How do investors make money by creating public parks?

A unique project was introduced at the recent SOCAP 2024 conference in San Francisco to answer this question.

At a panel called “Systemic Investment in Urban Nature and Biodiversity,” Anastasia Morougova Millin, the creator of the pilot project, and foundation investor Jeremy Guth introduced a pilot project to create a civic infrastructure bond—a private instrument for financing the creation of urban parks.

Millin and Guth sat down to explain how it works.

What is civic infrastructure? 

For most, Guth said the standard answer when defining civic infrastructure is a road or a bridge. However, he added that civic infrastructure is also created when nature and biodiversity intersect with a community. 

For example, he said, think of neighbourhoods’ green alleys. Citizens go to considerable lengths to create and maintain these civic green infrastructures.

“Biodiversity is often associated with wilderness and open spaces. However, for many of us, it is about the park beside our house, our kids’ school, or our parents’ retirement home,” said Millin, who has worked in real estate finance and then in impact at Vancity.

Civic infrastructure bonds challenge the fundamentals of investing

In traditional finance, whoever provides capital takes ownership, said Millin.  If a person finances real estate, a mine, or an agricultural space, they own it. 

The civic infrastructure bond, however, would work differently.

“We’re suggesting that the investors providing the capital for natural assets don’t get security over these assets,” said Millin. 

The community owns and stewards parks financed with civic infrastructure bonds.

The bonds instead offer market returns that are competitive with any other fixed-income instrument available to investors, said Millin:  they get an 8 per cent return for a 30-year term. 

Guth said those returns are possible because the bonds are associated with a mature and valued market: real estate. 

The bonds will finance the creation of urban parks and be repaid with a portion of the added value of properties up to one kilometre from the park.

“The value of a property is set by the bank when the promoter renegotiates its loan. It is not open for discussion, such as carbon pricing or the societal value of nature services,” said Guth, a trustee with the Woodcock Foundation.

Thus, the investor feels confident about buying those bonds, he said 

Millin said the bonds finance nature without debating or relying on its underlying value.

“The loss of nature and biodiversity in cities is happening at a devastating rate. We do not have time to discuss and convince investors of the value of ecosystem services to society to attract their money. The bonds take that whole debate off,” she added.

The bonds’ stakeholders and how they interact

To begin with, cities identify lands where they want to create parks.

Accredited investors, likely pension funds and family offices, buy civic infrastructure bonds. The proceeds allow the purchase of lots in different cities and offer diversified solutions to investors.

The land is then transferred into a fiduciary structure. It no longer has an owner; it only has fiduciaries guarding its conservation mission, said Millin 

These fiduciaries are democratically chosen among members of the park collective. This collective could include industrial and residential tenants and owners of nearby buildings, a nature conservator, or any other stakeholders who work or live within one kilometre of the park.  

A landscaping company with expertise in biodiversity is responsible for restoring the area. This is very different from an industrial landscape expert.

Real estate promoters owning properties within one kilometre of the park are invited to join the collective and sign a contract engaging them to give back to the land trust 10 per cent of the added value of their properties near the park. 

This distribution happens every three to five years when the promoter negotiates its bank loan. This 10 per cent is used to repay the investors and finance the park conservation.

The 10 per cent engagement has no expiration date. When the building is sold, the new owner must maintain the payments.

For the first ten years, the bonds are backed by a collective of philanthropic foundations, impact investors, and insurance companies, either providing $50,000 in first-loss capital or a guarantee.

Why would promoters pay for parks when they are used to having them paid by public or philanthropic money?

Guth said promoters already have to contribute to park fees to the municipality. 

“They are frustrated about this method because they don’t control where these parks will be built,” he said. 

The civic infrastructure bond guarantees the park will be built next to their properties.

Pilot projects in Montreal, Guelph, and Ottawa

The civic infrastructure bond’s first issuing will be $250,000 for up to seven projects ranging from $25,000  to $75,000. The parks will be located in Montreal, Ottawa, and Guelph.

In Montreal, one park will be in Marais des Sources, in the Technoparc of Saint-Laurent borough.

Montreal is also considering a sponge park near the Place-Vertu shopping mall in Saint-Laurent. On Aug. 9, the mall experienced significant flooding. 

“The 10 per cent contract would be advantageous to Place-Vertu owner because the park would mitigate its insurance risk,” said Millin.

The nearby IKEA store is also the victim of regular flooding, making them another prospect for the 10 per cent contract. 

“Climate mitigation is an important motivation for promoters interested in the civic infrastructure bonds,” said Millin. 

In Ottawa, the park is planned in LeBreton Flats, a large neighbourhood being redesigned.

About the financial risk

With all investments, there is financial risk, including this one, said Guth.

“I would say there is the general risk of real estate collapsing as an asset class. Then 10 per cent of zero is zero,” said Guth.

“Our financial model is based on a natural market return in real estate, between 3 per cent and 5 per cent. We do not rely on speculative market return from the properties around the park to repay the investors,” said Millin.

Still, those buildings could see their value skyrocket with a park nearby 

“We envision that the 10 per cent proceeds could limit a portion of the impact,” said Millin.

The park fiduciaries, who manage the fund created from the 10 per cent, could invest in community resilience. 

“Taking properties off the market to guarantee long-term affordability for the tenants would be one way to mitigate gentrification,” said Millin.

The timeline

According to the pair, by December 2025, all should be in place: the contracts with the promoters, the letter of commitment for the guarantees, the land to purchase, the community endowment vehicle, and the potential investors. Then, it will be handed over to an asset manager who will build the fund. 

“Instead of trying to convince an asset manager to build a team to structure the bond and pay for the development, we paid Anastasia to do it,” said Guth.

“Think about the New York City High Line. What if an independent collective of community stakeholders would receive a few hundred million dollars every three to five years to maintain the park and invest in the community?” said Guth.

“It is critical to use private capital for urban biodiversity and liberate government and philanthropic funding for more complex nature investment,” he added.

“With this bond, we’re creating value redistribution of a private asset,” said Millin.

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