Just 3% of global impact assets under management are currently invested in real assets, including real estate, according to J.P. Morgan’s May report, “Eyes on the Horizon: The Impact Investor Survey.”

But impact-oriented real estate appears poised to take off, according to the 2014 report, “Impact Investing in Real Estate” by Ananda Ventures, a social impact asset manager with a European focus, and Impact in Motion, a think tank based in Germany. The report identifies six potential sectors for impact investments in real estate: environment and energy; agriculture and forestry; affordable housing; underserved communities; senior citizen housing; and a mix of other sectors, including education.

So far, only a small number of impact funds have entered the real estate market. Yet the report anticipates significant growth—driven by several factors:
• Impact funds seeking larger-scale, lower-risk investments and the chance to attract new types of investors, such as institutional clients.

• Investors pursuing diversification into vehicles that offer market-rate returns while producing social or environmental benefits.

• The availability of profitable niche investment opportunities, especially in underserved communities and affordable housing.

Social Security
Hood says most of the affordable housing sector has been wholly or partially subsidized by governments for many years. Now, private, for-profit funds are entering the picture.

“There is a wealth of opportunity in affordable housing. We have also seen interesting investments in charter schools and in medical and assisted living facilities. But the best place for us to find that marriage of financial return and impact, both environmental and social, is in affordable housing,” says Hood.

Demand for housing by U.S. low- and middle-income renters is solid. Rising apartment rents and stagnant wages have created a serious need for renovating existing, less expensive complexes, as most new construction is aimed at high-income renters. “The supply of affordable housing is constrained. This makes the investment opportunity that much more compelling,” says Hood.

U.S.-based impact real estate players that invest in housing include the JP Morgan Urban Renaissance Property Fund, which promotes the development of affordable housing using “green” specifications, including solar heating and recycled building materials. The Goldman Sachs Urban Investment Group invests in companies owned by ethnic minorities and in developers of urban communities.

Other domestic funds include Parkmont Impact Investments Partnership, which invests in residential and commercial real estate in urban neighborhoods and town redevelopment centers in New York, New Jersey and Connecticut. The firm targets a 15% IRR while helping to build food markets, health-care facilities and fitness centers.

New York-based Jonathan Rose Companies recently partnered with TIAA-CREF to launch a fund that invests in greening affordable and mixed-income multifamily housing in the Washington, D.C.-to-Boston corridor, as well as in Chicago; Denver; Los Angeles; San Francisco; Portland, Ore.; and Seattle.
Turner Impact Capital, launched last year and based in Santa Monica, Calif., invests in charter schools, worker housing and health-care facilities.