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Prudential Working To Double Impact Investing Portfolio Focuses On Newark

This post was originally produced for Forbes.

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In the Spring of 2014, Prudential Financial, Inc., announced a commitment in double its impact investment portfolio from about $500 million to $1 billion by 2020. Half way through that period, the financial giant reports it is making progress, with much of the investment going to redevelopment efforts in Newark.

Prudential was founded 140 years ago in Newark, New Jersey and remains there today. Lata Reddy, Vice President of Corporate Social Responsibility, says that the decision to stay in Newark was not simply “inertia.” She says, the company has repeatedly decided to stay in the community and to invest in it as part of its social mission.

Prudential reports investing more than $400 million in Newark’s civic infrastructure, to help create new jobs and attract more consumers. Projects include:

  • The redevelopment of the historic Hahne & Co. building into a mixed-use development featuring street-level retail, which will include a Whole Foods Market, mixed-income apartments, and space for Rutgers University.
  • The revitalization of Military Park into an epicenter of Newark city life, complete with a café and a spacious lawn where community activities such as fitness classes, concerts and movie screenings now take place.
  • The development of free ultra-high speed Wi-Fi in Newark’s downtown district accessible to anyone. The WiFi is 200 times faster than public WiFi networks available in other cities including New York.
  • The renovation of the former National State Bank building into Hotel Indigo, one of the first new hotels built in Newark in 40 years.
  • The conversion of a former warehouse into AeroFarms, a next-generation urban farming hub. AeroFarms will help bring a new, sustainable industry to the city, create jobs, revive deteriorating neighborhoods, and produce healthy food for residents.

Jonathan Cortell, Vice President of Development for L+M Development Partners, says, “Lata and her team have been invaluable partners in our joint effort to restore the long vacant Hahne & Co. flagship building in downtown Newark. Our initial collaboration was to finance the property’s acquisition and it has steadily grown from there.  Vacant for nearly three decades, the acquisition was not the easiest transaction and I can’t imagine any other lender successfully pulling it off as Prudential did.”

Lata Reddy, courtesy of Prudential

Lata Reddy, courtesy of Prudential

Reddy, who rejoined Prudential in 2012 in her current position after a three-year stint as an independent consultant, sees Prudential playing a key role in addressing fundamental problems in Newark, which exist to a greater or lesser degree around the world. She worries that “too many people are excluded from the real economy.” She notes that some communities like Newark are “experiencing concentrated poverty.” This impacts women, veterans and people of color disproportionately.

Communities lose out when the upwardly mobile move out of the community, leaving the less fortunate to fend for the themselves. This impacts the city government, she notes, reducing the tax base and impairing the talent pool that government can draw from for leadership. Ultimately, however, Reddy says that Prudential sees these problems as opportunities for the firm to make a difference and a profit.

Reddy says, “Our goal is to create a thriving, walkable, 24/7 community.” She points out that Prudential is the largest company based in Newark, “the only Fortune 50 company headquartered here.”

Cortell agrees, complimenting Prudential’s work in the community. “Lata’s group consistently demonstrates flexibility and creativity well beyond what you typically see from lenders. Lata and her group encouraged us to raise the bar and actively engaged local institutions, like Rutgers University, that are helping to make Hahne’s a real resource for the City of Newark.”

Daryl Carter, Founder, Chairman and CEO of Avanath Capital Management, which has raised three funds to invest in affordable housing, says that Prudential invested in all three funds and provided debt financing on some of the projects as well.

Carter says, “Because of Prudential’s initial and ongoing investment in our funds, we have successfully acquired, renovated, and preserved over 41 affordable housing communities totaling more than 7,000 units throughout the United States.”

He explains the vital role affordable housing plays in building healthy communities. “For example,” he says, “providing resident services such as after-school programs for kids keeps them engaged and makes communities safer, and creating quality living environments that are also affordable contributes to the overall stability of a neighborhood. Prudential supports our vision and holistic approach in providing quality housing to a segment of the market that is often ignored by other investors.”

Reddy acknowledges that there are challenges. “Even with our resources, you can’t do it alone.” She says, attracting additional capital to support redevelopment has been a challenge. For some projects, the “capital stacks” are complicated.

There hasn’t, however, been a problem with finding good projects to fund. The scale of the problem–opportunity as she sees it–is massive, providing plenty of shovel ready project just waiting for capital.

She acknowledges that not all of the community’s problems can be solved by investments. Prudential also deploys some philanthropic capital to support job training and other programs in Newark.

Furthermore, the money presently allocated to philanthropy and impact investment is too small to solve the problems they hope to address. In order to actually solve the world’s biggest problems, “we need more capital,” she says. Traditional capital markets will have to be deployed with an eye toward impact to solve these problems.

In this regard, Prudential itself is a symbol of this problem. While building a $1 billion portfolio of impact investments by 2020 is a huge step forward, the firm has $1 trillion in total assets. The firm’s allocation of capital to impact is just 1/1000th of its total.

Reddy says that the bespoke nature of impact investing is part of the problem for achieving scale. She expressed hope that standardizing impact investment structures will make the market more efficient and attract more main stream capital.

The impact of the projects, however, is already being felt in Newark, she says. More people and companies are coming to live, work and do business in Newark. More amenities are being created. Prudential has catalyzed more capital by leading the way.

Reddy sees this work as being central to the firm’s commitment to the community and social impact. The firm was founded, she says, on the principle of helping people “achieve financial prosperity and the peace of mind at comes with it.” Impact investing is a contemporary way of continuing that legacy, she says.

On Thursday, December 15, 2016 at 11:00 Eastern, Reddy will join me here for a live discussion about Prudential’s investments in Newark and elsewhere on it way to building a $1 billion impact investment portfolio, Tune in here then to watch the interview live. Post questions in the comments below or tweet questions before the interview to @devindthorpe.

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