Investment fund has social agenda

Turner Impact Capital aims for solid returns while providing blue-collar housing.

Charity is laudable, Bobby Turner says, but if you really want to raise enough money to improve a thorny social problem you have to introduce the profit motive.

An associate of 1980s junk bond king Michael Milken who made a fortune in real estate, Turner is now turning that philosophy into action.

He set up a company last year called Turner Impact Capital that seeks investors to pay for blue-collar housing, promising returns more typical of money-making businesses.

And already some big names are risking capital to invest with Turner, a deeply connected Los Angeles financier who has a similar fund with former tennis star Andre Agassi to build innercity charter schools.

The Turner Multifamily Impact Fund launched in June so far has drawn investments from high-profile hedge fund manager Bill Ackman; a division of Citibank that invests in affordable housing; and the Rockefeller Brothers Fund.

It recently acquired its first two properties: a 599unit garden-style apartment community near Washington, D.C., for $58.5 million in June and a 405-unit complex near Fort Lauderdale, Fla., for $45.7 million this month. He’s looking for properties in Southern California.

Ultimately, Turner, 52, wants to buy $1 billion worth of apartment complexes with 10,000 units in urban

centers throughout the country. It’s a turnaround for a man who has given millions of dollars to charitable causes.

“For 30-odd years I was a very successful capitalist,” said the former partner at Canyon Partners, a Los Angeles hedge fund that has more than $24 billion in assets under management. “I made great wealth for myself but didn’t fulfill my sense of spirituality. I was being reactive and creating legacies of dependency.”

He found a new tack in 1996 when Canyon acquired a closed factory in Harlem where Turner hoped to build a shopping center. After four years he acknowledged his “profit-only” approach was unable to gain community support and he had to sell his firm’s interest in the site. But he learned there was a longing for stores, restaurants and apartments in urban centers — and that developers could succeed if they had credibility with residents.

In Los Angeles, former Lakers star Magic Johnson had that credibility, after his surprising success with an upscale theater complex he opened in South Los Angeles. Turner was introduced to Johnson in 1998 and the two discussed the idea of starting a fund for urban real estate investments.

Turner and Johnson launched the Canyon Johnson Urban Fund in 2001 and raised nearly $2 billon for such developments, including an apartment and retail complex at Sunset and Vine in Hollywood. But much of the development didn’t address the needs of lower-income residents.

So, two years ago, Turner left Canyon to form Impact Capital, which he decided would be different from other low-income housing developers, typically nonprofit and reliant on government subsidies or tax breaks.

That captured the interest of Ackman, the New York hedge fund manager known for his attacks on supplement maker Herbalife.

Ackman’s Pershing Square Foundation has invested $10 million in Turner’s housing fund and a similar amount in his charter schools project.

“I vastly prefer for-profit solutions for problems,” he said. “One of the benefits is that there is a lot more capital available.”

Other low-income housing builders that make profits for investors, such as Related California, often develop housing from the ground up, which can be more costly than improving existing stock.

Turner’s business model is narrow.

He believes his fund can be profitable by buying midlevel apartments that other developers also are eyeing. But instead of adding granite countertops and other upscale amenities to raise rents, the plan is to improve security and offer services that will make the buildings attractive to blue-collar and middle-income workers. Renters can make no more than 80% of a neighborhood’s annual median income.

“We are focusing on the universe of renters who make too much to qualify for subsidized housing but not enough to buy a house,” he said.

That includes teachers, nurses and municipal workers. Such a rental population also allows for innovations such as giving teachers who provide after-school tutoring a break on rents. Resident police officers can help organize security programs and nurses can provide basic healthcare for similar breaks.

“You create a pride in rentership and get longerterm leases by enriching a community,” he said.

Another key side benefit is reducing turnover, a killer expense for landlords.

Cory Booker, a New Jersey senator who worked with Turner on a charter school in Newark, said the developer has seized on an innovative approach to a problem eating away at inner-city stability: fewer long-term residents due to a lack of affordable housing.

“If more people followed that model a lot of urban communities would be progressing a lot faster and going a lot further,” he said.

Steve Soboroff, former president of the Playa Vista residential and commercial development in Los Angeles, said Turner’s approach has another benefit.

“Bobby can move much faster than nonprofits,” he said. “A lot of grant applications are bureaucratic, cumbersome and slow.”

A parallel element to Turner’s approach is improving schools.

In 2011, he started the Turner-Agassi Charter School Facilities Fund with Agassi. It has raised or secured commitments for more than $525 million so far, bought land and started 50 schools around the nation, though none in Los Angeles. The plan is to develop nearly 200 schools.

The idea is that by the fourth or fifth year of operation the schools can float tax-exempt, low-interest municipal bonds and buy the school from the fund.

“You need to harness market forces to create sustainable solutions — and that means making money,” he said.