Frequently Asked Questions—Positive Social Purpose Investment Program
Q. What is the Positive Social Purpose Investment Program (PSPIP)?
A. The PSPIP is a $1.7 billion investment program designed to earn a risk-adjusted rate of return through senior loans made to real estate-based projects, which take priority over other debt sources, that impact low- and moderate-income individuals, families and communities. It is a form of "double bottom line" investing that seeks to invest capital not only to produce acceptable financial returns, but also to produce measurable social returns.
Q. How long has the program been in existence?
A. The program started in 1990 and has run continuously since that time. The name has changed over the years from the Affordable Housing Program (AHP) to the Affordable Housing and Community Development Program (AHCD) to what it is today, the Positive Social Purpose Investment Program. The name changes reflect the program's expansion.
Q. How large is the PSPIP?
A. The program started with a $25 million commitment that has been increased to $2 billion. To date, we have invested over $1.1 billion, and current investments total $643 million. The total outstanding balance fluctuates over time as loans are paid off.
Q. Is the PSPIP a direct lender?
A. No, the PSPIP does not make direct loans or originate loan transactions.
Q. How does the program work?
A. The PSPIP works through a network of financial intermediaries that present the General Board with loan participation opportunities for a variety of community development projects. By participating in the loan, the intermediary takes a subordinate position to the General Board and provides a small portion of the total funds that are delivered to the final borrower.
Q. What is a financial intermediary?
A. Within the PSPIP, a financial intermediary is generally a non profit organization that is mission-driven to suport underserved individuals, families and communities through the development, rehabilitation and preservation of affordable housing and/or community facilites projects. A financial intermediary is generally a Community Development Financial Institution (CDFI), Community Development Real Estate Institution (CDREI) or a Community Development Corporation (CDC).
Q. What do financial intermediaries do?
A. Financial intermediaries perform initial project due diligence, provide ongoing servicing and monitoring of funded transactions and most importantly, provide credit enhancements through their subordinate participation in the loan.
Q. Does the PSPIP make direct investment in community organizations (CDFI, CDREI, CDC)?
A. No. With the exception of microfinance investments, which finance small businesses internationally, all investments are secured by a lien on the underlying real estate.
Q. How does a developer access PSPIP funds?
A. The best way for a developer to access funds for community development projects is to work through a financial intermediary.
Q. In which type of projects does the program invest?
A. The PSPIP invests in four main categories of projects:
- Multifamily Housing
- Homeless shelters and affordable, senior and special needs housing
- Community Facilities
- Health care, day care and other facilities that support low- and moderate-income communities
- Charter Schools
- International Microfinance
Q. What criteria are used to determine which PSPIP projects are funded?
A. Projects are first evaluated to ensure that rate of return is consistent with expectations. Next, the program seeks to ensure the project serves the housing, social or economic needs of historically disadvantaged individuals, families and communities.
Q. What type of financial return does the PSPIP seek?
A. PSPIP seeks a rate of return that is commensurate with other investments of similar maturity, risk and structure.
Q. Does the PSPIP make below-market-rate investments?
A. The PSPIP will not invest in a project where the rate of return is not commensurate with the risk nor will it make an investment defined as below market.
Q. What type of social returns does the PSPIP seek?
A. The program seeks measurable social returns that include the creation of affordable housing for low-income individuals, families, seniors and special needs populations; quality local schools for low- and moderate-income neighborhoods; and safe and convenient community facilities that serve the needs of historically neglected communities.
Q. How does the PSPIP measure its impact on underserved communities?
A. The PSPIP's impact is measured in the number of affordable, senior and special needs housing units created; the number of beds offered by the homeless shelters; the number of residents served by the health care, child care and substance abuse centers; the number of charter school seats; and the number of jobs created through commerical and retail opportunities.
Q. Where does the PSPIP invest (geographically)?
A. The PSPIP is geographically diverse, with investments made past and present over all 50 U.S. states and the U.S. Virgin Islands. Through our international microfinance program, we have additional investments in South Africa, South America, Eastern Europe and Southeast Asia.
Q. Who else has a program similar to PSPIP?
A. While the PSPIP is unique, it is not alone. Other institutional investors have created simliar programs that address various aspects of socially responsible real estate investing, community investing, microfinance and affordable housing.
Q. Where does the PSPIP money come from?
A. The capital needed to support the PSPIP comes from two sources: The first source is from the retirement savings of the more than 74,000 clergy and lay people that work for The United Methodist Church (UMC) and its agencies; the second source is the repayment of outstanding loan investments that have already been funded by the program.
Q. Can outside organizations or individuals invest in the PSPIP?
A. At present time, the PSPIP is only available as an investment option for UMC-affiliated organizations.
Q. Who benefits from the PSPIP investments?
A. General Board participants benefit from the positive financial returns; targeted individuals and families and underserved communities benefit from new or redeveloped assets, social services and job opportunities; and we all benefit from more vibrant and stable neighborhoods that have quality schools and the necessary supporting services that contribute to thriving communities.
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