SHF’s Innovative Model Profiled in REIT Magazine

Hudson Pacific’s $20 Million Pledge to Increase Affordable Housing Supply and Support the Homeless By G. Gage, freelance writer

A five-year, $20 million pledge by Hudson Pacific Properties, Inc. (NYSE: HPP) to help increase the supply of affordable housing and support the homeless in its core West Coast markets is being seen by local organizations as a significant commitment toward solving one of the nation’s key social challenges. According to the 2019 Annual Homeless Assessment Report to Congress released in 2020, more than half of the nation’s unsheltered homeless are in California. The state has approximately 150,000 people experiencing homelessness, 72% of whom are unsheltered. Hudson Pacific, which owns and develops office and studio space for the media and tech industries, has witnessed the crisis firsthand. Many of the communities where it operates have been hit hardest, including downtown Los Angeles, Hollywood, Santa Monica and the Mid-Market area of San Francisco. “If you look at a map, these areas are the epicenters of the homelessness crisis here,” says Natalie Teear, senior vice president, innovation, sustainability, and social impact at Hudson Pacific. In Los Angeles County alone there has been a 49% increase in total homelessness since 2015. “We feel really strongly that what’s going on is totally unacceptable. We have a moral obligation to try to help,” says Teear, who spearheads Hudson Pacific’s efforts to address homelessness. The Los Angeles-based REIT’s $20 million pledge is part of a multi-pronged approach that includes both impact investments and philanthropic donations, in addition to continued community outreach, and on-the-ground volunteer efforts.

Innovative Model

As part of this commitment, Hudson Pacific is investing $3 million with SDS Capital Group’s Supportive Housing Fund, which invests in the development of permanent, supportive housing across Los Angeles and the San Francisco Bay Area. “SDS has come up with a really innovative model, they’re doing it at a third of the cost, and in less than half the time, so it’s really promising,” Teear says. Founded in 2001, SDS Capital Group launches and manages impact funds in different parts of the country. Each fund focuses on highly distressed and impoverished communities while generating a market rate of return for investors. SDS Capital currently has five different vehicle funds on its platform, with more than a billion dollars invested around the country. The SDS Supportive Housing Fund is their newest impact fund and has currently raised $122 million in investments and has a goal of reaching $150 million by August 2021. SDS’s funding approach is unique— instead of multiple different assets and developers, the funds raised go to support only one developer— RMG Housing, LLC, based in Los Angeles. “We’re funding RMG because they have such a strong development model for permanent supportive housing and an innovative market-driven approach to developing units at a much cheaper cost,” says Deborah La Franchi, founder and CEO of SDS Capital Group. SDS negotiated a limited partnership agreement with RMG to streamline the process and cut out additional legal red tape and delays in the development process. RMG can then focus on constructing the housing and continuing new innovations in the permanent supportive housing field. Compared to the typical construction costs of $500,000 to $700,000 per single bedroom unit in the Los Angeles area, RMG is developing permanent supportive housing units for an average of $200,000 per unit.

Another factor that distinguishes SDS Supportive Housing Fund is its revolving structure. “We have six years to rotate that $150 million in capital that we will be using to finance 30 projects. We will fund the first 15 and then as we exit each one as the permanent financing is secured and our full investment is taken out, we receive a preferred return,” La Franchi says. Those returns are then used to fund the second group of 15 projects. This model provides equity to the transactions and is not a loan fund, which has made it enticing to contributors like Hudson Pacific. “Our pledge is really about using our business—and both our charitable giving and investing dollars. This is primarily an impact investing vehicle where we plan to invest in solutions that address the homelessness crisis, but also return money to us,” Teear says. With the capital provided by the SDS Supportive Housing Fund, RMG aims to complete 30 supportive housing projects in six years, a drastically improved timeline compared to the five to seven years needed to complete just one typical permanent supportive housing project in California that requires government financing. Two-thirds of the investments will be in Los Angeles.

Strengthening Communities

With the funding commitment from Hudson Pacific Properties, SDS expects far-reaching results. “With this model, the SDS Supportive Housing Fund is able to maximize the impact and the number of people that we can bring in off the street and provide housing for,” La Franchi says. “We hope to see at least 1800 individuals’ lives absolutely transformed by this housing and that this will be a catalyst for other developments to help revitalize communities,” she adds. While the numbers are daunting, Hudson Pacific says the objective is clear. “Our goal is to help get people into housing. It’s so easy and straightforward, and yet it’s so, so hard,” Teear says. “It’s critical from humanitarian and moral angles, and from a business angle as well, and we think it will make our communities more vibrant, thriving places.” To read the full article in REIT Magazine, click here.