INVESTING IN HURRICANE SANDY

INVESTING IN HURRICANE SANDY

 

By Ellie Winninghoff

 

Community Capital Management’s flagship fund, CRA Qualified Investment Fund (CRAIX), will dedicate $100 million of fund assets to invest in disaster recovery and redevelopment projects in New York, New Jersey and Connecticut in the wake of Hurricane Sandy.

“We have some existing shareholders in the mutual fund that want a portion of their investment targeted toward [Sandy], and other banks and entities are also looking at this,” says Barbara Van Scoy, senior portfolio manager at the Fort Lauderdale, Fla.-based fund. Given that the fund’s shareholders include 39 banks and nine other institutional shareholder and separate accounts in the area, she says that $100 million in Hurricane Sandy is “drop in the bucket” for the fund. “I would not be surprised if [we end up investing] $250 million.

“There is just so much to be done,” she says, adding that the fund has also had a $100 million Hurricane Katrina initiative–and yet continues to invest in New Orleans. “This is not something where it only takes a few months or even a few years [to recover.] Unfortunately, they are still rebuilding, and we still support the Gulf Coast.”

Community Capital Management, or CCM (formerly CRAFund Advisors) was founded in 1999 to help small banks comply with Community Reinvestment Act (CRA) tests for investments. The idea was that portfolios made up of government-related securities–those primarily excluded from the major bond indices–could produce competitive returns while serving low and moderate-income families, low-income neighborhoods and communities targeted for redevelopment.

About 75% of the fund is invested in Fannie Mae, Freddie Mac and Ginnie Mae single-family and multi-family mortgage-backed securities. Nearly 18.5% of the fund is invested in taxable municipals and 2.2% in Small Business Administration loans and pools.

As we pointed out two years ago (see: Decent Returns with Safety), the fund had zero exposure to any of the toxic mortgages in the 2008 melt-down in mortgage-backed securities due to its labor-intensive due diligence. Whereas many fixed income investors bought blind pools of mortgages, CCM custom-created its single family mortgage pools-by reviewing loan tapes, FICO scores and loan-to-value ratios.

Although banks still account for roughly 84% of the $1.5 billion fund (HSBC is its largest shareholder), it is also open to retail (CRATX) and other institutional investors (CRANX.)

The firm also manages separate accounts for mission-related investors. For example, it recently bought bonds on behalf of the Kellogg Foundation to support buying, remodeling and equipping a facility in Kentucky for Truitt Brothers, a Salem, Oregon-based certified sustainable manufacturer of shelf-stable foods that range from Oregon fruits and vegetables to microwaveable meals.

Elsewhere, another bond CCM purchased on behalf of AdvisorShares Global Echo ETF helped finance The Village at Odenton Station, a $400,000 square foot transit oriented and sustainable residential retail development in Odenton, Maryland.

For 2012, the return for retail investors was 4.27%, or 3.9% including fees, compared to 4.21% for its benchmark (Barclay’s Aggregate Bond Index.) Its five year annualized return is 5.3%. ¬†About 95% of the fund’s bonds are AAA-rated or government-guaranteed.

Post-Katrina Reconstruction Finance

Although CCM has not yet invested in Hurricane Sandy, it has begun working with the New York City Housing Development Corporation to originate projects. In the wake of Katrina and the BP disaster, meanwhile, it has invested a total of $117.3 million in the Gulf Coast–$94 million in Louisiana, and the balance in Mississippi, Texas, Alabama and Florida.

According to Van Scoy, so-called Go Zone (Gulf Zone Opportunity) Bonds were issued to help finance home ownership for people so they could move back to the Gulf Coast. Many were targeted–toward first responders and teachers, hospital workers, or low or moderate-income people. CCM’s bond purchases also financed the reconstruction of affordable rental properties–many of them LEED-certified or otherwise environmentally sensitive. Among them: the Henriette DeLille House, originally built in l987 by the Sisters of the Holy Family, one of the oldest convents in the country–and one led by women of color.

But while most of CCM’s Katrina investments are Fannie Mae or Ginnie Mae securities, the portfolio also consists of municipal bond issues that financed the revitalization of several blocks or even an entire county, rather than just a specific apartment complex, in the areas that were hardest hit. And because many of these issues are about redeveloping infrastructure, Van Scoy says they often include several components, which can include transportation, education, and building roads, schools and hospitals.

Wind turbines and goat’s milk

Two years ago, with $200 million invested in renewable energy and green jobs and housing, CCM claimed to be the largest green fixed-income investor in the country. But while the firm has not continued to tally the figures, Van Scoy says the fund’s investments have been a lot more environmental during the last two years. Today, for example, one third of the fund’s rental properties have some sort of environmental component–and many are LEED-certified.

But it’s not just housing. Bonds purchased by the fund have also financed the construction of wind turbines, solar panels, bio-fuels and green small businesses–including sustainable and organic farms.

For example, CCM invested in “clean energy renewable bonds” that allowed Tippecanoe Valley, a school corporation in Indiana, to build a wind turbine that will generate 70% of the power used on the high school and middle school campuses. Since this will eliminate most of the school’s electric bills for the next 25 years, it allows Tippecanoe Valley to fund more teachers.

Just as CCM handpicks and custom pools single-family mortgages (see: Decent Returns with Safety–pls re-link), it also custom-pools SBA loans. Last year, it originated an SBA loan to FireFly Farms, a creamery in Accident, Maryland that uses agriculturally sustainable locally sourced fresh goat’s milk and has won multiple national and international awards for its premium goat cheese. The loan then became part of a $4.1 million SBA pooll that CCM invested in.

A new agenda

When it comes to social issues, of course, the elephant in the room these days is jobs and under-employment. And while SBA loans certainly address this issue, CCM has invested $1.4 million on behalf of the fund and $8.2 million on behalf of separate accounts in tax certificates offered by community colleges in Iowa that pay for the cost of training and new jobs. The community colleges partner with local businesses, and investors can see the types of jobs created by type of program as well as the number of new jobs created by tax incentives.

 

” It’s tangible,” Van Scoy says. “This is one of my favorite job creation programs ever. I love these issues!”

 

(A version of this story was published at Financial Advisor.)

 

 

Ellie Winninghoff is a writer and consultant specializing in impact investing. More of her writingabout impact investing is linked at her blog, www.DoGoodCapitalist.com, and she can be reached at: ellie.winninghoff (at) gmail (dot) com.