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This article was originally published by FaithInvest (faithinvest.org). We are republishing this excerpt with permission from FaithInvest. |
Originally published: April 29, 2025
To demonstrate how blended finance structures allow organisations with different objectives to invest in a project alongside each other and simultaneously achieve each of their unique goals, we will highlight three investments made in distinct regions of the world and comprised of a wide range of investors, including investments in:
Affordable housing and community development projects in the United States
Natural capital restoration in secondary and degraded forests in Central America and the Caribbean
Climate mitigation and economic development in Southeastern Europe, the Middle East, and Northern Africa
Wespath Benefits and Investments (Wespath) maintains one of the largest faith-based pension funds in the world, serving more than 100,000 active and retired clergy and lay employees of the United Methodist Church. With its subsidiaries, Wespath manages nearly $26 billion in assets (as of December 31, 2024) and is committed to making a positive impact on the environment and society while generating competitive returns that allow it to fulfil its fiduciary obligations.
One of Wespath's unique and long-standing investment programs is its Positive Social Purpose (PSP) Lending Program, founded in 1990, it has invested over $2.1 billion in affordable housing and community development projects in the United States and in global microfinance opportunities.
The Broadview Senior Apartments project located in Broadview, Illinois demonstrates how Wespath's PSP Lending Program utilises blended finance principles to create positive social impact while generating market-rate returns.
As a senior debt investor, Wespath holds the primary claim on assets in the event of default, which helps minimise risk while ensuring competitive returns for its beneficiaries.
This affordable housing development, like many in the PSP portfolio, relies on what is often referred to as "lasagna financing" or multiple layers of funding sources that work together to make projects financially viable while addressing critical community needs.
The financing structure for the Broadview transaction included several layers of funding, each with different risk-return profiles:
First mortgage loan participation with Wespath holding the senior debt position.
Financing provided by the Cook County HOME funds, which are part of the U.S. Department of Housing and Urban Development's (HUD) HOME Investment Partnerships Program and finance a variety of housing activities assisting low-income households.
U.S. Government Low-Income Housing Tax Credit (LIHTC) program funding the equity investment.
Illinois Affordable Housing Tax Credits, which encourages private investment in affordable housing by providing a one-time tax credit equal to 50% of the value of qualified donations.
ComEd Energy Efficiency grant, which incentivised the integration of high-efficiency heating and cooling systems and advanced air-sealing techniques throughout the building envelope to minimise air leakage and reduce heating and cooling costs.
This layered financing approach enables Wespath to occupy a risk position that meets its fiduciary requirements while allowing other investors and funding sources with different risk-return expectations to participate in the same project. The result is a successful investment that provides stable housing for low-income populations including seniors, veterans, disabled persons, and individuals experiencing homelessness.
The PSP Lending Program has demonstrated remarkable resilience over time, even during economic downturns, due to several factors:
High demand for affordable housing -- With a nationwide shortage of approximately 7.3 million affordable rental units for extremely low-income households, these properties can maintain high occupancy rates as well as waitlists.
Government subsidies: Support from federal, state, and local agencies helps ensure steady rent inflows over the financing term.
Professional oversight: Wespath collaborates with Community Development Financial Institutions (CDFIs) that conduct thorough due diligence, underwriting, and loan servicing on these transactions.
By positioning itself as a first-position debt investor within this blended finance structure, Wespath successfully balances its fiduciary duty to generate competitive returns with its commitment to making a positive social impact in underserved communities.
| Case studies #2 and #3 are available in the original article on faithinvest.org. |
Blended finance structures offer the unique ability to meet varying investor risk/return expectations while meaningfully scaling environmental and social impact.
This three-part series aimed to introduce key concepts and structures – including tiered capital structures, subordinated debt, and first loss protection – to better inform faith-based investors with dual mandates on the benefits of blended finance solutions.
Integrating these investments into an asset-owner's investment portfolio can assist in better aligning the organisation’s investments with their values, while demonstrating industry leadership and helping facilitate the transition to a more sustainable and inclusive economy.
With numerous investment opportunities currently in the market, and no shortage of qualified asset managers, faith-based asset owners looking to help scale impactful investments that generate risk-commensurate returns should not hesitate to further explore the feasibility of blended finance solutions for their portfolios.
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