IMPACTASSETS 50™

An Annual Showcase of Impact Investment Fund Managers

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An Annual Showcase of Impact Investment Fund Managers

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ImpactAssets 50: A Global Landscape of Impact Investment Fund Managers
The ImpactAssets 50 (IA 50) is the first open-source, publicly published database of experienced private debt and equity impact investment fund managers.
https://www.impactassets.org/impactassets-50

ImpactAssets 50

An Annual Showcase of Impact Investment Fund Managers

IA 50 2022 PROFILE

SDS Capital Group

Total Assets Under Management: $1B or more
Asset Class: Real Estate
Primary UN Sustainable Development Goal: 8 – Decent Work & Economic Growth
Affordable Housing & Community Development
Small/Medium Business Development

Firm Overview

Category: Real Estate

SDS Capital Group, founded by Deborah La Franchi in 2001, manages a platform of impact funds ($1+billion of impact AUM): $150M SDS SUPPORTIVE HOUSING FUND – ~1,800 permanent supportive housing units and services for Californians experiencing homelessness.  $642M NATIONAL NEW MARKETS FUND – Awarded 12 federal New Markets Tax Credit allocations making 42 low/moderate income (LMI) community investments nationwide. $60M DEVELOP MICHIGAN REAL ESTATE FUND – Invests in LMI area real estate in Michigan.  $58M AMERICAN SOUTH REAL ESTATE FUND (ASREF) & $36M ASREF II – Invests in real estate in low-income communities of color in 10 southern states. (ASREF II currently fundraising; see question #13) $557M SDS ADVANTAGE PLATFORM: Provides accounting, loan servicing, compliance, financial analysis, investor/impact reporting, and tax/audit coordination for third-party impact funds. $5.6M SUSTAINABLE COMMUNITIES FUND (501C3) – Founded by SDS, SCF invests into mission-driven micro- and small-business lending programs that benefit low-income entrepreneurs and communities.  

Firm Headquarters: US & Canada
Years of Operation: 10 years or more
Total Assets Under Management:
$1B or more
Total Number of Investors: More than 25
% of Capital from Top 3 Investors: Less than 25%
Investment Thesis:

SDS’s innovative impact funds provide transformational capital to projects and companies—each with a distinct geographic focus and investment strategy targeting specific returns and impact goals—with an overarching focus on alleviating poverty, achieving racial equity and promoting economic mobility in diverse low-income communities.

Investment Overview:

Generating positive impacts for low-income people and communities of color is central to SDS’s fund management philosophy. As a fiduciary, our passion for impacts does not override our responsibility as stewards of our investors’ capital. We continuously improve and implement best practices for originations, due diligence, underwriting (pricing-to-risk), and asset management. We generate market rates-of-return by investing where others do not: lower-middle market investments in impoverished, highly-distressed urban and rural communities. Our 82 direct investments are in communities that are on average 61% minority and 34% African American with 31% poverty and 13% unemployment. For example, the impacts of ASREF I’s investment in Selma, Alabama facilitated the rebirth of the St. James Hotel, located at the foot of the Edmund Pettus Bridge where Civil Rights protestors were beaten on Bloody Sunday (1965): 44 jobs created, catalyzed development in a boarded up downtown (population: 94% African American and 54% poverty rate).

Company Differentiator:

1. Our impact funds are uniquely innovative. For instance, the first-of-its-kind SDS Supportive Housing Fund uses market-rate private equity and zero taxpayer dollars to finance 100% of acquisition and construction costs for permanent supportive housing (PSH). These units are 1/3 of the cost ($200,00/unit vs. $500,000+) and constructed three times faster than typical PSH in CA—a new paradigm for homeless housing. 2. SDS develops and manages distinct impact funds needed in various markets. 3. SDS Advantage ($557M) provides finance and back-office support to other impact funds. 4. SDS manages an impact reporting division to serve clients and our own funds.  5. SDS’s funds focus on racial equity in historically underinvested, underserved communities of color while performing to targeted market rates of return. For instance, ASREF & ASREF II have created 336 jobs and 1,610 affordable housing units in communities that are on average 80% minority with 36% poverty. 

Investment Example

Dolores Huerta Apartments (Los Angeles) SDS Supportive Housing Fund ($150M) invested $6.7M (Summer 2021) to construct a 40-unit permanent supportive housing (PSH) complex dedicated to housing people experiencing homelessness. This is the sixth PSH development financed by SHF and named after civil rights activist Dolores Huerta. The City of Los Angeles planned on leasing its property to a selected developer; however, the developer backed out prior to construction. The project was collapsing when the City approached SDS and RMG Housing. SDS underwrote and closed the investment within 90 days providing 100% of the non-developer capital needed. This single-capital source structure of the Fund significantly shortens the PSH financing and construction to 20 months – compared to the typical 5-7 years needed to secure 10-15 funding sources. The modular construction also shortens the timeframe. All tenants will have onsite case management (1 case manager/20 tenants – one lives onsite rent free).

Leadership and Team

Cumulative Leadership Experience in Investing:
30 years or more
Cumulative Impact Experience of Top Three Firm Leaders:
30 years or more
Deborah La Franchi – Founder & CEO More Info

Deborah La Franchi is the founder and CEO of SDS Capital Group — a national leader in impact investing with over $1 billion in assets under management. Each impact fund on SDS’s platform serves a different geography and employs a unique investment strategy, but they all generate positive impacts for low-income communities and people. Each fund either targets a risk-adjusted rate-of-return or provides capital at a below-market cost. The foundation supporting each fund is an expert team and proven strategies and systems that maximize SDS’s ability to protect and enhance the performance of investors’ capital. Ms. La Franchi leads the structuring of each fund’s investment strategy, spearheads fundraising, oversees the senior managers of each fund and division, and participates on each fund’s investment committee.

Kip Hamilton – Managing Director - Real Estate Funds More Info

Kip Hamilton joined SDS in 2015 as Managing Director – Real Estate Funds. Mr. Hamilton oversees the operations of the American South Real Estate Fund (ASREF), SDS Supportive Housing Fund (SHF) and other real estate initiatives. With over 20 years of experience in commercial real estate investment and development, Mr. Hamilton is responsible for the structuring, launch and management of SDS’ real estate funds. Prior to joining SDS, Mr. Hamilton was an industrial developer with Seventh Street Development where he was responsible for acquisitions, financing, entitlements, leasing and asset management. Prior to Seventh Street, Mr. Hamilton served as Vice President with Shamrock Capital Advisors where he helped manage the $85 million Genesis L.A. Real Estate Fund and the $104 million Genesis Real Estate Fund II.

Laura Baron – CFO More Info

Laura Baron joined SDS in 2009 as Vice President and Controller and now serves as CFO. She oversees all aspects of the SDS financial management process, including software applications, project analysis, capital deployment, accounting and regulatory compliance and investor transparency, and helps guide the company’s growth and strategic direction. She developed the proprietary operational infrastructure that effectively manages SDS-sponsored funds and SDS Advantage Services, which manages cumulatively over $1 billion of assets. Her staff actively monitors the construction progress, financial performance and overall business health for each project under management.

Percentage of Investment Professionals who identify as women:
50% or more
Percentage of Investment Professionals who identify as a person of color:*
50% or more
Percentage of Senior Management Team who identify as women:
50% or more
Percentage of Senior Management Team who identify as a person of color:*
25% to less than 50%
*People of color include: Black, Latinx, Asian, Native American/Alaskan Native, Pacific Islander, Middle Easterm and multi-racial Americans

Financial Performance

Target Financial Returns Relative to Benchmark:
Market Rates
Actual Performance Relative to Target Financial Returns in the Past Three Years:
In line with initial target returns
Financial Reporting Frequency to Investors or Donors
Quarterly

Impact Performance

Percentage of Total Assets Under
Management that are Impact Investments:
100%
Primary Impact Outcomes:
Alleviating poverty
Creating jobs
Increasing access to financial services
Providing housing
Addressing Racial Inequality
Secondary Impact Outcomes:
Addressing climate change and environmental issues
Increasing access to education and improving educational outcomes
Increasing access to healthcare services and improving health
Value-added Services Offered:
Access to markets
Other: Real Estate Development assistance

Investments systematically target companies where social and/or environmental impact is integral to the product/service being created:

Our core impact goals are housing those experiencing homelessness, creating quality jobs that are accessible to low-income people/ those who face barriers to employment, generating economic development, and increasing service provision in low-income communities of color (healthcare, education, etc). All resulting impacts – such as the Fund example below - are intentional, not incidental:  The SDS Supportive Housing Fund ($150M) was created specifically to construct permanent supportive housing (PSH) for those experiencing homelessness. The 30 planned developments will house 1,800 individuals in California and provide on-site services including community gardens, gathering space, computer facilities and case management to connect tenants to necessary social services to rebuild their lives (1 case manager per 20 tenants; one lives on-site rent-free). The six developments closed to date will house 263 individuals. This fund is addressing tremendous racial inequity—while Los Angeles is only 9% African American, they make up 40% of our homeless population.

Investments systematically include social and environmental sustainability practices in the due diligence process:

We explicitly seek investments that achieve community and economic development impacts and have strong environmental sustainability credentials. The Underwriting Package presented to our Investment Committee for approval has a substantial section dedicated not just to economic, social and community impacts of the project, but also to environmental sustainability. If we finance a manufacturer, we look not only at the employment of low-income people and the quality of jobs, but also the sustainability of the building, manufacturing processes and systems, outputs, and (if applicable) how their products improve the environment. Our real estate projects often repurpose buildings that are long-vacant or blighted, saving on materials. Many of our projects are LEED certified or equivalent. Once built, we document water and electrical usage reductions, electricity, CO2 or other emissions compared to market baselines for similar projects. Additionally, we seek women/ minority-owned partners—3 of our 12 ASREF I developers are African American.

Impact Tracking and Monitoring

Impact is Tracked:
Yes
Social and/or Environmental Impact is Reported to Investors and Donors:
Yes – to investors and donors
Third Party Validations:
Participant on steering committees or leadership roles within impact industry associations
Publisher or contributor to industry white paper or other research in impact investing

Learn More

Key Contact Name: Rathi Ramasamy
Phone: 614-607-2063
Mailing Address:

1281 Westwood Blvd., Suite 200

Los Angeles, CA 90024, USA

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