October 12, 2021
LA Manager hits hard-cap on social impact housing fund
The SDS Supportive Housing Fund seeks to develop 1,800 housing units for people experiencing homelessness across 30 projects in California.
By Peter Benson, REFI
Article Posted on Tuesday, October 12, 2021
SDS Capital Group, a Los Angeles-based impact fund specialist, has closed its latest fund with almost $150m in capital commitments from predominantly institutional investors.
The SDS Supportive Housing Fund (SHF) is seeking to develop 1,800 housing units for homeless people in the state of California. The fund originally targeted $150m in capital commitments, garnering $750,000 over that cap in the 18 months it took to raise.
The fund took slightly longer than expected to raise than first fund, anticipated given Covid- related disruptions, SDS founder and CEO Deborah La Franchi told REFI. The fund had raised only $20m by March 2020 but was buoyed by a $50m commitment from Kaiser Permanente, the largest commitment in the fund, that kept the fund in the market.
Other investors included Schwab, First Republic Bank, California Community Foundation and the Annenberg Foundation, La Franchi said.
The fund’s size is not stagnant, with the ability to raise a sidecar should the need arise. SDS is partnered with RMG on the fund, with the California developer tasked with sourcing sites for development.
“If RMG is finding so many sites and the $150m is not enough, we do have the ability to raise a sidecar to co-invest,” La Franchi said. “So long as there’s no negative impact to the original investors.”
The co-invest would allow for new investors into the fund, she added.
The strategy is focused on the development of these units across about 30 projects. SDS takes a majority equity or preferred equity position after taking out financing on the project. RMG takes the between 3%-7% remaining in the deal.
The capital in the vehicle is recyclable over the next six years as SDS can take the capital out of deals that take 24 months to see through. After the six years, the capital is no longer able to be recycled and investors will be paid out then.
The plan to facilitate investment exits is likely to be Fannie Mae or Freddie Mac financing, La Franchi noted. RMG will stay in deals over a longer-term.
The strategy is predicated on being able to build the units for significantly lower than the average cost in California. Currently, units cost somewhere between $500,000 to $700,000. SDS are able to build them at around $200,000 per unit, La Franchi said.
The firm uses mostly traditional development but has recently started dabbling with modular, which can take the timeframe for delivery down to 24 months.
SHF has done six investments so far and is aiming to do one every 60-90 days, La Franchi said. The fund has about 15 deals in its pipeline currently.
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