Bobby Turner may be one of the nation’s best-known social impact investors, but he’d like to clear up a couple of misconceptions about his work — and the impact the pandemic has had on it.

His firm, Turner Impact Capital, invests in and addresses the education, healthcare and housing needs of underserved urban communities. Founded in 2014, Turner Impact Capital has since raised about $1.7B and today boasts more than $5B in investment potential.

Turner Impact Capital has built charter schools educating 62,000 students across the country and healthcare facilities that serve the needs of 120,000 patients. Until recently, it also owned and managed 20,000 apartment units.

“We wanted to prove to investors that you could do well and do good consistently,” Turner said of his company’s mission. “All three of our verticals are profitable and they're all incredibly impactful socially.”

But as this week’s guest on the Walker Webcast, Turner stressed that the social problems so visible in those communities — and elsewhere — did not have their genesis in the pandemic. Nor were they the outcome of other recent disruptions concerning the economy, civil rights or partisan politics. Instead, they are longstanding conditions that continue to bedevil many Americans.

“What most people don't recognize is that even before these crises, as a country, we sort of lost our ideals and the belief in the American dream,” he told host Walker & Dunlop CEO Willy Walker.

Turner recited a litany of social challenges that predated the coronavirus. Prior to March 2020, 43 million families were living on food stamps, 78% of Americans lived paycheck to paycheck and 1 out of 4 renter households spent at least half of their income on rent, at the expense of their food, health and retirement budgets, he said.

“The reality is that there are hundreds of millions of Americans today in this country whose educational, healthcare and financial outcomes are predetermined by where they are born, by the color of their skin, by their gender,” Turner said. “They have been foreclosed out of the American dream."

Turner said another misconception is that it’s impossible for a business to address these entrenched challenges while making a profit for its investors.

“Most investors assume that doing good and doing well need to be segregated, that profits and purpose don't play nicely in the sandbox,” he said. “But the reality is, if it’s done right, investing in social change actually generates better risk-adjusted returns than more traditional investment strategies in real estate because it's not based on speculation.”

Turner drew a distinction between direct impact investing as practiced by Turner Impact Capital and passive investing. A passive investor will divest its holdings in industries such as tobacco and fossil fuels, with the goal of creating a portfolio of companies that are “not bad,” he noted.

Turner said his problem with this approach is that it does nothing to improve conditions at the ground level for Americans who are struggling to find quality healthcare or good schools for their children.

“The reality is [no passive investing] stimulates or drives social change whatsoever,” he said. To make any real difference, investing “has to be direct social impact investing, it has to be private equity, it has to be real estate.”

Turner said successful active impact investing requires a firm like his to be active in its communities, such as by working with residents to establish mentoring opportunities or reduce local crime.

For example, one area of focus for Turner Impact Capital has been in improving tenant retention rates at its properties. By concentrating on improving the tenant experience and helping to foster a sense of community among residents, the firm reduced turnover, which Turner said is the No. 1 expense of landlords.

“How does that then translate into math and money?” he said. “By driving tenant satisfaction to 95%, people stay longer. In fact, our average lease duration increased by over a year and a half, which meant that our economic loss dropped by about 37%. This led to an increase in net operating income of about 12% — without ever increasing rents.”

Turner said Turner Impact Capital sold its housing portfolio in July, generating a 25% net internal rate of return to investors.

“That's doing good by doing well,” Turner said. “That's impact investing at its best.”

Next week's guest on the Walker Webcast is Clarke Murphy, former CEO of Russell Reynolds Associates and author of Sustainable Leadership. Register here.

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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