What did we learn from our experience developing The Foundry – a new human rights and social justice centre which has just opened in London?
One of the first things the founding organisations – Trust for London, the Ethical Property Company, the Barrow Cadbury Trust Joseph Rowntree Charitable Trustand LlankellyChase Foundationdid was to establish a ‘special purpose vehicle’ in 2011 to develop and run The Foundry. Then we raised more than £11m in finance; bought, refurbished and extended a building, secured tenants, and created a centre that will provide a focus for social justice and human rights activity.
The Foundry will provide work and meeting space to organisations working on human rights and social justice issues. Set up as a social investment initiative, it is funded through a combination of equity investment and loans from independent trusts, the Ethical Property Company, banks and financial institutions. We also intend it to be an asset to the local community and those from further afield, who will be able to use the cafe, visit exhibitions and events, and take part in a programme of learning activities.
So looking back over the development period, what made it all come together, and what lessons have we learned?
PARTNERSHIP AND SHARED VISION
Undoubtedly it helped that the founder organisations knew each other well, had worked closely together, and were experienced and trusted partners. This made it easier to create a shared vision, and has helped us through some tough moments.
This shared vision was established right from the start and has guided our thinking on all aspects of the project; from the building design, to the planning, and to the associated education activities that will take place in the centre, to the detail of our performance framework.
THE RIGHT PROPOSITION
And in a difficult economic climate, we were helped by having an investable proposition – a property-based development in the capital city, led by organisations with extensive experience in property investment, management and mission-related investment. These factors, combined with the clear social mission of The Foundry, enabled us to confidently approach other investors.
The lead partner in the management of the project, the Ethical Property Company, has over 15 years experience of developing and running shared office spaces with a social mission. Our advisors, particularly the architects, shared our enthusiasm for the project, and were chosen both for their architectural vision and for the added value that their experience of building and managing shared space brought to the project.
FUNDRAISING AND MISSION DELIVERY
Undoubtedly the fundraising element of the project was our biggest challenge. We started the project as the global financial crisis was unfolding – and had to decide early on whether or not to press ahead. But Trusts and Foundations have the benefit of the long view, and we were confident that in time the market would pick up and we would be able to provide a return on investment.
Initially we hoped to raise most of the investment through equity. However, in an uncertain climate most investors preferred the security of a loan rather than the higher risk equity investment. So we ended up with a more complex combination of loans and equity than we really wanted. Because raising the funds was more complex than we thought it would be, we had to renegotiate ‘heads of terms’ with our primary lenders at a late stage – a difficult process for all sides. One lender withdrew, but others stepped in to fill the gap and allow the building work to get under way. The complexity of the financial arrangements and the need to meet the differing due diligence requirements of different primary lenders was costly both in time and money; it would be good to see more convergence so that less precious social investment funding is spent on legal fees and more is available for delivery of the mission.
And we had to be bold. Finding a suitable building was challenging. Our initial preference was for an area in East London, but prices were rising rapidly and were a little out of our reach. We widened our search and found a building while we were still some way off our funding target. A decision had to be made whether to buy, and risk not being able to raise development funds, or continue fundraising and risk losing out in a price bubble. At the same time we had to assess the risks of not being able to find enough tenants to fill the building. Fortunately market research indicated that there would be sufficient demand for space, and, as it turned out, by the time we opened, almost all space had been filled.
So what could we pass on from our experience to anyone thinking of embarking on a similar project?
- Make sure you have a strong partnership, with a shared vision and values
- Effective leadership from the Board is essential
- Choose your delivery partners carefully. Ensure they share the vision and understand what the project is trying to achieve
- Carry out market research at an early stage to ensure the proposition is viable and will provide both sufficient financial return on investment and a clear social mission
- Ensure you understand the ‘risk appetite’ and return requirements of investors
- Develop a good performance framework to enable reporting on the extent to which the project delivers its social mission.
- Have flexibility in putting together the funding package, but be prepared to turn down offers if the required returns are too high
- Maintain your vision throughout the development stages
- Be prepared to take measured risks
- Celebrate your successes as you go along.
Debbie Pippard chaired The Foundry project and is Head of Programmes at Barrow Cadbury Trust.