Impact investing: Ethical Property Australia targets $100m fund

Ethical Property Australia wants to create a $100m fund holding property assets for the nonprofit sector.

EPA chief executive Peter Allen with TDi founder Bessi Graham. Picture: Stuart McEvoy

Endeavour House in the leafy Canberra suburb of Manuka on the face of it looks like any ordinary office building. But to ­National Australia Bank, a group of high-net-worth investors and philanthropic foundations, it is a ­vision of a new future for the multi-billion-dollar not-for-profits sector in Australia.

It is a future where they can move lucrative property assets off their balance sheets, freeing up their cash flow to invest in their core activities.

Endeavour House has been purchased by a little known group named Ethical Property Australia, which raises money to purchase and refurbish properties, and provides asset management and property management services for not-for-profit organisations wanting to co-­locate.

The building is being refitted to become a hub for groups in Canberra with environmental or social justice missions at their core.

Independent think tank The Australia Institute has signed up as the first tenant.

But in the eyes of Ethical Property chief executive Peter Allen, its opening in October will be another step in his vision to create a $100 million fund holding property assets in Sydney, Melbourne and Canberra that brings together multiple social enterprises and bolsters the growth of the impact investment phenomenon in Australia. Impact investments provide investors with financial as well as social returns.

The space is attracting the attention of some of the nation’s biggest superannuation funds, most notably HESTA, which last year made the largest single commitment to the local impact investing market by pledging $30m to the Social Impact Investment Trust managed by Social Ventures Aus­tralia.

“Everything that we do delivers a triple bottom line return of social, environmental and financial,’’ Mr Allen said.

Mr Allen is being assisted by a group called The Difference Incubator (TDi), which is seeking to create investable social enter­prises that are financially viable to the point where they can access capital from investors and traditional ­financial institutions rather than just governments or philanthropists.

TDi founder Bessi Graham said: “The ultimate aim of our work here is to move property off not-for-profit balance sheets. We would love to see those organisations have EPA as their landlord, allowing them to have their cash flow freed up to use in their core activities.

“There are lots of conversations going on with bigger not- for-profits, churches and large groups that have built up quite an asset base around property. It isn’t easy as many see the safety and security of owning property, but there is certainly interest in the conversation.’’

EPA was seeded with an initial $100,000 grant from NAB’s $1m Impact Investment Readiness Fund, which provides grants to help prepare social enterprises to become investor-ready.

The fund has also backed a number of other enterprises, including a start-up with a dis­ruptive technology allowing Australians living with a disability to choose their own support workers and manage their care online.

After securing NAB’s support EPA created the Ethical Property Commercial Fund, an open-ended fund made up of equity from private investors and bank debt which targets a 5-7 per cent return as well as a demonstrable social impact from its investments.

In addition to Endeavour House, the fund also owns Donkey Wheel House in Melbourne, which houses a growing social impact community including Streat, HUB Melbourne, Kinfolk Cafe and TDi. The fund is now worth $26m and Mr Allen believes it can grow to four times its size in the coming years.

“At the moment we are only in Melbourne and Canberra. Our next project really is Sydney.” Mr Allen said.

“We don’t tend to look for the building first, we look for the returns first. We have just started that process in Sydney looking at where groups would benefit from being co-located in one of our buildings.

“We want to go out over the remainder of this year and get new investors into the fund.

The fund has two investors, a small syndicate and debt from NAB. We think that the Sydney building will be worth around the $30m-$40m mark and have will be five-10 investors.

“We are not seeking to put a limit on that ... It is about finding the good projects — we know the investors are there. We are not looking for it to be a closed fund. We would also like another building or two in Melbourne. We would expect it to be worth $100m or more over the next five years.’’

TDi’s Ms Graham said EPA was a good example that “you can do good and make money”.

“One of the appeals of working with EPA is their whole model is about multiple capital raises and ­attracting the impact investment dollar,’’ she said.

“These guys have only just scratched the surface of the appetite for social impact investment in this country.’’