Community Developments Investments (June 2016)
Collaboratively Financing Healthy Futures
Source: Morgan Stanley
Omak Medical Clinic and Pharmacy is part of the Family Health Centers of Okanogan, Wash., which received funding from the Healthy Futures Fund.
Lindy Hahn, Executive Director, Morgan Stanley
The combination of affordable housing and access to health care has powerful potential to transform the lives of families and individuals. Residents need access to health and dental care providers, in addition to other social services, to improve their well-being and economic resilience. Numerous studies have demonstrated the link between poverty and health, including a key finding that the single biggest determinant of health is not a person’s genetic code, but his or her zip code.1
In 2013, Local Initiatives Support Corporation (LISC), the Kresge Foundation (Kresge), and Morgan Stanley partnered to form the Healthy Futures Fund to support the growth of high-quality, community-based health centers linked with affordable housing. The Healthy Futures Fund helps realize opportunities to locate health care facilities with or near affordable housing. Based on the success of the original Healthy Futures Fund, an expansion was announced in late 2015, doubling the original $100 million commitment.
The Healthy Futures Fund requires the right combination of distinct yet collaborative partners to achieve its intended impact. We rely on our partners to make the Healthy Futures Fund possible through their great experience and skills, deep understanding of their communities and issues, and grant and risk capital. Together, Kresge, LISC, and Morgan Stanley provide the community development expertise, local on-the-ground knowledge, and capital needed to bring health services to underserved communities. Each partner in the Healthy Futures Fund plays a unique role in identifying and allocating resources to needed projects.
Kresge, with a mission to expand opportunities in underserved communities across the nation, provided most of the up-front, at-risk capital to the Healthy Futures Fund, along with grants for technical assistance to help ensure success. Kresge provided $7 million of the lending capital for the Healthy Futures Fund, which is being managed by New Markets Support Company (NMSC), a wholly owned subsidiary of LISC. Kresge is also providing up to $1.5 million of grant capital to fund technical assistance to health centers.
LISC, through a coordinated local and national effort, identifies and promotes community development project opportunities and administers the grants and loans to projects and their sponsors. Both LISC’s National Equity Fund (NEF) affiliate and NMSC subsidiary find opportunities and manage underwriting for the Healthy Futures Fund. Whereas NEF supports housing developments through housing tax credit investments, NMSC supports health center financing through an innovative debt-equity product. As the underwriter, LISC facilitates the transactions, and where needed, provides subordinated debt or grant dollars to help close funding gaps on a particular project.
Morgan Stanley, as the private sector investor, has provided the Healthy Futures Fund up to $32 million of debt for New Markets Tax Credit (NMTC) transactions, $17 million of NMTC equity to be leveraged with New Markets loans, and a $54 million housing tax credit equity fund managed by NEF. This $54 million Low-Income Housing Tax Credit (LIHTC) equity commitment allows project sponsors a portion of LIHTC equity to be used for health care programming aligned with the goals of the fund.
The Healthy Futures Fund partners also leverage the involvement of federal resources and programs. Both the LIHTC and NMTC programs make critical components of the Healthy Futures Fund possible. Public sector capital, such as the federal grants provided by the U.S. Department of Health and Human Services, delivers project equity capital and also acts as an affirmative endorsement of project operators. In an environment when some government programs are being reduced or eliminated altogether, maximizing the potential of government support remains a significant element necessary for the Healthy Futures Fund’s success.
This layering of capital sources, together with the strong teamwork within the fund, provided Morgan Stanley with the necessary risk mitigation to participate. Traditionally, in new financing solutions, such as the Healthy Futures Fund, market needs cannot be determined with complete certainty until the model is activated in the marketplace, creating exposure to risk. The distinct but connected pieces of the Healthy Futures Fund provide the flexibility to accommodate new or unanticipated considerations and at the same time offer the discipline to help assuage concerns of the capital providers.
Today, the Healthy Futures Fund is fully invested in five health centers, providing health care to more than 50,000 people and creating 418 units of new, affordable housing. For example, a Washington state project used a $6.6 million loan from the Healthy Futures Fund to finance the construction of a new health clinic for Family Health Centers (FHC), a well-established local health care provider. The clinic expansion more than doubled the number of examination and procedure rooms; the FHC system expects it will expand capacity to serve more than 70,000 patient visits per year by 2017. FHC is a necessary resource in the area, serving more than 30 percent of the residents of Okanogan County, Wash.,2 where poverty is nearly double the statewide rate.3
What sets the execution of the Healthy Futures Fund apart from other NMTC endeavors is the flexibility and efficiency of the structure; savings in formation legal costs; and enhanced likelihood of refinancing at the end of the seven-year compliance period. Morgan Stanley, Kresge, LISC, and LISC’s NMSC subsidiary are dedicated to providing efficient capital to health centers and incorporating healthcare more fully into affordable housing activities. LISC and Kresge have determined that many health centers require a comprehensive capital response, that is, a package of technical assistance and one or more forms of capital. With LISC and Kresge, we are uniquely positioned to provide these resources because of our teamwork and collective lending and equity expertise. Together as fund collaborators, we are creating financing resources available for health centers in target underserved markets across the country.
For more information, e-mail Morgan Stanley.
1 Robert Wood Johnson Foundation, Beyond Health Care: New Directions to a Healthier America.
2 Health Resources and Services Administration, 2014 Health Center Profile, Family Health Centers, Okanogan, Washington.
3 U.S. Census Bureau, QuickFacts, Okanogan County, Washington.