The world of real estate is beginning to understand that walking is good for property value. According to Walk This Way, a 2012 study by The Brookings Institution, as walkability increases, so too do office, residential, and retail rents. This is a potential lever for health campaigners who want to see moderate levels of exercise become a normal part of life. But is it possible to tie the value of walking to the value of real estate in a meaningful way? In the state of Massachusetts, USA, two organizations, the Conservation Law Foundation and the Massachusetts Housing Investment Corporation, are trying to work it out through their Healthy Neighborhoods Equity Fund (HNEF) and I was lucky enough to speak with one of the driving forces behind the work, Maggie Super Church.
Pritpal S Tamber: Hi Maggie. I want to start by understanding the link between an area’s walkability and its real estate value; did Brookings hypothesize how the two are related?
Maggie Super Church: Hi Pritt; great to talk with you. The Brookings study, which was further developed in a recent analysis for Metropolitan Boston, is part of a much larger trend that we’re seeing across the US; the real estate market is moving back to cities, away from automobile-dependent suburbs. This shift is being driven in part by millennials and empty nesters who prefer communities where they can live, work, and play without getting in a car. Given how few places in America are designed this way, demand is outpacing supply creating a premium for walkable, mixed-use neighborhoods.
PST: That’s great. So is the real estate market responding by promoting walkability?
MSC: Unfortunately, it’s not. What we typically see is a bifurcated market response. In some neighborhoods where investment is already happening, values are rising so quickly that developers are racing to build high-end housing and office space to capitalize on the demand. Sadly, these neighborhoods can often become urban versions of gated communities, with just as much parking as a typical suburban project and very little connection to the surrounding area. In other neighborhoods, specifically those struggling to reverse decades of disinvestment, they’re finding it difficult to find investment because there’s a feeling the local market is not yet “proven.” Ironically, these neighborhoods actually have all the ingredients to become thriving, mixed-use, walkable places.
PST: Ok, so what are you trying to do through the Healthy Neighborhoods Equity Fund?
MSC: We want to use the proven value of walkable urban places to attract investment into neighborhoods that are starting to transform to ensure they are designed and programmed to maximize community health in the long term.
PST: Tell me more.
MSC: Specifically, we are making a long-term investment in larger-scale residential, commercial and mixed-use projects in neighborhoods that have demonstrated both the need and the opportunity for healthy development. However, we only do this in areas where there has been a thoughtful community planning process and meaningful input from local residents about the proposed project. We’re also focused on investing in projects that have the potential to create ‘population health’ not just individual health. We want to think beyond the lucky few who get to live in new housing units or work in new office buildings. In practice, that means looking at how the project will contribute to improvements in community safety, access to transit, jobs and services, connections to green space and fresh food, and a variety of other health-related benefits.
PST: Fascinating. So what kind of organizations are putting their money into the Fund and how does it compare to how they’d otherwise use their money?
MSC: As this is a new way of investing, we’ve had to think about how we attract money. We created three classes, each with their own expectation of return (see diagram). The Class C investors do not require any return on their capital. They’re typically public agencies that would otherwise be making a grant so this is really no different to what they usually do. The Class B investors include local and national foundations that are making Program Related Investments and providing guaranties against any losses the Fund may incur. These investors typically expect a low rate of return, 1.5 to 2 percent. The Class A investors include banks, institutional investors and high net worth individuals. These investors get a higher rate of return, targeted at 8 percent after fees. All in all, HNEF is a blended Fund with several different types of investors.
PST: For the Class A investors, how does that compare with what they usually make?
MSC: It’s somewhat lower than a typical real estate private equity fund.
PST: Lower? So why would they do it?
MSC: Two reasons. First of all, the Fund has a higher rate of return than a number of other options in the market right now, including municipal bonds and real estate investment trusts. At the same time, the credit enhancement provided by Class C and B investors (who absorb the first loss if projects in the Fund don’t perform as expected) reduces some of the risk that is typically associated with real estate investing. So a target return of 8 percent along with these credit enhancements makes HNEF a compelling opportunity.
PST: So commercial money gets to have a heart by proxy; interesting times. Did you ever consider using social impact bonds?
MSC: We did but in many ways our Fund accomplished similar objectives with a lot less headache. We believe, based on strong empirical evidence, that our approach to investment will create a number of real and measurable health benefits, as well as community and environmental benefits, and we’ve built a detailed scorecard to help us assess and track the impact of any project we invest in. The key difference between what we’re doing and a social impact bond is that we’re not staking our financial returns on delivering those benefits. We don’t have to because the real estate market offers an opportunity to capture future gains in value. We’re using this to drive market transformation and create better health, simultaneously.
PST: Sounds like you’ve worked it all out.
MSC: No. We’ve worked some of it out and we’re always trying to learn more. For instance, we’ve launched a study to answer three core questions:
- To what extent are improved health outcomes in the target neighborhoods attributable to population change versus improvements for existing residents?
- How do changes in health outcomes in the target neighborhoods compare to other ‘control’ neighborhoods with similar characteristics at baseline?
- What kinds of self-reported behavioral changes are occurring in the target neighborhoods, and how are these linked to observed changes in both the built environment and health outcomes?
We’ll be using a mixed-methods approach and will engage local residents through a community-based participatory research model.
PST: The first question seems to be about ‘gentrification’, the idea that low-income families are displaced as real estate values rise.
MSC: Yes. This is a real concern. The question is how to build and maintain mixed-income communities over time, which is increasingly difficult when the overall trend in the United States is towards greater geographic concentrations of wealth and poverty.
PST: What’s your answer?
MSC: Well, our approach is to prioritize projects for investment that include both income-restricted affordable housing and market rate housing at a variety of price points for a variety of households, and to provide flexible financing for retail and commercial spaces that can support locally-owned businesses, including those that may not have a long credit history. We are also very clear about targeting our investments to communities where residents have been engaged in setting the vision and actively participating in the planning and development process, which is so important to ensuring that investment benefits the whole community and not just a few people.
PST: It’s brave work and I wish you the best. I hope you’ll come back to tell us what you’ve learnt along the way.
MSC: Thanks, Pritpal. We look forward to sharing more with you as our journey unfolds!
There’s much to admire in the Fund’s work but what fascinates me most is how healthy behavior (walking) has created value in an industry other than health care. All too often we’re forced to value health solely on the basis of saved costs to the health care industry. Unshackled from the industry’s bio-medical view of health, it becomes possible to see health in other forms, such as community safety, access to transit, jobs and services, and connections to green space and fresh food. This unshackling is crucial to unleashing the creativity needed for more courageous thinking on the future of health.
Maggie Super Church is a member of the Creating Health Collaborative 2015