Economic

A Case Study On Funding Holistic Solutions For Economic Mobility In Southern California

By Timothy Schoof and Megan Brewster

In 2019, the Sorenson Impact Center partnered with Forbes to host the Forbes OZ 20, a national campaign highlighting impact-focused leaders in the Opportunity Zone space. Two and a half years later, as the OZ space matured, we followed up with the four lead winners to see where they are now and what insights they’ve gained. This article is the first in the series of four case studies that outlines key lessons and strategies for success. Watch our contributor page for updates.

A holistic approach to economic mobility is non-negotiable for SoLa Impact, a family of social impact funds in Southern California.

After winning the top urban spot in Sorenson Impact Center’s Forbes OZ 20 challenge in 2019, SoLa executed its first two funds renovating and rehabbing affordable housing units in primarily Black and brown communities within two hours of Downtown LA. SoLa has since expanded into Santa Ana and San Diego, deploying efforts to not only rehab existing housing, but also expand the workforce housing stock of Southern California, create pathways to homeownership, and strengthen communities through technology and nonprofit partnerships. Founder and CEO Martin Muoto tracks SoLa’s course since the Forbes OZ 20 and shares what’s ahead.

Prioritizing a Holistic Approach

SoLa employs a housing-first strategy to reduce homelessness in their communities, and nearly half of all tenants living in SoLa properties have experienced homelessness at least once in their life. Initially, SoLa Impact primarily financed the renovation of existing properties, starting with owning 1,500 housing units and rehabbing about half through Funds One and Two. “The thing that always weighed heavily on me personally was….we hadn’t added to the housing stock of Los Angeles,” says Muoto. “If you aren’t adding net new units to the housing stock, you’re not really solving the problem.” Moving from rehabilitating and renovation to creation of affordable homes required expanding operations to include ground-up construction, marking a major shift in the organization’s strategy in the last two years. SoLa also began expanding opportunities for residents to not only access new housing, but buy their homes. Their Pathway to Ownership program allows financially qualifying tenants to set aside a portion of monthly rent payments over time to purchase their units, paving the way to homeownership.

These projects contribute to a pro-neighborhood, “uplift, not uproot” development ethos, aiming to better sustain current tenants and improve the economic viability of existing communities. Currently, 96% of SoLa tenants are Black and Latinx, aligning with the pre-existing demographic composition of the neighborhoods SoLa works in. “The bedrock of our business continues to be providing high-quality affordable housing. But for us, the broader mission is how do you create racial equality and in many respects, use capitalism to solve the problems capitalism created?” says Muoto. “I still am convinced free enterprise, capitalism [and] innovation are the most effective tools at addressing those issues. For us, that leads to these other categories beyond affordable housing.”

Leveraging Partners in the Innovation Ecosystem

Beyond housing, SoLa further saw a need for wraparound services to support community members. Since SoLa’s founding in 2015, the organization has established partnerships with more than 40 nonprofits that provide critical services, ranging from rent subsidization to mental health support. “Finding holistic ways to address homelessness is a critical evolution of our strategy,” says Muoto. “As we’ve gotten scale, we’ve seen [that] our ability to partner with government, philanthropies and non-profits, and our ability to impact local stakeholders, has been tremendously magnified.” In the last two years specifically, SoLa’s partnerships enabled them to expand their support for students and entrepreneurs, in turn strengthening the economic viability of the communities the organization serves.

SoLa puts this holistic perspective into practice through several distinct programs focused on socializing high-opportunity careers with local youth. For the past five years, SoLa has provided scholarships to high school students seeking higher education. This year, social media giant Snap (formerly Snapchat) partnered with SoLa, donating $250,000 to further empower students through scholarships. Meanwhile, the SoLa Technology and Entrepreneurship Center, born from a partnership with video game publisher Riot Games, encourages young people to explore jobs in the tech field. Kids come for gaming and esports, but in the process learn about potential career tracks in the STEM field and beyond – in Muoto’s words, “putting chocolate on the broccoli.”

Additionally, SoLa has also focused on creating a physical space for residents and tech leaders to interact and co-create. Named The Beehive, SoLa’s “lovechild” is a rehabbed five-acre business campus twenty minutes from Downtown LA. As the firm’s only commercial property, the Beehive has provided a space where community engagement and economic development have grown in tandem since it opened in 2021. Some investors initially expressed doubt, seeing the Beehive as a departure from SoLa’s model, and doubling down on concerns after COVID-19 brought questions about whether many jobs would return to an in-person setting. Despite this, SoLa has so far leased more than 60% of the campus space to business owners, 100% of whom identify as women or people of color. Fixtures include the South LA Beverage Company, a gallery, restaurant space, commons gathering areas and event space utilized by corporate clients including Hyundai, the LA Rams, and Disney for commercials and retreats. Most importantly, The Beehive has served as a magnet to attract investors and tech leaders to get to know and support South LA.

Reflecting on Social Impact

Given their multifaceted approach, SoLa uses multiple metrics to quantify their impact. Expanding the housing stock makes for a key tool to gauge success, but their integrated approach to housing requires following up with tenants over the years to check in on their wellbeing and progress. “We find that in somewhere around 75% of situations, after two years of being successfully housed, our tenants feel both objectively and subjectively like they’re materially better off,” explains Muoto. “So they have more money in the bank. They’re pursuing higher education. They are certainly staying housed. Our recidivism, meaning leaving housing, is less than 6% across our formerly homeless population.” Muoto also emphasized that the firm also tracks the number of young people being introduced to coding and tech careers through SoLa’s STEM programming as part of their impact in the broader campaign for economic development.

Muoto looks back on the past two years since the Forbes OZ 20 with pride. SoLa deployed all $115 million of Fund 3—their first OZ fund—to build The Beehive complex and about 1,250 covenanted, naturally occurring units of affordable housing. SoLa also made major progress generating their Black Impact Fund, which combines OZ and non-OZ capital into a common resource to support Black-owned endeavors. Currently, the organization has raised $250 million of their $300 million goal and recruited major institutional investors, ranging from PayPal to CalSTRS (the California State Teachers’ Retirement System). Muoto credits the hybrid capital stack with the team’s ability to raise the fund quickly and makes it clear the funds will be a win for investors financially as well: “At the end of the day, these are good deals in good markets. We never lose sight of the fact that, for all of its good and some of its criticism, you still have to produce great returns to investors,” he said.

What’s Ahead

Muoto sees a shifting and optimistic social impact landscape moving forward. “After the Black Lives Matter Movement, everybody was making bigger and bigger announcements about what they would do. I think we’ve watched carefully to see who is doing what, and I do think that we’re seeing a separation of corporations that are really putting their money where their mouth is…For us, that’s very encouraging.” As more institutional investors commit to inclusive development, SoLa Impact will continue its momentum in building housing and expanding access to vital capital for Black and brown communities. Through SoLa’s current OZ fund, Fund 4, the team plans to add 3,500-4,000 new units. They also look forward to their Attainable Homes project, which would leverage SoLa’s construction experience to build more townhomes and condos at lower cost ($350,000 – 400,000) later this year. In addition, SoLa hopes to expand into new communities throughout California, especially in the Bay Area, keeping their holistic approach top of mind.

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