ROLE #5

The Capital Aggregator

Role Summary

You’ve got a team, you’ve got a strategy, and you’ve got deals you’re championing. Now it’s time to identify the right capital partners to make these deals happen. For those brave enough to want to build capital stacks, this role is for you. We strongly encourage you to read the “Building a Capital Stack” and “Capital Sources” sections of the Guidebook before venturing into this role. If you like what you see there, read on for the practical advice about how to assemble the stack.

Summary of Benefits

While every role in this Roadmap can help make a deal happen, there is no more direct path to bringing deals to life than being a Capital Aggregator. This is the only role in the Roadmap tailored specifically to building and closing capital stacks – and, if mastered, it can unlock transformative change on your campus and in your community.

Financial & Resource Commitment

FINANCIAL COMMITMENT

RESOURCE COMMITMENT

Being a Capital Aggregator allows for some flexibility in terms of financial commitments; if you’re training up a CFO or another staff person on capital stacking and making calls to capital partners yourself, you’ll have minimal financial outlays but significant time / energy / effort commitments. If, on the other hand, you decide to hire some professionals to do it for you – or if you decide to co-invest in the project alongside your capital partners – you’ll have a significant financial outlay, and you’ll still need significant staff time / energy / effort to get to closing. As you’ll see, this role isn’t for institutions who want a minimal commitment to resiliency work – but for those willing to put forth the time, energy, and effort, it’s the surest way to see deals get done. 

Functional Scope / Workflow

STEP 0

Build Your Pipeline

You need deals to build capital stacks around, so make sure you have them! 

  • Opportunity Sponsor: if you have your own deals and want to find capital / you put everything together and want to close yourself
  • Local Anchor: you stood behind deals / are supporting them and want to see them actually close financing
  • Capacity Builder: you helped to identify a really strong pipeline locally and  assembled it and want to get it out to capital 

For each of the deals in your pipeline, you will need to boil down:

01 Real Estate

total construction costs (hard and soft), b.) a rendering, c.) square footage of different components of the building (multifamily/office/retail/child care, etc. as applicable), d.) number of units, e.) unit mix (bedrooms/baths), f.) target market, g.) investment capital needed, h.) projected return profile, and i.) impact profile (jobs created, impact groups served, child care space, etc.).

02 Operating Businesses

a.) executive summary of company, b.) problem experienced by target market, c.) total addressable market, d.) solution company provides for target market, e.) metrics of success serving existing clients, f.) letters of intent (LOIs), or indications of interest from new potential clients, g.) investment capital needed, h.) what investment capital will be used for, i.) projected return profile, and j.) impact profile (jobs created, impact groups served, child care space, environmental initiatives, etc.).

Tools like the Opportunity Exchange can be a huge help in ensuring that you’ve got this information in a standardized format across opportunities. 

STEP 1

Align Deals with Capital Sources

Every bit of capital you source will depend on the scope of the deals you are trying to source capital for. Are they on or off campus? What kinds of return profiles might they have? What asset classes do they represent? How impactful are they?

The more return an investment opportunity can reduce, the more likely you will be to find conventional debt and market-rate equity investors for your deal. As the chance for a strong risk-adjusted return decreases, you’ll be more likely to find community development financial institutions and other “impact-friendly” players in the debt space, and impact-oriented investors / sympathetic alumni in the equity space.

Alumni are the “ace up your sleeve” you have as a Capital Aggregator. On campus projects may have a higher likelihood of attracting investors than off-campus deals, but outreach is critical regardless. 

Once you’ve identified what kind of investors make the most sense for your project (given its location, return profile, and degree of engagement with your institution), it’s time to start finding them. We’ve listed some of the most helpful resources for doing exactly that in the space below.

01 Local Market Makers

If you have a local market maker in your area, they’ll be your best connection to potential local capital sources. They should be engaged in your strategy development from Day 1 and be your guide on identifying investors and going to market.

02 Funding Listings

If you don’t have a local market maker with connections, you’ll have to start finding investors on your own. We’ve developed a short list of funds that we’ve seen express interest in investing in colleges and universities. You can find that list here. There’s a far broader world out there, though – groups like CitiVentures, Novogradac (a national accounting firm), and the National Council of State Housing Authorities maintain long-form lists of publicly announced Opportunity Funds.

03 Deal Flow Platforms

Several “deal hosting” platforms have arisen over the last few months to broadly market deals to the world. These include The Opportunity Exchange, OppSites (which also hosts Smart Growth America’s OZ Marketplace), and Citi’s CityBuilder platform. While these platforms focus on Opportunity Zone deals, they are all moving away from strict focus on OZ to host broader community-oriented deal flow as well, and could be valuable resources for you regardless of where your deals are located. Other crowdfunding oriented platforms for hosting deals have been around for years, and could offer an equally strong base from which to host a pipeline. One of the advantages to the platform approach is that the process of uploading project materials tightens the marketing pitch on a deal.

04 Alumni Databases

As discussed above, alumni are a virtually untapped resource for resiliency-oriented investment – and you’re in the perfect position to harness them. Work with your Advancement or Alumni Relations office to identify the top 15-30 most likely candidates that might have a desire to do something beyond annual giving and have an affinity for what you’re doing. As an added bonus, try identifying those with a unique tax situation (e.g., sources of recurring gain events that could make them good candidates for an Opportunity Zone investment play) so you can help them “solve a problem” through partnership.

Remember – when given the option, donations are always better than equity because donations don’t need to be repaid. However, most alumni think about donations out of an entirely different “bucket” than they think about investing, so – with careful messaging, we believe it is possible to create an investor without losing a donor. Indeed, depending on how you aggregate capital (see below), you may be able to create a new class of donors you didn’t have before!

STEP 2

Marketing to Capital Sources

The Opportunity Sponsor should have provided you with the full packet of information needed to make a case to these investors. Now it’s time to frame that material and get it out into the marketplace.

Building the Package

The best way to frame your story is to do a trial run on one of the deal flow platforms mentioned above. Getting your marketing department and some student interns involved in crafting the materials and the messaging might be a good way to develop a hands-on learning experience.

Telling the Broader Community Story

Some communities have put together local marketing materials called “investor prospectuses” that tell the complete story of why the community is “investment-ready.” You can find some samples of those kinds of materials here (scroll to the bottom and click the hyperlinks for each community to download their respective prospectuses). If your community is considering a prospectus, make sure you have someone at the table as that document is being drafted to frame your piece of the narrative. If your community is not assembling its own prospectus, perhaps it’s worth talking to your local elected officials and chamber of commerce about creating one. Some schools – like Alabama A&M – have even taken it upon themselves to create their own institution-specific prospectuses. Accelerator for America has created a template that can guide your thought process around whether you should spearhead local prospectus development or create one on your own. This decision needs to be part of the broader strategy your team puts into place – and, if you decide to green light prospectus creation, make sure you have your marketing department and students engaged in developing your materials.  

Data Sources

Every capital source will want data to help make the case for an investment. In some cases, it will be an impact-oriented investor wanting to understand the poverty dynamics of a place or an institution and how the proposed project will help address those dynamics. In other cases, it will be an investor wanting to understand enrollment trends to justify a student housing investment. In any event, data can help you understand what kind of a story you need to tell just as easily as it can help you tell a more compelling story. You’ll have data scientists and economists on campus who can help with this process, but if you’re looking for some quick and easy data about local communities, PolicyMap, Citi’s CityBuilder tool, MasterCard’s Inclusive Growth platform, and EIG’s Distressed Communities Index provide valuable insight.

Getting the Word Out

The best investor outreach happens with warm introductions. That’s why engaging with a local market maker (where you have one) is so critical. In places you don’t, start with the list of funds we’ve provided – they’ll be more receptive to cold outreach. But your best avenue may be targeting alumni. There are two phases of approach to alumni. 

  1. To start, you’ll need to initiate conversations with the 15-30 you identified earlier and see who would be most willing to participate in your Capital Aggregation strategy. You can work with your Alumni Affairs group, Advancement office, or even individual professors to set up those conversations. In each conversation, ask your alumni:
    • what kind of investments they’d want to make (e.g., investing in on-campus projects or community projects and businesses);
    • what kind of return profile they’d need on that investment; and
    • whether they have any special tax considerations (like a capital gain event that could steer them towards an OZ investment strategy) and roughly how much they’d be willing to discuss investing if so. 
  2. Once you’ve got your short list, leverage the knowledge you’ll gain from Step 4 below to work with your investors to build the right vehicle.

STEP 3

Structuring and Closing the Deal

Once you have capital on the hook, there are three basic models for how it can flow into the deal (or deals) you’ve identified: 

  • Directly from the capital source into the deal.
  • Indirectly, from multiple capital sources into a common vehicle (like a fund), and then straight to the deal from there.
  • Indirectly, from multiple capital sources into a common vehicle that can then do all of your target deals (if you have more than one identified). In this case, you are really raising for the vehicle, not necessarily the deals under that vehicle. 

We explore the pros and cons of each model below. 

A. Direct from Capital Source

The easiest structural path to closing is with one or more capital sources loaning or investing directly into the project itself. Most existing capital sources – like banks, family offices, or private equity funds – will have their own diligence teams, underwriting processes, and standard term sheets. Even high net worth individuals (alumni or locals within the community) who have enough capital to invest directly will typically be “accredited” and have enough sophistication to diligence the deal you are putting in front of them. These capital sources have standard operating procedures that will either result in a “no” without any need for you to build your own vehicle. However, avoiding complexity comes at a price on the equity side – getting third party capital directly into your deal may require you to pay more return over time than a group of individual impact-motivated investors you could assemble yourself would demand.

B. Multi-Investor Fund for a Given Deal

This pathway is almost identical to Pathway A (direct sourcing from capital) – you’ll still source debt and incentives directly for the deal itself. The key difference here is where the equity comes from. In this model, we assume your deal sponsor or your institution puts together an investment vehicle specifically for the project you are promoting. You can do this by setting up a project-specific equity fund (normally for 5-20 investors writing larger checks), or even by setting up a crowdfunded offering (for dozens of investors, particularly if writing smaller checks). 

There are a few big benefits to this approach over getting equity directly from established sources:

  • Your cost of capital may be less / you may have an easier time closing capital if you are able to successfully identify investors who are more motivated by the deal (e.g., they are alumni and want to support the school).
  • Having a vehicle lets you take smaller checks from more people – meaning you can go beyond the small handful of people in your network with the capacity to write checks with several zeros or more. 
  • Depending on your project, you may be able to do some of the creative capital stacking at the fund level that can produce a blended capital fund (though this typically occurs for multi-asset funds, not single-asset funds – see Part C below for more).

Those benefits come with some major additional compliance responsibility.

  • Putting multiple investors into a common investment vehicle triggers securities law implications you’ll have to address. The more investors you have, and the more widely you advertise the opportunity, the more concerns you’ll have. Choosing the right partner for this step that can help you navigate compliance issues (e.g., a top-notch crowdfunding platform or a seasoned fund manager) makes all the difference in your ability to execute. 
  • If not conducted properly, approaching individual investors can be a lot trickier than approaching sophisticated investment funds with their own management teams. Depending on who the individual investor is and how much experience they have looking at varied types of investments (from student housing deals to grocery stores), they might need a substantial degree of “hand-holding” to get through the underwriting process. Make sure that the people you approach are sophisticated enough to understand, appreciate, and mitigate the risks of the investments you’re putting in front of them. If possible, limit your initial conversations to individuals who are accredited investors – and ask them if they’ve consulted with a financial advisor or other professional before getting them into an investment vehicle. 

As a result of these extra compliance hurdles – we strongly encourage any institution that is thinking about aggregating capital by attracting individual investors into a fund vehicle to seek professional counsel from your legal and accounting teams about the difficulty of this path. These conversations will typically result in a recommendation that you work with one or more established partners to set up your multi-investor vehicle. That can be whatever combination of investment adviser, fund manager, broker-dealer, or professional team (legal and accounting) you need to feel comfortable taking this step.

Whether you are raising for a specific opportunity or setting up a fund to invest in a specific opportunity, the process will run as follows:

● Initial Introduction

The hoped-for result of your cold outreach described above, most capital sources will want to set up an introductory call between the group of principals responsible for the investment opportunity (e.g., deal team, developer, CEO, college officials, etc.) and the capital source’s diligence team as a first step.

● Diligence

If your introductory call goes well, the capital source will request backup information behind the initial marketing materials submitted – demand studies, environmental reports, construction budgets, comprehensive business plans, and everything else the deal has put together. We’ve compiled a sample diligence list so you can know what to expect once you get to this stage.  Note that, if you are raising from individuals / you have set up your own project-specific investment fund, you’ll have to have these materials ready, as some of your individual potential investors may not know to ask for all the appropriate material.

● Negotiating Terms / Letter of Intent (For Direct Introductions Only)

If the deal has strong potential upside and you/the deal team have been able to mitigate risk, it’s time to negotiate terms that work for both the deal sponsor and the capital source. a variety of factors dictate project return. These include expected annual cash distributions (rent), the back-end sale price/repurchase option in Year 10 or later, the amount of incentives that a project receives (and whether those incentives are up front or over time), how much debt a project takes on (and how expensive that debt proves to be), and the ultimate risk profile of the project. Your deal team will continue manipulating these variables within the model until you can get to a point where the project can sustain itself and the capital sources can get the payback/return they need. Once you’re there, the capital source will issue a Letter of Intent, which starts the deal down the closing process. To help you understand what this negotiation looks like, we’ve included sample LOIs in our Resource Room.

● Forming Your Fund (For Multi-Investor Funds Only)

Once you’ve got enough investors interested to fill the equity requirement, it’s time to actually form the fund. Doing so will require you to execute a term sheet with all your investors similar to the LOI process described above – but instead of getting out of the way while the deal sponsor and the capital source negotiate, you (or your fund management / crowdsource platform partner) will be the intermediary that proposes terms and “settles” the deal around its key terms (expected investor return, length of holding period, etc.). With enough LOIs from your investors, you can form the fund, creating the equity capital source necessary to get the deal closed. 

● Closing

With an LOI/investors in place, much of the remainder of the process gets turned over to the lawyers and the accountants to get the right documents and procedures in place to make sure the investment structure works – and that the diligence provided is complete and accurate. With this final vetting step and the right structure in place, the fund will simply cut the deal a check for the required amount.

C. Building a Broad, Multi-Asset Fund

Thus far, we’ve only discussed ways that you can be a capital aggregator for specific projects. In certain situations, you might prefer to aggregate capital for a vehicle that can fund multiple projects at once, in some cases without having those projects pre-identified. In that case, you’re raising a fund – and the tool you wield becomes far more powerful (but also far more complex). 

There are a few principal reasons why you’d want to set up a true fund to accomplish your Capital Aggregator objectives:

  • The most common reason for creating a multi-asset, multi-investor fund is having a large and recurring stream of projects (5-10+ consistently, on an annualized basis). You’d get this as an Opportunity Sponsor, Local Anchor, or Capacity Builder, and if you want the best chance at getting all those deals done, it can be administratively easier to raise money once and build one vehicle instead of having to repeat the process every time. 
  • The second most common reason is for the blended sources of capital you can attract. Many national foundations (and even some local ones) find it easier to offer incentives like first loss-capital, foundation guarantees, or program-related investments at the fund level instead of having to apply those incentives to every individual deal. (E.g., Guaranteeing a single deal is a riskier proposition than guaranteeing a certain minimum return on a bucket of five deals that refreshes each year.) Having a blended capital fund will let you get more impactful projects done at a lower cost of capital than you could manage if working on a deal-by-deal basis. To date, the best examples of these regional blended capital funds  are from Arctaris.

We’ve highlighted the infrastructure and partnerships you’ll need to launch your multi-asset fund in the space below.

01 Management Team

This will be the biggest partnership decision you make. Most multi-asset funds have a small team that does nothing but underwrite deals, call investors, and manage the day-to-day operations of the fund. Investors want to see a fund management team with a proven track record of taking money and making returns over a long period of time. Particularly in blind pool funds (discussed below), investors want to know that the people in charge of investing their money know what they’re doing. So – if you’re considering launching your own fund, you’ll want to find a partner willing to work with you to build a diligence infrastructure for your pipeline. These managers get paid an annual management fee based on the size of the fund (usually about 2% of capital raised) and get a big chunk of the equity (usually about 20%) in the fund itself.

02 “Closed-End,” “Blind Pool” or “Semi-Blind Pool” Structure

Every multi-asset fund has a long list of potential deals. Some underwrite that full pipeline, commit to a handful, then go seek individual investors on the strength of a handful of those specific deals (just like the single-asset funds described above). Others perform their initial underwriting, then go straight to investors, asking for commitments to a fund rather than an investment into particular projects. These “blind pool” funds will take the capital they raise and selectively deploy it (typically over a 6-12 month period) into the pipeline they’ve identified. In between, “semi-blind pool” funds are exactly how they sound – funds that ask for investors to make blind commitments, but that show investors the top handful of deals they are most likely to invest in, allowing investors to perform their own diligence on the underlying investments without having to place 100% of their trust in the management team. First time funds are far more likely to succeed using a closed-end and semi-blind pool model than a true blind pool model.

03 Fund Administration, Legal, and Accounting

 You’ll need someone to help with the legal, accounting and compliance work around managing a fund (like issuing investor statements and tax forms). Sometimes the management team does this; other times it’s outsourced to a third party firm like Gainvest or NES Financial. 

04 Creative Capital Stacking Options

One of the best parts about a multi-asset fund is that – with the right management team and structure – you can get really creative with “blending capital.” In other words – if you’re able to harness some of the Creative Capital Stacking options discussed in our Guidebook, you may be able to attract market-rate investors – but then be able to offer your projects a much cheaper cost of capital. The sources of creative capital you access will dramatically impact the size, complexity, and legal structure of your fund – so if you plan to pursue this, be sure to choose a fund management team that has worked with blended capital before. 

Related Case Studies

Howard University

Washington, D.C.

Similarities: Capital Aggregator

Howard University teamed up with the Washington, D.C. government, Fannie Mae, and corporate partners to transform 45 abandoned, university-owned properties in a neglected neighborhood into more than 300 housing units and $65 million in commercial development. The Howard University LeDroit Park Initiative had three themes: 1) celebrate the history of the area; 2) redefine the community; and 3) enhance the quality of life and safety.

READ MORE

LaSalle University

Philadelphia, PA

Similarities: Capital Aggregator

In 2004, La Salle University’s Office of Community and Economic Development worked with leadership and community members to craft a realistic plan to improve the quality of life for residents around the campus. The University’s findings led them to The Reinvestment Fund (TRF), a Philadelphia-based CDFI and leader in the financing of neighborhood revitalization, affordable housing, community facilities, supermarkets, and commercial real estate.

READ MORE

Missouri State University

Springfield, MO

Similarities: Capital Aggregator

Using a $1.25M grant from the Economic Development Administration and matching local OZ funds, the University plans to expand its efactory business incubator in Springfield, MO. According to Missouri State, this investment is expected to create “360 jobs and spur $27 million in private investment.”

READ MORE

Northeastern University

Boston, MA

Similarities: Capital Aggregator

Northeastern launched the region’s first university-supported loan program for women- and minority-owned businesses. The initiative, called the Impact Lending program, enables local small-business owners to secure loans, at below-market interest rates, to acquire crucial resources to expand their businesses.

READ MORE

Ohio State

Columbus, OH

Similarities: Capital Aggregator

Working through Campus Partners, a nonprofit community development corporation, Ohio State invested $28 million of its endowment funds into the “South Campus Gateway” complex.

READ MORE

Rowan University

Glassboro, NJ

Similarities: Capital Aggregator

As Rowan began to increase its capital spending locally, the city of Glassboro saw a unique opportunity to leverage the Rowan investments by developing a plan for the transformation of the downtown area leading to the university. This plan ultimately became the $476 million, mixed-use development of Rowan Boulevard. In the city of Glassboro more than 30 percent of school-aged children qualified for the free lunch program and 20 percent of families earn under the poverty line.

READ MORE

Stillman College

Tuscaloosa, AL

Similarities: Capital Aggregator

As soon as it became clear that Stillman would be located in a Opportunity Zone, the school’s president seized the opportunity to enlist the support of potential private equity partners, the City of Tuscaloosa, and consultants to develop investment projects for the school’s vacant and unused property holdings.

READ MORE

The Russell Center

Atlanta, GA

Similarities: Capital Aggregator

The Herman J. Russell Center for Innovation and Entrepreneurship is a 50,000 SF campus in one of Atlanta’s fast growing downtown neighborhoods that is focused on black entrepreneurship.

READ MORE

The University of Cincinnati

Cincinnati, OH

Similarities: Capital Aggregator

The University of Cincinnati’s endowment was nearly $833 million in 2009. From 2003 through 2009, the University invested $148.6 million of this money (roughly 13.6 percent of the school’s entire endowment) to finance real estate development in the neighborhood of Uptown Cincinnati.

READ MORE

University of Chicago (Child Care)

Chicago, IL

Similarities: Capital Aggregator

The University of Chicago and IFF, a CDFI with a history of lending to the child care sector, have worked together on multiple initiatives to create more childcare and education opportunities for Chicago’s communities.

READ MORE

University of Pennsylvania

Philadelphia, PA

Similarities: Capital Aggregator

Between 1996 and 2003, the University of Pennsylvania tripled the dollar amount of goods and services purchased from West Philadelphia businesses through their Economic Inclusion Initiative. They continue to focus on local purchasing and aim to award 20 percent of all construction contracts to minority or women-owned businesses.

READ MORE

Related Resources