A growing number of real estate financing vehicles are balancing profit and purpose as they preserve the affordability of workforce and affordable apartments, while delivering significant returns to investors. Innovative firms at the forefront of this trend are profiled in a report by the ULI Terwilliger Center for Housing and NeighborWorks America.
The report, Preserving Multifamily Workforce and Affordable Housing: New Approaches for Investing in a Vital National Asset, profiles 16 leading efforts. Collectively, they have raised more than $2 billion and acquired, rehabilitated and developed nearly 60,000 units – with many raising additional capital to expand their activities. These vehicles are meeting a pressing social need while delivering cash-on-cash returns to equity investors ranging from 6 to 12 percent. They include:
Below-market debt funds, which are established by partnerships of private, public and philanthropic institutions to provide affordable housing developers with low cost loans. Funds profiled in the report are the Bay Area Transit-Oriented Affordable Housing Fund in San Francisco; Denver Regional Transit-Oriented Development Fund; New Generation Fund in Los Angeles; and the New York City Acquisition Fund.
Private Equity Vehicles, which are entities that use private capital to acquire and rehabilitate multifamily workforce and affordable housing properties, delivering satisfactory returns to investors while maintaining their affordability. The report features Avanath Capital Management, the Enterprise Multifamily Opportunity Fund, PNC Affordable Rental Housing Preservation Fund 1 LLC (operated by PNC Bank); Rose Affordable Housing Preservation Fund LLC (operated by the Jonathan Rose Companies); Turner Multifamily Impact Fund; and Urban Strategy America Fund.
Real Estate Investment Trusts (REITS), an investment vehicle created by the U.S. Congress to provide a means for small-scale investors to invest in income-producing real estate. REIT activity includes property acquisition and development, debt and equity investments, and a mix of both. The REITS profiled – Community Development Trust and Housing Partnership Equity Trust — focus specifically on affordable multifamily developments.
The report also features several efforts that appear to have considerable potential: the Develop Michigan Initiative; the Greater Minnesota Housing Fund Workforce Housing 2.0 Pilot; the Healthy Neighborhoods Equity Fund; and the Seattle Futures Fund.
The results to date profiled in the report make a strong case that workforce and affordable housing segment of the market now offers an array of investment opportunities for investors of all types – from financial institutions and pension funds to family offices to high net worth individuals. These investment vehicles and other like them are a scalable solution to an important aspect of the affordable housing crisis.