A Collaboration Based on Overlapping Missions and Markets

National Cooperative Bank helps one of the nation’s pioneering social impact investment firms—and its partner healthcare providers—open centers in underserved communities.

Expanding access to high-quality healthcare in historically underserved communities—that's the worthwhile mission of the Turner Healthcare Facilities Fund. How they achieve that goal is by helping established providers build new centers where they are needed the most. In essence, Turner develops (or more often redevelops) a build-to-suit facility and then enters into long-term leases, with an option for the provider to purchase it at a pre-negotiated price during the term.

The fund was established by Turner Impact Capital, co-founded in 2014 by CEO Bobby Turner, COO Daniel Millman, and General Counsel Bari Sherman, who previously worked together at a major real estate hedge fund. "While there we pioneered the idea of social impact investing in addressing big societal issues but making sure it's scalable and sustainable by delivering market-rate returns to our investors," Millman says. Having decided to delve deeply and exclusively in opportunities that generate social change, the two branched out on their own, initially building on the strategies for education and housing they created at their prior firm. "The most common reason for absenteeism in school is untreated dental conditions, and unstable housing is the root cause of higher stress and anxiety among students, so the interrelatedness of these three societal issues is what led us to healthcare," Millman says.

Since its December 2017 launch, Turner’s Healthcare Facilities Fund has developed or acquired 18 healthcare centers serving some 49,000 people, with more locations in the pipeline. Of those, a primary focus is around PACE (Program for All-inclusive Care for the Elderly) centers that provide medical care and on-site social services—and interaction—for people who are eligible for both Medicare and Medicaid. The intent of the program is to support people remaining in their stable home environment, at a lower cost than moving them into a nursing home. And PACE providers have shown measurably improved healthcare outcomes in terms of longer life expectancy and more effective management of chronic and acute conditions. 

To finance each facility, Turner draws from the fund's equity, raised from institutional investors such as commercial banks, insurance companies, private foundations, and university endowments. It then relies on third-party lenders to cover the rest. "These debt providers are critical in allowing us to focus on scalability," Millman says. 

Programs like PACE are less widely understood than delivering a nonprofit hospital building, so Turner must seek out lenders who understand the care delivery and lending model as well as the target communities. Enter National Cooperative Bank, which has an extensive portfolio of healthcare clients. 

"When I learned about NCB, who was providing banking services to one of our clients, I immediately realized they could be an ally given our mission match and the overlapping markets we seek to serve," Millman says.

To date NCB has partnered with Turner on two such transactions, with Turner putting up 40 percent of the capital and NCB lending the other 60 percent; NCB also underwrote the tenant/provider should they exercise the right to purchase:

• The first transaction involved a $7.7M NCB loan for a Neighborhood Health-run PACE center in Riverside, CA that will serve 1,000 seniors and an integrated community health center that will serve another 8,500 people of all ages; this has a target opening date of April, 2021. 
• For the second, NCB provided a $9.3M NCB loan for a PACE center that is expected to open in October, 2021, and will serve 750 patients; the operator is San Ysidro Health, one of the largest Federally Qualified Health Centers in the country. 

"A bank doesn't typically do high loan-to-value transactions, but given our own mission focus, these are the kinds of deals we are interested in doing," says Bob Montanari, SVP at NCB.

Namely, the transactions are viewed as being highly favorable for the nonprofit operators because (a) they don't have to come up with the initial capital to purchase and develop the property and (b) when they are producing enough cash flow to obtain financing, they are able to buy the property at less than the current market value. 

"Community healthcare providers typically want to own their own facilities, so this path to ownership is a key element of the business structure and one of the reasons providers come to us," Millman says. 

What's more, most of these centers are borne out of the adaptive reuse of vacant commercial property, which can be a blight on the neighborhood.

Having forged a mutually agreeable loan structure, both sides see synergy in future collaborations (including in the educational sector). 

"We cover the entire country and as such can cover Turner’s future locations, alleviating the need for Turner to retell the same story and renegotiate the terms each time with a new lender," Montanari says. "They have an ambitious pipeline and we stand ready to support them. They are leading the way in impact investing, and we are ready to expand our partnership with them.

"NCB understands who we are and our approach, and we understand what their priorities are in terms of how they structure transactions and the markets they care about. We would do as much business with NCB as they would like to do with us."