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Is It a Good Investment?

The renovated entrance to Bellwether’s Parker Apartments in Seattle.

The renovated entrance to Bellwether’s Parker Apartments in Seattle. Photo courtesy of KUOW.com.

This post originally appeared at lesliechristianfinancial.com courtesy of Leslie Christian, CFA, investment advisor for integrated capital.

In a recent post, I highlighted a new investment vehicle offered by Bellwether Housing in Seattle. Bellwether is a nonprofit affordable housing provider with more than 30 years experience in the field, a solid and impressive balance sheet, and an ongoing commitment to providing homes for those who are excluded from the economic benefits of Seattle’s amazing but discriminatory growth.

Bellwether has taken a simple, direct and relationship-based approach to increasing its funding base. The first step is a five-year promissory note offered to accredited investors with a 2% interest rate and a five-year maturity. The proceeds from the offering are to be used for renovations to a recently-purchased apartment building in Seattle.

In response to the offering, Bellwether has received a flurry of local and national press coverage. This included a local NPR station interview with Tory Laughlin, Bellwether’s Deputy Director, and me, personal investor and investment advisor. I had the opportunity to state my opinions—that we have a moral imperative to provide housing for all the people in our community, that the beauty of Bellwether is that it is local and highly reputable as well as financially solid, and that a five-year 2% note should make sense for just about any portfolio that includes an allocation to bonds (fixed income).

Nevertheless, the journalist ended his commentary by asking, “But is it a good investment?” I thought I had made a very straightforward and even obvious case, but he observed that, because “everyone” expects interest rates to rise, a 2% note in five years may not look so good.

I have reflected on that exchange. Despite the compelling case I had made and the variety of good reasons for endorsing Bellwether’s offering, there was still a complete disconnect as far as understanding its value as an investment. The interviewer had been interested, compassionate, and responsive. Then, he stepped out of his whole self and put on his “big boy” financial hat—the one that was compelled to reduce the whole conversation to speculation about interest rates.

Why is it so easy for even the most thoughtful, caring people to have this disconnect when it comes to investing? A big part of the reason is that we’ve become accustomed to looking at investing as a sort of mysterious act—one involving complicated financial instruments, anonymous counterparties, and layers of advisors, issuers, and brokers standing between us and the ultimate recipient of our funds. Usually we’re not allowed to have a relationship with where our money goes, and so we get used to separating ourselves from it and evaluating investments solely on whether we get a “good return.”

There is an antidote to this kind of financial fundamentalism. We can turn away from anonymous, opaque and complex transactions that prioritize a bottom line return for investors at the expense of employees, customers, suppliers, community and the environment. We can turn toward and embrace transactions that are direct, personal and transparent and in which the return to investors is fair in relation to other constituents.

In the case of the Bellwether notes, here is how I evaluated whether I thought it was a good investment:

Is it direct?
Yes. The funds that I invest go directly to Bellwether. In contrast, funds that are invested in the stock market do not go to the company whose stock I buy.

Is it personal?
Yes. I know the organization and its leaders. I have friends who live in Bellwether buildings. The Parker Apartments are in my neighborhood. Even if the building weren’t in my neighborhood, I would know its identity and characteristics.

Is it transparent? Easy to understand? Simple?
Yes. Bellwether is borrowing money from me for five years and agreeing to pay interest at the rate of 2%.

Is it fair to all involved?
Yes. Bellwether analyzed the income and expenses of the Parker Apartments and found that it could afford to pay 2% to investors in its notes. If investors “demand” 3% or 4% or 5%, where will it come from? As an affordable housing provider, Bellwether provides housing that working members of our city can actually afford. If I demand a higher rate, Bellwether would need either to raise their rents, thereby directly reducing the affordability of their apartments, or cut operational costs, thereby reducing the quality of their services.

Looking at investments this way doesn’t eliminate questions of risk and return. It simply puts them in a much wider context. When we ask, like our friendly journalist, whether getting a 5% return wouldn’t be better, we need to have enough knowledge and information to consider the question fully. Yes, of course, 5% is “better” than 2%—for my wallet. But, would that 5% return help to make possible a more affordable city and diverse community where I’m living? Does it support an organization that I admire and trust and that serves my community? Does it leave enough for the organization to pay its employees what they deserve? I know that investing in Bellwether means I can answer yes to all of those questions. That’s why it’s a good investment.

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