Thoughts on SOCAP10 from the Urban Investment Perspective, Part 1

SOCAP10

SOCAP10 is long over now, but a week back now, but observations and thoughts are even more appropriate now that the messages and conversations have sunk in and many first round follow-ups are done.

Socap is one of the best conferences I’ve ever attended. To put this much structure on such a nascent investment theme is a feat. It was fresh, social, exciting, inspiring, thought provoking and, thankfully, not full of it. The program was macro without sacrificing micro – hitting key philosophical themes (e.g. impact investment is hard) with both incisive and inspirational commentary while also integrating metrics (exhaustively), specific sectors (e.g. mobile technology, food systems), formation and capital-raising (at all stages) and investment management (e.g. sourcing, process, challenges, etc.).

The other special aspect of Socap was access. Compared with conferences where the special guest speakers whisk in and out with limited interaction with attendees, I’ve rarely seen such a deeply engaged group of people at all levels of the conference.

That said, for Smart Cities Advisors, as an enterprise focused on built urban infrastructure, it was sometimes tough to get to the right conversations… A mere handful of organizations represented mentioned their investments in housing or the built environment Acumen Fund, Bamboo Finance, Ignia, JP Morgan Social Finance (which is only domestic). All of these had invested in low-cost and affordable housing development. Characterizing the developing country investments as urban might be debatable. No one chose to elaborate much although Ignia’s immensely gracious external relations officer, Tanya Beja, was very kind to sit down and tell me about their investment in MexVi.

Likewise, the challenges of cities and the built environment specifically rarely came up while sectors like health, education, food and agriculture, rural development, mobile technology and more received more attention. As an example, one of the day 3 breakout sessions (designed by attendees) was devoted to eco-cities. Only three of us showed.

Why would this have been? Even with fewer than average sector initiatives focused on building inclusive and sustainable urban communities in developing countries, I’ve been thinking about the following possibilities:

  • Complexity: Building communities requires both working across disciplines and technical knowledge of what makes building, communities and cities sustainable. Health and food systems can also be technical and multidisciplinary, so this doesn’t seem like a sufficient condition. If you’re investing in a built project, you have to be present on the ground in a significant way to monitor progress and manage a relationship. Investors with sufficient hands-on experience mostly work in commercial real estate where the payoff is clear. There’s such a shortage of qualified people in construction, engineering and property development in developing countries, it is difficult to cross the human capital gap.
  • Size of capital investment: Small and incremental investments in systems or experimental models can make a big difference in many sectors. When you build a community, it’s a large ticket investment. There hasn’t been much investigation of high impact, smaller ticket investments into enterprises in the built environment that would make a difference and lead to higher levels of investment. The assumption is that you put – name your multi-million dollar investment size – into a project. It gets built. End of story. Not true, but this requires further work, inquiry and collaboration.
  • Governance and transparency: Real estate, land and construction in urban areas can be pretty dirty business in developing country cities. Urban land is valuable, low cost housing is not a high priority, land titles can be hard to secure, politicians often want some involvement, getting building permits may require bribes… Unless your local development partner is committed to transparency and running a clean project, success in which is a function of investor due diligence and relationship-building, these problems can eat up a project’s management, cause major delays, siphon away project capital and end in trouble.
  • Headline risk: Disaster and catastrophe risk can create major headline risk in the context of built projects. Earthquakes can turn shoddily built housing into rubble in an instant. Humidity-induced rot in poor quality materials can create health hazards. Projects that lie mostly empty or badly maintained because they didn’t suit the needs of the inhabitant. Those failures create physical monuments to the shortcomings of the projects that are very visible relative to other sectors.
  • Lack of industry engagement: Real estate is becoming more sustainable, more urban and more interested in engaging with the BOP markets/global majority in a constructive way. Yet, those organizations have yet to coalesce into a “movement” that reflects this. Green building is still largely about high end, grade A buildings, commercial and institutional retrofits and household energy efficiency. In developed countries, efforts to integrate social and environmental sustainability in affordable housing are advancing, but this has been slow to penetrate the developing world. There needs to be a concerted effort to bring builders and developers, as well as the NGOs and designers in this space, into the social enterprise space.
  • Lack of impact investors’ engagement: Housing is only one of many interventions in most impact investment portfolios. This partly comes down to investors not being able to necessarily monitor and discern progress in these investments. It’s also a function of diversification and a desire to experiment and push boundaries across sectors in the search for investible models and solid partners. Urban issues also require dialogue with governments on some level. Interestingly, I found little or nothing about the government-impact investment nexus at Socap.

Just not on each others’ radar – both a challenge and an opportunity. More on Socap in coming posts…

How To Find Us

Smart Cities Advisors, LLC
PO Box 3360
New York, NY 10008
Phone: 1-347-979-7854
Website: http://smartcitiesadvisors.com
Email: admin@smartcitiesadvisors.com
sca