How impact investors are making money and a difference in Washtenaw County

Last year, Ann Arbor Art Center (AAAC) president and CEO Marie Klopf had obtained funding to renovate class and event space on the center's third floor, but she nonetheless found herself in a bit of a pickle.

The AAAC renovation was planned to take place in three stages as pledged funding rolled in over the course of the year to come. But AAAC's contractors offered Klopf an opportunity to get the construction work done cheaper and faster if two stages of the buildout were completed in one fell swoop. The sticking point was that AAAC would need an extra $10,000 up front to make it happen.

"It was a timing issue, 100 percent," Klopf says. "Otherwise we might seek grants and things like that, but that takes six to eight months to get those things resolved."

So the art center took a more unconventional route by approaching the Ann Arbor Area Community Foundation (AAACF) for a loan. When AAACF loaned AAAC the needed $10,000 last year, it not only helped AAAC accomplish its goals more quickly (and garner enough new business to pay AAACF back within three months). The loan also allowed AAACF to accomplish its own goal of venturing into the arena of impact investment – investment that generates not only a financial return, but some sort of social benefit as well.

In 2017 AAACF will take impact investing to the next level, putting $500,000 of capital into a program-related investment fund that will invest in similar projects across Washtenaw County. While larger Michigan organizations like the Kresge and Kellogg Foundations have begun incorporating impact investment into their work in recent years, AAACF will be the first to do so in Washtenaw County. AAACF president and CEO Neel Hajra describes impact investing as a "fairly new way of thinking" that has yet to be fully realized.

"The first gut reaction by a lot of nonprofit folks is, 'Well, why would I take a loan when I could go after a grant that I don't have to pay back?'" he says. "Absolutely, all things being equal, take the grant. But the point of impact investing is to expand the amount of capital that's available, not to replace it."

Thinking smaller
However, AAACF's loan to AAAC is only one way to do impact investing. The impact investing mentality can also translate to smaller investments by individual private citizens who want their money to do social good while also generating financial returns.

Angela Barbash has been leading the charge on that front locally since 2012, when she founded the Ypsilanti-based impact investing campaign Reconsider and the values-based investment advisory firm Revalue. Barbash was originally drawn to the impact investing space in 2011, when she realized the clients she served as an investment advisor were looking to do something different with their money in the wake of the Great Recession.

"They were asking about things like resiliency and other places they could put their money, specifically: 'Why can't we shift some of our money into our local economy, where we can actually see and feel and touch where the money is, instead of this nebulous global financial mutual fund system?'" she says.

Barbash has since guided her clients through investing in a handful of Michigan businesses, including Ypsilanti-based kombucha and beer maker Unity Vibration. Although investing in a for-profit business might not seem to carry the same obvious "social good" as the AAACF's loan to the AAAC, Barbash says it still fits the basic definition of impact investing.

"Really, all local investing is impact investing," she says. "You're having an impact on the local economy and that is the reason why people want to invest locally. They want to impact their local economy. They want jobs created. They want that entity to be servicing the marketplace and they want to see those dollars being put to good use right around the corner from them."

That was exactly what Chelsea resident Cathy Muha had in mind when she met Barbash in 2012, shortly before Muha retired. Muha says it was important to her and her husband to invest wisely to fund their retirement years, but "the greatest return was not our goal." Muha has since invested in Unity Vibration, as well as Michigan Farm Market in Traverse City.

"We need to get a return, but there's got to be a balance there between rate of return and the good that it's doing for society," Muha says.

Broader impact
However, Muha laments the fact that "there haven't been a lot of choices" for her to invest in.

"What does come up on that radar just seems to always be beer," she laughs. "I don't want to just totally invest in beer or in drinks in general, not that I have anything against it. I just don't want all my investing to be in that."

Muha casually brings up what is actually a larger problem in the Washtenaw County impact investing scene: there simply aren't a lot of opportunities yet for those interested in impact investing. On the for-profit side, the 2013 passage of the Michigan Invests Locally Exemption made it possible for Michigan small businesses like Unity Vibration to sell securities to Michigan residents, but the process is still difficult to navigate. And on the nonprofit side, Hajra admits, "it's not as if there's this critical mass of institutions waiting to take loan capital."

However, the rise of an impact investing mindset in Washtenaw County still opens up creative new possibilities in multiple arenas – even the municipal one. The city of Ann Arbor's Property Assessed Clean Energy (PACE) financing program allows property owners to obtain financing with low, long-term interest rates for energy-efficient property improvements. However, the city typically has to line up $1 million in projects in order to sell one of the bonds that generate PACE funding – which has proven to be a tall order since the city sold its first PACE bond in 2013.

"It's been kind of dormant," says Matt Naud, the city's environmental coordinator. "Right now we're exploring if there's some kind of third-party financing that could work, whether it's the Community Foundation for part of it, Reconsider, or if we could get a group of local banks together that would help."

AAACF is open to that idea, among many others. Hajra suggests that, in addition to making loans to nonprofits, AAACF's new impact investing fund might also provide loan guarantees or tackle broader social issues by investing in something like an affordable housing project. He anticipates "relatively modest deal flow" for the fund's first couple years in existence. But he expects the effort will catch on as it builds a diverse coalition of community partners and makes a broad range of local deals.

"I think it's putting a stake in the ground, simultaneously educating the community about the value-add of impact investing," Hajra says. "We're talking about a timeline of years, not months."

Patrick Dunn is the managing editor of Concentrate and an Ann Arbor-based freelance writer for numerous publications. Follow him on Twitter @patrickdunnhere.

All photos by Doug Coombe.