REAL ESTATE FORUM: AFFORDABLE HOUSING IS A SECTOR THAT HAS
HISTORICALLY BEEN UNDERSERVED BY INSTITUTIONAL CAPITAL. HOW
HAS THIS SECTOR EVOLVED, AND WHAT MAKES IT AN ATTRACTIVE
INVESTMENT NICHE/ASSET CLASS FOR INVESTORS?
DOUG WESTFALL, SVP, NorthMarq Capital: Over the past five to 10
years, the affordable housing industry has greatly matured, with institu-
tional (private capital) much more plentiful than when the tax credit pro-
gram was just getting started. The availability of capital now exceeds the
opportunities to invest, creating intense competition among lenders and
equity investors. The challenge is finding soft funds to fill the gap between
the cost of providing and maintaining affordable housing and the amount
of capital the housing can support and provide a reasonable return for
investors; the more affordable the housing the greater the gap.
LAURA BAILEY, SVP of Community Finance, Capital One: Historically
the question of affordable housing was seen as something the federal
government addressed through the Section 8 Program. Once the Low
Income Housing Tax Credit program started to become increasingly famil-
iar to investors, they began to see the benefits of the program, which are
truly win-win. In addition, the ability to support development of affordable
housing options, while also utilizing economic and tax incentives, attracts
not only institutional investors, but also quality, housing developers.
ALBERTO MILO JR., EVP and Principal, Related Urban Development
Group: Affordable housing is still not a huge draw for institutional capital
due to the relatively small returns and extensive regulatory requirements.
Involvement from major banks is mostly CRA driven; however, municipali-
ties like Miami Dade County and the City of Miami are working to create
programs and incentives meant to generate additional interest.
JOHN WILLIAMS, President and CIO, Avanath Capital Management:
Several factors make affordable housing an attractive asset class for
investors. First, there is a limited supply and a virtually unlimited demand
for affordable and workforce housing throughout the US, and especially in
coastal markets. These fundamentals create a natural opportunity for
investors to leverage this demand to maximize occupancies and generate
strong cash flow. Second, there’s a tremendous opportunity to generate
not only financial returns but also social benefits. Many institutional
investors are shifting their focus toward Corporate Social Responsibility
investment platforms that positively impact communities, while also
generating risk-adjusted returns.
Special Sidebar Q&A:
AFFORDABLE AS AN
BAILEY: 2017 will be an exciting year for us. We are growing the part of
our business that targets affordable and workforce housing investments,
while addressing new challenges. Our core markets, which follow our
bank’s strongest markets, are New York, the Mid-Atlantic, and the Gulf
Coast. We are also looking for new opportunities in Boston, Chicago,
Miami, San Francisco, and Los Angeles.
WILLIAMS: The top markets for affordable and workforce housing invest-
ments mirror the top markets for any product, whether it’s market-rate
multifamily, office, or retail. We target markets with strong employment
growth, a wide availability of mass transit options, and a high quality of life.
We also concentrate on markets with strong school districts, primarily
because many of the families that live in our affordable housing communi-
ties like to be in close proximity to excellent schools for their children.
Further, we invest in areas where rent growth considerably outpaces
income growth, and where there’s a 25% to 30% difference between mar-
ket rate and affordable rents.
MILO: There is a huge demand for this kind of development through all
major urban centers in the country. Related Urban is focused on urban infill
markets throughout the State of Florida, with emphasis on Miami Dade
County, Southeast Florida and Southwest Florida.
FORUM: THERE’S BEEN A LOT OF TALK ABOUT DEVELOPING NEW
AFFORDABLE PROJECTS TO ACCOMMODATE DEMAND. WHAT’S YOUR
POSITION ON NEW CONSTRUCTION VS. REHABILITATION?
MILO: It really depends on the functionality of the structure(s) relative to
the site. The merits of each property must be analyzed independently. If
the existing structure(s) are not underutilized and are consistent with the
area’s zoning and master plan, then we strongly support the rehabilita-
tion and preservation of the property. We’re always looking for ways to
create more value for our public partners, more efficiently utilizing pub-
lic funds, and thus create additional affordable housing.
WILLIAMS: Given the high costs of new construction and limited gov-
ernment subsidies through the LIHTC program, the redevelopment of
existing affordable housing is a much more viable and cost-effective
alternative to new construction. By acquiring and repositioning existing
affordable housing, we can deliver a high quality, affordable product at a
huge discount to new development in a shorter period of time. Typically,
the development cycle requires five to seven years to bring a new proj-
ect on line. We can acquire an existing property and transform it within
a year to 18 months. As a result, we can make a more immediate impact
on neighborhoods, and preserve affordable housing today in areas
where it is most needed. ◆
FORUM: WHICH MARKETS ARE YOU TARGET-
ING FOR AFFORDABLE AND WORKFORCE
HOUSING INVESTMENTS IN 2017 AND
WESTFALL: Due to the CRA needs of national
and regional banks the competition for deals in
major markets is intense with most deals
funded by banks that offer tax credit equity,
construction loans and permanent debt all in
the same package. Companies such as
NorthMarq Capital, which represent a sources
for permanent debt but don’t offer construction
debt and tax credit equity at competitive pric-
ing, are challenged to compete in the second-
ary and tertiary markets.
1 Yardi Systems, Inc.
3 NorthMarq Capital
5 Marcus & Millichap
20 RealShare Philadelphia
25 Retail Solutions
27 Franklin Street
7 Marcus & Millichap IPA
9 Capital One
11 CCIM Institute
29 Coldwell Banker
38 Passco Companies
39 Prudential Mortgage
47 United Trust Fund
C2 Avison Young
35 Yardi Systems, Inc.
37 Fannie Mae
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40 REAL ESTATE FORUM DECEMBER 2016