Civic Infrastructure Bond$250,000,000
Introduction
Civic Infrastructure Bond is a systemic investment instrument that addresses the challenge of attracting private and institutional capital towards a portfolio of natural and biodiversity assets in cities across Canada. Historically, these assets have been financed by a mix of public, philanthropic and impact capital. However, the loss of nature and biodiversity in cities is happening at a devastating rate, propelled by population growth and a required need for housing that often entails sacrificing green spaces for developments.
To slow down and even reverse the depletion of living green infrastructure in cities across Canada, there is a requirement for capital to be allocated at scale towards a portfolio of nature based solutions. Many organizations are aiming to tackle that challenge by starting a new impact fund and striving to raise money from the private sector. However, that is proving to be difficult, as the impact funds are still using the traditional financial instruments and the underwriting parameters that simply do not work for natural and biodiversity assets.
Three Main ObligationsCapital markets require three main obligations from any fixed income investment vehicle.
Underwriting a portfolio of natural and biodiversity assets based on the ecosystem services they produce is not a feasible method of assuring bondholders of regular, market rate returns, nor of the eventual repayment of the obligation. Carbon markets are nascent, carbon and biodiversity credits’ pricing is too unpredictable and there is no agreed accounting standard for reflecting environmental services on the Income Statement. Outcomes financing is equally a difficult path to follow as it is complex, requires stakeholder collaboration, even between three levels of government, that does not yet exist, and presents steep upfront legal costs.
As such, the only capital markets solutions that currently exist are blended finance mechanisms, which are difficult to scale and slow to implement.
Taking the above into account, Ombrello Solutions and DanSa Capital Innovation are researching and designing a new financial mechanism with three main innovative components, which enable the Civic Infrastructure Bond to accomplish what has not been done to date – namely pool in private and institutional capital towards nature based solutions in the cities.
Ombrello Solutions Innovative Components
Financing Nature
Community Ownership & Governance
Decoupling Risks
Proposed Solution
We are in the process of structuring a Civic Infrastructure Bond whose proceeds would finance the acquisition and maintenance of a portfolio of urban civic assets across Canada, which significantly contribute to Healthier Cities. These assets will be owned and governed by the local community through a Community Endowment Fund. Each of these assets is within 1km proximity to existing and future real estate properties owned by commercial developers. The servicing and repayment of the Civic Infrastructure Bond comes from appreciation in value of these privately-owned real assets.
The first tranche of the Civic Infrastructure Bond is in the amount of $250,000,000 and it will be deployed towards acquisition and ecological restoration of an identified portfolio of natural assets across Quebec and Ontario. The portfolio consists of privately owned sites that will increase climate resilience and biodiversity preservation over time, and add value to the neighbourhood and the well-being of the local community.
Proposed Structure Of The Bond
- The Bond is serviced and repaid through a Smart Civic Covenant, signed and registered on title in perpetuity with each participating real estate owner and developer. The Smart Civic Covenant captures a portion of the uplift in the value of the real estate properties (current and future), every time they are refinanced or sold.
- The financed biodiversity and natural assets are owned and collectively governed by a Community Endowment Fund, which optimizes for community outcomes and has a governance body that includes local not-for-profits, SPO dedicated to biodiversity and nature restorations, community groups as well as municipality and involved real estate developers.
- For the first ten years, the Bond is backed by a collective of private foundations, impact investors and insurance companies, either via $50,000,000 first loss capital or a guarantee.
- The Bond is privately placed and its units are purchased by a range of accredited investors including private family offices, and pension funds.
- The Bond is managed by an established institutional grade asset manager.
Definition of Qualified Investment
The funded portfolio consists of natural assets that increase climate resilience and biodiversity preservation over time, and add value to the neighbourhood and the well-being of the local community; an example would be a rewilded park dedicated to climate mitigation and/ or adaptation, which also features public access and facilitation of public use (to be co-designed with local community groups); a rain garden that prevents flooding for the local residents; a Miyawaki forest; or an urban stormwater park.
The project is either part of the developers’ site or it is adjacent to it; an example would be a parking lot next to a shopping mall, which could be converted into a small park. This urban natural asset would attract new visitors and thus benefit the shopping mall sales, add to climate mitigation, enable residents of the neighboring high rises to have access to green space, and overall contribute to the strength of community in the area.
In ideal scenario, the project is part of the masterplan for the site’ re/development so it could be designed simultaneously with the rest of the planned construction/ improvements.
The owner/ developer of adjacent real estate has a business model of holding their real estate assets and benefiting from an increase in value over time; as such, the adjacent residential real estate is in the form of rentals rather than condos; the model works well with commercial and office real estate.
Outcomes
Successful structuring of $250 million Civic Infrastructure Bond is in itself an accomplishment. 125 acres of mature natural & biodiversity sites will be acquired and preserved in perpetuity. This means that communities that would have lost access to green spaces will now be owners of these invaluable assets, ensuring that this civic infrastructure thrives and with time contributes considerably to the climate resilience of our cities.
Equally importantly, we would be delivering key building components for the Canadian market that enable private and institutional investors to allocate capital, as scale, towards natural and biodiversity assets in cities. Specifically, successful structuring and subsequent issuance of the $250 million Civic Infrastructure Bond would demonstrate the feasibility of the following: