Ottawa Community Land Trust selling bonds to raise $1.72M for affordable housing

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When the Ottawa Community Land Trust was looking for a way to raise money to buy more multi-unit apartment buildings for the city’s affordable housing stock, the non-profit landed on something different: Issuing community bonds.

Last month, the land trust held a launch at a Bank Street coffee shop. The eventual goal is to raise $1.72 million through the sale of the bonds, buy up more affordable housing units and offer investors a reasonable rate of return.

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The land trust aims to use $485,000 of the money to refinance repayable loans on a six-unit Kirkwood Avenue apartment building it already owns, then establish a “revolving fund” to buy at least two more multi-unit buildings by the end of the year, said executive director Mike Bulthuis.

But the ultimate goal is much bigger than that. The land trust aims to buy hundreds of affordable units over the next few years.

“Between 2011 and 2021, our city lost 30,000 units that had been renting for under $1,000,” said Bulthuis. “We are ambitious in wanting to preserve buildings over as many units as possible.”

At the time the Ottawa Community Land Trust bonds were launched last month, the trust had received $350,000 in commitments from three organizations including $100,000 from the United Way of Ottawa. Since then, the bonds have attracted another $100,000, mostly from individual investors, said Bulthuis.

A land trust is a non-profit that acquires and holds property for the public good. Long associated with preserving rural conservation land, there’s a growing number of urban and suburban land trusts that aim to preserve existing buildings for affordable housing.

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Community bonds, a “social finance tool,” are an emerging way for non-profits to raise the money. While there are other methods, such as federal, provincial or municipal grants, community bonds are a “bridging mechanism” to fill gaps, said Nat Pace, coordinator for the Canadian Network of Community Land Trusts.

Every bond offering has its own legal structure and goals.

The Ottawa Land Trust Bonds bonds are administered by Tapestry Community Capital, which raises and manages community bonds. The rates of return depend on the amount and time invested.

Series A requires a minimum investment of $1,000 with a return of 3.5 per cent over three years.

Series B requires a minimum $5,000 investment, with 4 per cent return over five years.

Series C requires at least $50,000 over seven years, with a rate of return of 4.5 per cent. Members of the business community urged the land trust to “be bold on your ask” to increase it from a $25,000 minimum to a $50,000 minimum, said Bulthuis.

“The returns are quite fair. But  of course we emphasize that in addition to the financial return, you’re contributing to the social impact rate,” he said.  “One of the beauties of it is that it’s quite accessible. I know not everyone can invest $1,000, but a lot of folks can.”

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Hilary McVey, a local partner at Deloitte and a member of the land trust board, bought some of the bonds.

“The rates are attractive, but I liked the creativity. Often non-profits of charities will reach out for donations. Donation fatigue is real. This is a new way for people to take savings and put them to work,” she said.

“Everyone has heard stories about people who can’t afford to buy their first home. People are wondering what they can do at a micro level. This is such a big macro problem.”

Creating affordable housing needs multiple partners at the table, said Bulthuis.

When the land trust bought the apartment building on Kirkwood Avenue in 2023, it was acquired through a municipal grant, a $250,00 philanthropic gift and a mortgage, he said. The mortgage is relatively small, but the rental revenue is relatively low because tenants are paying less than market rent — which means the eligibility for a mortgage through traditional banking is limited.

The land trust’s goal is not to become another housing provider, said Bulthuis.

“Our city is fortunate to have dozens of really quality non-profit and cooperative housing providers. What we’re looking to do is raise the capital to secure properties and then release them to some of the organizations that have the expertise in day-to-day relations m tenant support, property management and so on,” he said.

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“What we’re trying to do is establish that portfolio, establish that balance sheet, and come to scale where we’ll become an entity that has the capacity to go into the market and preserve more and more of those units.”

There’s another community bond option, Series D, that will give the investor their principal back after three years, but offer no interest. The land trust decided to add that option after getting response from the community, said Bulthuis.

“Someone said ‘If I know iI can pool my money with that of others, that’s enough. I know it’s helping to preserve affordable housing. As long as I get my principal back,’ ” he said. “And so we’re  curious to see what kind of response we get on zero per cent. We haven’t calculated the zero per cent into our modelling, so we’re not making any assumptions around that.”

There are other recent examples of Canadian urban land trusts looking to expand. The Kensington Market Community Land Trust in Toronto, for example, aims to preserve affordable housing. Boosted by a $3 million municipal grant, the land trust bought one building and recently announced it was issuing $2 million in community bonds with the goal of buying a second building.

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The Parkdale Community Land Trust in Toronto got its foundation in 2022 when the City of Toronto and Toronto Community Housing Corporation transferred 81 single-family homes and small buildings in Toronto’s west end.

Part of the land trust model is to de-commodify real estate, said Pace.

“There are a lot of sympathetic corporate landlords who are realizing the scale of the problem. They don’t want to see their present tenants displaced.

“It’s an eviction-prevent strategy in a way.”

Community bonds are not as common as they should be, said Mary Warner, co-executive director at Tapestry Community Capital. “Grants are great, but they take a long time, The traditional banking system doesn’t understand the needs of non-profits.”

But she also cautions that investing in community bonds is not without risk. They are considered an “exempt market option” and are not regulated by the securities commission.

Community bonds are unsecured, which means there is no asset backing the bond, although that changes when mortgages on properties are paid down, she said. In one example, a non-profit solar energy cooperative issued bonds, using the solar panels themselves as a security.

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“There is no insurance backing. There is potential risk,” said Warner. However, she knows of only one example among a couple of dozen of bond issues in which in which the bonds were forfeited, a food cooperative in Toronto.

On the plus side, non-profits have a reputation to uphold, she said. “You’re returning interest to the community. It’s a chance for community members to be deeply involved in a new way.”

So far, Tapestry has helped non-profits to raise a total of $110 million in community bonds. All of Tapestry’s clients have successfully reached their fundraising goals, said Warner.

As it stands, the Ottawa Community Land Trust doesn’t yet have an offer on any new properties, but it has forged relationships in the real estate community and is actively looking at properties, said  Bulthuis.

With the money raised through the bonds, the acquisition project has momentum, he said.

One of the challenges is in trying to move properties available for sale from the speculative market to the community ownership. At the time the land trust bought the apartment building on Kirkwood Avenue, it had been rented at about 63 per cent of market rent, which at the time was $1,400 for a one-bedroom apartment and $1,600 for a two-bedroom apartment. Properties are being priced according to what the rental market will bear — although some landlords who are selling properties want to feel a commitment to keeping their tenants in place, said Bulthuis.

“We want to use that capital as soon as we can. We are in a good position to act quickly. Obviously, it has to be an appropriate property. It has to have strong mission alignment, but it also has to be viable. We have a commitment not just to affordability, but also to quality and safety.”

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