokers could create funds to spread investor risk

Impact Investor Elderly Customer Sponsor & Service Provider Auditor Government Agency

Impact Investor

• Recap modeled a $15.5M investment
• $77,500 per unit in construction (including common areas)
• $22,020 per unit in annual operating costs
• Operating costs paid from a sinking fund capitalized by the investment
• Investor would receive an 8% priority return and 95% of

residuals over a 10-year period

• Sponsor would receive a services management fee, a

transaction fee and 5% of residuals

Auditor Elderly Customer Sponsor & Service Provider Impact Investor Government Agency

Auditor

• Auditor – a neutral third party – determines whether

success has been achieved. No appropriations risk.

• Multi-lateral contract among sponsor, government agency,

lender/investor & auditor governs outcome measurement

• Savings is measured by comparing the nursing care costs
• r general Medicare/Medicaid costs of the participants

and the statewide comparison group of similarly frail elderly (normalized, for example, by RUG scores)

Capital retrofits & an intervention program

Social Impact Financial Instrument Raises Money

Expenditure Interval of time Payback A 3rd party service provider

The Customer

Place-Based Locus for services Pay-for-Success contract Government agency Observable results with quantifiable metrics

Success Yields P4S Payment to Repay SIF/SIB Instrument

to provide SIB repayments making payments under a that result in a which creates to provide services to Sponsor implements

Sponsor uses SIF/SIB proceeds to deliver services

and delivers services to

• r engages

Detailed Structure

Summary

Impact Investor:

Provides Capital Repaid in 5-10 Years

Government Agency:

Provides Payment for Successful Outcomes

Auditor:

Measures Success

Sponsor & Service Provider:

Structures Transaction & Delivers intervention

Customer:

Elderly Residents Sponsor selects the customer, the service provide and the service delivery model Sponsor executes Pay for Success (P4S) contract with governmental agency Sponsor raises capital to implement the service delivery model from impact investors Auditor determines final payment under P4S contract

Thank you

Please feel free to contact me with questions Tom Davis tdavis@recapadvisors.com 617-502-5939