“All real estate development is not inherently bad for neighborhoods,
and doesn’t naturally have to cause gentrification and displacement.
If planned as people focused, community-centric development,
it can be an alternative to singularly profit-motivated development.
Such developments also can be low risk, strong long-term investments.
The need for such projects in Denver and other cities is staggeringly high.
The time is ripe for ‘social impact real estate.”
– Will Kralovec
Founder & President
JJK PLACES, PBC
The Case for SIRE as a Strong Investment
Low Risk, Steady Occupancy, High Demand
SIRE AS AN INVESTMENT OPPORTUNITY
JJK Places’ business model is based on the simple premise that the most successful long-term real estate development projects and investments, both economically and socially, are ultimately people focused, community-centric real estate. Simply put, they are ones that benefit the largest number of people, and so have high constant demand and desirability, and therefore lower risk.
Such SIRE properties historically have proven to be very stable real estate, with low vacancies and low turn-over. They also are typically even more in demand during economic downturns, thereby offering investors and funders a hedge in their portfolios for recessionary periods.
JJK Places understands how to originate, structure, implement, and consult on these type of real estate projects, it is our expertise.
At its core, social impact real estate is about intentionally producing real estate that “does good” for people, communities, and the environment, while it “does well” for the myriad goals of investors, funders, development partners, government entities, philanthropy, nonprofits, and socially oriented capital sources. The simple fact is, if the latter groups don’t do well, then producing SIRE cannot be a sustainable model that can repeatedly deliver public good for the former above-mentioned stakeholders.
So impactful real estate that “does good” for people, communities, and the environment is frankly just plain good business in today’s world.
And in real estate, good business makes for a good investment, one that “does well” for a broad range of stakeholders.
THE PROFIT MOTIVE & SIRE
In our economic system it is profit that draws financial capital into companies and projects. The “profit motive” is therefore the best way financial capital is raised for companies to investment in new projects. “Social impact companies” capture financial capital this same way, through the potential of profit generation, while also channeling that capital into worthwhile social and environmental benefiting work. And if such work can also offer innovative solutions that can be scalable and/or replicated to other geographic areas or populations, then so much the better. All stakeholders will then too also benefit even more.
Our country, and urban areas in particular, have significant societal challenges in housing, healthcare, education, workforce training, and pollution (air, water, and land pollution). “Social impact business” is becoming a significant wave of the future. And so too is just the tip of the iceberg of “social impact real estate.” Now it needs to significantly increase investments into strategic real estate in urban communities of greatest need. JJK Places is poised to accomplish this beginning in the Denver metro area, and eventually to other areas of Colorado. And if JJK Places creates a scalable model that can be transported to other cities in the future, so much the better for all concerned.
By harnessing private, nonprofit, philanthropic, government, and other types of financial capital into new real estate projects that generate social good along with targeted economic returns, “social impact real estate” is a new way for society to address current social challenges in nontraditional ways. In essence, it is a way to create synergy by utilizing the profit motive with new non-conventional financial structures, value creation opportunities, and innovative problem-solving. Then mixing them with the right know-how and vision to assemble economically feasible real estate projects, which also can generate public good.
“Social impact real estate” development, if used correctly has the potential to influence urban revitalization in ways where all residents, past and future, equally benefit. “Social impact real estate,” when done correctly, can alter how we see the purpose of real estate in the years to come, especially for urban areas and previously underserved communities.
JJK Places has been structured to do this Denver. It seeks to create desirable real estate investment opportunities (both from a risk mitigation standpoint, as well as on an ROI yield basis) so as to attract more private and other sources of financial capital into the “social impact real estate” realm. These are property development projects that by their nature create multiple values for the benefit of urban and underserved neighborhoods and their residents, and as such, they are projects that create superior real estate—from many standpoints. Because carefully and intentionally planned, designed, programed, and built development projects deliver multiple social and public benefits, they are generally in far greater demand by local residents and the public. These are projects which add to, not detract from, surrounding neighborhoods. Because of this, they are properties which retain higher occupancy and higher long-term value than many other properties which are produced solely with only expedient profit in mind.
Affordable rental housing, for example, is one of the safest, most recession-proof real estate assets available. After all, the need for affordable housing in cities like Denver far exceeds the available supply; as such, all new affordable housing developments produced in Denver have waiting lists for advance rental of units that are hundreds and hundreds of people long. One recently completed affordable housing development had a waitlist of over 1,000 people…for a bit over 50 available new units! Most existing affordable housing residential properties in Denver as in other cities generally run at or close to 100percent occupancy year around. And during recessionary periods of the economy, demand for affordable housing only increases.
Affordable housing is no longer limited to only what traditionally people have thought of as “low income.” JJK Places prefers to use the term “income appropriate” housing because to some people the term “affordable housing” still carries a stigma, as well as it is often thought of for only “low income people.” The lack of enough housing that is affordable to all income ranges has become a middle market, middle income dilemma. Today it is teachers, nurses, firemen, service industry workers, bank tellers, office workers, etc. who can no longer afford to live near their jobs. These are the people and the faces of today’s “working poor” who need “income appropriate” housing options. With such a significant gap between the affordable residential units available and the supply actually needed, the demand and high occupancy rates of such housing unfortunately will not lower for decades to come.
ECONOMIC ADVANTAGES OF SIRE
Below is a summary of some of the primary economic advantages that are typically characteristic of well-planned, designed, and implemented “social impact real estate”:
- Competitive Risk-Adjusted Returns: “Social impact real estate” investments can yield market rate economic returns, and in some cases even yield better “risk adjusted returns” as there is seldom the need to speculate on market demand. The demand for such real estate projects is large and growing, and is significantly unmet—especially for affordable housing and economically accessible commercial space targeted for community benefit uses, the two primary focuses of JJK Places.
- Investment Diversification and Downside Protection: “Social impact real estate” is always in demand, regardless of broader economic conditions, markets trends, interest rates, or other economic factors. In fact, the demand for such real estate often increases during recessionary periods, thus acting as an investment hedge against economic downturns.
- “Doing Good” is Good Business: By creating market-driven solutions, “social impact investing” in real estate can make meaningful and measurable difference in the lives of individuals, families, children, and communities. Economically this is good for a company, for investors, or for an investment fund’s image, marketability, and ability to draw in new capital themselves. It might be said that one can “Do Well, by Doing Good.”
- Significant Potential for Value Creation: Because of the physical and location characteristics often present in “social impact real estate” development projects, there is often substantial potential for value creation and value upside. Such real estate helps to revitalize neighborhoods, brings in new community serving uses and amenities, can create employment opportunities, and overall serves to further strengthen communities.
- Requires Specialized Knowledge – Barriers to Entry: Real estate as an investment asset in general requires certain specialized knowledge to identify, underwrite, own, and manage successfully. Doing the same for “social impact real estate” takes even more specialized knowledge, capabilities, industry networks, and experience. These latter type of projects also typically require more time and patience, overcoming many logistical hurdles, and a far more complex capital stack than conventional real estate projects. Because of this, many real estate investors and developers refuse to get involved in such real estate. This actually is a benefit, as it leaves the “not for the faint of heart” development deals more available for a company like JJK Places, which has the requisite experience and expertise to accomplish such projects. It also creates a natural barrier to entry because few new companies will enter into the social impact realm anytime soon, thereby allowing JJK Places to establish itself and its reputation.
- Potential for Lower Blended Costs of Capital: Inherent in getting real estate development projects accomplished with significant social impact components is the necessity to forge appropriate public-private partnerships and related nonprofit-private partnerships. Such partnerships help to subsidize those components of a project that are either non-income producing or produce under-market lease or sales rates. Although such subsidies are for specific social impact elements, what they do is essentially help lower the overall “blended cost” of all financial capital that goes into a larger development project. It is this lower “blended cost” of capital that allows such projects to be economically feasible and ultimately to get built; without this, the costs of these type of community-oriented projects seldom “pencil out.”
- Resiliency and Long-term Demand of “Social Impact Real Estate”: Overall, “social impact real estate” can present very attractive economic opportunities for developers, investors, lenders, and other funders—it is real estate that seldom lacks keen demand, is resilient to changes in the economy, and if planned and implemented well it can be transformative for a community, and thereby be a win-win for all stakeholders involved.