ImpactAlpha, March 19 — The Kresge Foundation is anchoring two Opportunity Zone funds on the condition that the fund managers agree to measure and track their impact.
Boston-based Arctaris Impact and Fort Lauderdale-based Community Capital Management (CCM)’s are launching Opportunity Zone funds, which together are looking to raise and invest $800 million. Kresge’s $22 million investment will seed the funds as first-loss capital.
The U.S. tax bill that established Opportunity Zones included no requirements that “opportunity fund” investments demonstrate positive social and economic impact. The impact investing community is trying to ensure that they do.
The U.S. Impact Investing Alliance and Georgetown University’s Beeck Center have developed a reporting framework that stress principles like community engagement, equitable community benefits, and transparency and measurement around impact objectives and outcomes.
The Kresge Foundation’s commitment goes a step further by making the financing conditional upon impact tracking. Arctaris will receive a $15 million guarantee toward its planned $500 million Opportunity Zone fund. The fund will make growth equity investments in local manufacturing, renewable energy and telecom enterprises as well as real estate investments. Kresge’s $15 million will be used as principal protection for the fund’s investors. Arctaris will also seek guarantees from other foundations and government agencies.
The remainder will provide a guarantee toward CCM’s planned $300 million National Opportunity Zones Fund.
The remainder will support Arctaris’ planned $500 million Opportunity Zone fund, which is being structured as a “principal-protected” fund, which guarantees investors a return of their investment. Its fund will make growth equity investments in local manufacturing, renewable energy and telecom enterprises as well as real estate investments.
In return, Arctaris and CCM have both agreed to prioritize affordable housing development, work to avoid resident displacement, support living-wage job creation, establish community advisory boards, and prohibit “non-productive investments” like self-storage facilities that do little to support community growth.
“These managers have agreed to a level of transparency, accountability, and disclosure thus far unheard of in the Opportunity Zones space,” Kresge said in a statement. Kresge’s CEO said that in the absence of regulated impact standards, the foundation hopes its investment will serve as a “model for other investors how solid deals can be constructed to meet the needs of investors and communities alike.”