The Anatomy of Lending Outcomes: What We’ve Learned from the LISC Impact Matrix, One Year In
A year after launching the LISC Impact Matrix, we have been examining the potential and actual impact of every loan we make in six different categories or “dimensions.” Read on to learn about how this is shaping our lending, and to hear about some of our most transformative projects.
Last year, LISC introduced the Lending Impact Matrix, a tool that allows us to objectively measure the impact of every loan LISC approves. The matrix is divided into six “dimensions” which describe the various ways LISC hopes to make an impact through lending. Examples include “Community Centered” or supporting community-driven projects; “Who,” which refers to elevating diverse, BIPOC-led organizations; and “Risk Mitigation”— projects with a high likelihood of delivering impact.
While each project receives a total impact score, we also look at how projects score in each dimension, to track progress on our various goals. The matrix entails a few unavoidable tradeoffs. A loan to an emerging developer for their first development project, for instance, will likely score highly on “Contribution,” since LISC is likely taking a risk that other lenders may not take. It will lose points, however, in “Risk Mitigation,” since there is a greater risk that a loan to an early-stage borrower will not achieve the impact on-time and on-budget as they build their expertise.
In that way, focusing solely on the overall score can ignore the effective impact a project may have in a specific dimension. Below, we look at loans rated and closed during the first year of the Impact Matrix that scored especially highly in each dimension and discuss what makes them stand out.
Community-Centered
Our first dimension is “Community-Centered”: is the project supported by the local community and will it benefit the existing community? This is a later addition to the Matrix and is critical for ensuring we are realizing LISC’s long-standing mission to work with existing residents to improve communities. Community-Centered looks at a variety of factors, including how people were included in the design process, whether the borrower has a history of serving the local area and whether the project explicitly targets people of color in line with Project 10X.
Park Morton, the redevelopment of a public housing development in Washington, DC’s Park View neighborhood, was our highest scoring project in Community-Centered in 2022. The project sponsors, The Community Builders and Dantes Partners, did extensive community outreach to existing residents, hosting more than 30 meetings, to ensure their voices were represented in the design phase. Moreover, the project, in a high opportunity area of DC, has good access to transit, education, job opportunities and other amenities. All current residents of the complex, who are majority Black, will have the right to return after construction is complete.
The project will also meet Enterprise Green Communities standards and include a number of climate mitigation and resilience features such as solar panels, extensive stormwater management and a green roof. Park Morton is the perfect example of the kinds of projects LISC wants to support – projects where community residents and intended beneficiaries are brought along in the planning process; projects that address the ongoing causes and results of climate change (which disproportionately affects low-income residents and communities); and projects that pair affordable housing with supportive services such as financial counseling, parenting classes and voting access.
More projects that scored highly in Community-Centered:
Who
“Who” is the dimension that looks at a borrower's characteristics, including leadership and staff demographics, whether a borrower offers quality jobs to its employees and the demographics of the larger project team. These data points all ensure that we are investing in organizations that look like and represent their communities, support their employees by paying them a living wage and share LISC’s commitment to diversity, equity, inclusion, and justice. This dimension also helps us track progress against our commitments to not only invest in communities of color, but organizations led by people of color, as well as other traditionally underrepresented identities.
We are pleased that many organizations we invested in last year received full points in the Who dimension, but a few projects stand out. TransLatin@ Empowerment Center, for example, is the first development project for The TransLatin@ Coalition (TLC) in Los Angeles. TLC was founded by a group of transgender and gender nonconforming and intersex (TGI) immigrant women to address the specific needs of TGI Latin@ immigrants in the United States. The organization’s leadership team, staff and board are majority women, POC and TGI, ensuring that the people served are represented at all levels of the organization. TLC also offers quality jobs (defined as paying a living wage and/or offering three or more benefits) and the project team included a woman-owned law firm.
More projects that scored highly in Who:
Contribution
Our third dimension, “Contribution,” measures the role LISC plays in bringing a project to fruition. It looks at factors like how flexible our financing is, our existing relationship with the borrower (including past loans, grants, or technical assistance) and how much other investment the project is leveraging. At its core, Contribution asks if LISC is the best lender for this borrower and how we are catalyzing investment.
Early-stage businesses, emerging developers, and other organizations without a lot of development experience tend to do well in the realm of Contribution. Atlas Public Schools was founded in 2021 in St. Louis, MO, and a year later came to LISC with a loan request to acquire and rehabilitate a permanent location for its elementary school. As a newer organization, the borrower had limited development and financial experience, but with LISC’s flexible, patient capital, they were able to realize their project. At full enrollment, the school will serve 624 students in a diverse-by-design learning environment.
More projects that scored highly in Contribution:
Risk Mitigation
“Risk Mitigation” looks at two sides of impact risk. First, what are the risks of unintended negative impact? This could include potential displacement or gentrification with a new development, as well as things like environmental risks to people or places. The second part of impact risk is when the positive impact we intend does not occur. To measure this, we look at the borrower’s overall experience as well as potential regulatory barriers they might run into (especially important for early-stage financing), as well as their ties to the community and commitment to making positive change.
Coastal Haven Apartments, a senior housing complex located in Corpus Christi, TX, was a strong deal from an impact risk perspective. Our financing helped the development maintain affordability under a new nonprofit sponsor. Because we were preserving the project’s existing use, there were no displacement or completion risks. The strength of LISC’s impact comes from balancing multiple strategic priorities. We have always served as a catalytic, early-stage lender for projects, but acknowledge that sometimes, for reasons outside our or the borrower’s control, these projects may not be fully realized as we originally intended. Balancing our riskier loans with proven projects, especially when LISC’s financing can preserve the long-term impact of a project, is key to fulfilling our diverse impact goals.
More projects that scored highly in Risk Mitigation:
Alignment
“Alignment” describes how we measure the way a project, regardless of type, advances LISC’s local and national priorities. For example, a homeownership project and a workforce development investment may both receive points for addressing economic mobility, one through wealth creation and the other through job mobility and advancement. Different types of organizations can also address racial heath, wealth and opportunity gaps. A small business project that allows a POC business owner to own rather than rent offers a wealth-building opportunity, while a charter school may address the racial opportunity gap through high-quality education for students in a majority-POC community.
LISC provided a construction loan to Oak and Ave Property Group to support the development of four new houses in the urban core of Spartanburg, SC. The project aligned with all the priorities measured as part of Alignment. The project also supported the other three indicators in the dimension – economic mobility through homeownership, addressing the racial wealth and opportunity gaps by supporting a POC-led developer creating homeownership opportunities for people traditionally unable to purchase their own homes and transferring ownership of properties to community members.
Homeownership projects are frequently standouts in this category, but other projects that score well include small business real estate loans and loans that support community land banks and other models of community ownership.
More projects that scored highly in Alignment:
Effectiveness
“Effectiveness” is a deceptively complex dimension. This is the only dimension where the indicators change based on the project type. In designing the matrix, we realized that it wasn’t fair to compare the reach of different project types to each other – a housing development might serve 100 individuals, while a school reaches 400 students and a health center serves 20,000 patients annually. While what we measure is generally straightforward – number of units or people served, demographics of the served population and duration of the overall impact – we consider the relative scale of each project type to fairly and consistently compare impact.
Agra Apartments is a Twin Cities, MN rental housing deal that scored very well in “Effectiveness.” Once completed, the project will offer 155 apartments affordable to families making no more than 60% of area median income (AMI). Additionally, the project has set aside units for people who have experienced long-term homelessness, extending the depth of the impact. And a mix of unit sizes in the project responds to the neighborhood’s need for family-sized housing with up to four bedrooms. Because the project will utilize Low-Income Housing Tax Credits, the units will remain affordable for a minimum of 15 years.
More projects that scored highly in Effectiveness:
We are still learning about how the Impact Matrix tells the story of our overall lending impact. Breaking down impact scores into individual dimensions can assure that we are investing in strong projects that advance our varied goals, even if their overall scores are closer to the portfolio median. As we continue to use our findings from the Impact Matrix to inform our overall lending strategy, dimension scores help us track progress on specific goals and make sure we have a well-balanced portfolio that invests in a variety of projects. Projects that have struggled to find capital elsewhere. And projects that support existing communities and diverse organizations, align with LISC’s local and national priorities and deliver meaningful outcomes.
ABOUT THE AUTHOR
Laura Mixter, Director, ESG & Impact Reporting
As LISC’s first ESG & Impact Reporting Lead, Laura Mixter leads LISC’s Impact Measurement and Management work, including the implementation of the LISC Impact Matrix for all loans financing through LISC’s Loan Fund. Laura joined LISC in December 2021 after spending six years at its affiliate New Markets Support Company (NMSC). At NMSC, she held a number of different roles on the Asset Management, Advisory Services and Impact teams. Laura has a BA in Public Policy from Duke University and an MBA from Duke’s Fuqua School of Business. While at Fuqua, Laura performed research on successful impact investing firms as a CASE i3 Associate.