1. Impact Investing Legal & Accounting Considerations

2. About Community Foundation of Greater Fort Wayne
Geography: Allen County
Population: 363,000
Total Assets: $138 million:
$53M Unrestricted
$47M DAF
$38M Other
Supporting Orgs: Three

3. Overview Impact Investing History Steps of Impact Investing
Decision for Impact Investing
Impact Investing History
Steps of Impact Investing
Ultimate Goal of Impact Investing

4. Decision for Impact Investing
Community Initiatives
Tools beyond grants
Trend for community foundations
Stimulate economic vitality

5. Impact Investing History
2011 approached by
FW Downtown Development Trust, a 501C3
Trip to Kalamazoo Community Foundation
15 year history of impact investing
Form 1023 to create new supporting organization
Board approved up to $1 million for PRIs in form of below market rate loans

6. First PRI
$250,000 support development of downtown market with residential apartments
Property subsequently became part of larger development

7. Second PRI
$250,000 to support development of corner on major thorough fare
Subsequently fell through with seller
Made grant to help cover half of environmental study

8. $1,117,500 development of The Landing Developer selected early 2016
Third PRI
$1,117,500 development of The Landing
Developer selected early 2016

9. $75,000 to Brightpoint to bridge receipt of reimbursable state funding
Short-term loan
$75,000 to Brightpoint to bridge receipt of reimbursable state funding

10. Steps of Impact Investing
Determine Impact & Return
Due Diligence
Legal Review & Contract Preparation
Accounting Steps
Monitoring & Reporting

11. Determine Impact & Return
High level assessment of deal:
Consider risks/rewards
Consider financial impact
Ensure funds are furthering a charitable purpose

12. Due Diligence
IRS Requires PRI/loan satisfy the following criteria:
1. Its primary purpose is to further the exempt objectives of the foundation
2. The production of income or the appreciation of property cannot be a significant purpose (i.e., a prudent investor seeking a market return would not enter into the investment)
3. It is not used to lobby or support lobbying

13. Due Diligence Each project analyzed on a two-step process:
Step One – ensures project meets IRS-recognized charitable purpose
Step Two – determines if the project furthers a charitable purpose

14. Due Diligence Step One - Must answer “yes” to at least one question:
Relief of the poor, distressed or underprivileged?
Advancement of education or science?
Erection/maintenance of public buildings, monuments, works?
Lessening burdens of government?
Promotion of social welfare to accomplish any of the above, lessen neighborhood tensions, eliminate prejudice, or discrimination or combat community deterioration?

15. Due Diligence
Step Two – a higher number of “yes” answers provides stronger evidence of charitable purpose.
Does the project:
1. replace one previously undertaken by the government?
2. Play an integral part in a larger governmental project?
3. Feature an organization acting jointly with a governmental unit?

16. Due Diligence
4. Involve a governmental unit inviting the CF to participate in the project?
5. Have a government ruling that has identified the area as economically disadvantaged?
6. Support the overall strategic vision/plan for downtown development?

17. Due Diligence
7. Provide help to local business or attract new local facilities of established outside business?
8. Provide the type of assistance to the community development organization that has non-commercial terms and the potential to revitalize a disadvantage area?
9. Result in job development?

18. Due Diligence Additional considerations:
Is property currently occupied?
Has a developer already been selected?
Will the project go out to bid?
What type of structure?

19. Legal Review & Contract Preparation
Promissory Note
Dollar amount
Interest Rate
Payment Provisions
Loan Agreement – similar to Grant Agreement
Publicity
Expenditures
Reports

20. Legal Review & Contract Preparation
Real Estate Mortgage
Named as mortgagee
Secured as 1st payee
No transfer of title
Stipulates maintenance of property
Payment of real estate taxes
Carry insurance on property
Title Insurance
Indemnity insurance for clear ownership transfer

21. Accounting Steps Initial GL Entry: Debit Loan Receivable
Credit Investment Pool
Monthly Entry:
Credit Other Income
Repayment Entry:
Debit Investment Pool
Credit Loan Receivable

22. Monitoring & Reporting
Regular review at board meetings
Loan recipients provide:
Periodic written reports
Accounting of how funds were used
Progression of development efforts

23. Monitoring & Reporting
Audit packet
Loan receivable schedule
Promissory Note
Loan Agreement
Mortgage Documents
Documentation of Distributions
Documentation of Payments Received

24. Ultimate Goal of Impact Investing
Increase opportunities for low-income residents
Create vibrant neighborhoods
Improve quality of life

25. Additional Considerations
Do you have enough staff to handle the load
Resources – internal/external expertise needed
Impact of extra work and low/no revenue
Exit strategy:
Full repayment
Partial repayment, partial grant
Full conversion to grant

26. QUESTIONS?