From left to right: Reginald Stanley, president and CEO, ImpactUs Marketplace; Drew Ades, president and CEO, Housing Partnership Equity Trust; Kirk Sykes, president and managing director, Urban Strategy America Fund; and Deborah Horwitz, Goulston & Storrs, partner and Real Estate Practice Group cochair, speaking at the recent Housing Opportunity 2016 conference in Boston.
By 2025, affordability restrictions are expected to expire on an estimated 25 million units of affordable housing subsidized by the U.S. government. Another 3 million units of so-called naturally occurring affordable housing—units not subsidized but with a natural price point that is affordable compared with market-rate units—will also be lost during the next ten to 15 years.
But what will not change—and in fact only stands to increase—is the demand for housing for people on fixed incomes and those earning 40 to 120 percent of the area median income (AMI).
At the same time, members of a new generation of “social-impact investors” are eager to place their equity in housing as a platform to address a variety of issues they care about, including economic mobility and disparities in health outcomes and educational attainment. Panelists at the recent ULI Housing Opportunity 2016 conference in Boston discussed platforms aimed at expanding the pool of equity investors with the potential to shore up the supply of affordable and workforce housing.
One of these is the Housing Partnership Equity Trust (HPET), a social-purpose real estate investment trust launched in 2013. HPET specializes in the quick deployment of capital to acquire naturally occurring affordable Class B and C multifamily properties in high-opportunity areas, according to panelist Drew Ades, HPET president and chief executive officer. In some cases, these properties are former low-income housing tax credit (LIHTC) properties whose income restrictions are expiring and which are in need of major rehabilitation.
HPET targets renters earning 60 to 80 percent of AMI because “there are no subsidies to help them pay rent, yet they are nowhere close to being able to pay what market-rate rents are,” Ades said.
What makes HPET’s platform unique is its liquidity. Unlike a developer arranging an LIHTC deal, which that can take up to 18 months to close, HPET can deploy capital in a timelier fashion, Ades said. HPET’s deals occur in partnership with 12 high-performing, nonprofit housing providers that are members of the Housing Partnership Network, HPET’s sponsoring organization. Collectively, these providers own and operate 65,000 housing units in markets across the United States. It was their level of expertise that attracted blue-chip investors—the MacArthur Foundation, Citi, Morgan Stanley, the Ford Foundation, and Prudential Financial—to provide an initial $100 million in seed capital.
Since 2015, the trust has raised another $50 million, which it expects to deploy by the end of this year. HPET’s investors are seeking triple-bottom-line returns, Ades said—a return on the trust’s mission to preserve affordable housing, sustainability returns through energy efficiency upgrades the trust makes to its portfolio, and an economic return through consistent long-term dividends.
“From a market standpoint, there is basically an infinite demand right now for affordable housing,” Ades said. “If you have properties that are located in good markets and good operators operating them, they are going to be full and they are going to generate a very predictable cash flow.”
Other equity funds are focused on construction of new affordable housing rather than preservation. Launched in 2004 under the aegis of the New Boston Fund, the Urban Strategy America Fund invests in mixed-income developments that have an affordable and workforce component.
The fund has partnered with local community development corporations in the Boston area to invest in vacant and underused sites and transform them into vibrant developments. Among its projects are Olmsted Green, located on the site of the former Boston State Hospital in Dorchester, and One Greenway, located on a site near Chinatown that had been taken in the 1960s for a highway that was never built, said panelist Kirk A. Sykes, president of the fund and a member of ULI’s Responsible Property Investing Council.
Olmsted Green combines 287 workforce townhouses with 151 affordable apartments and 59 units of senior supportive housing; the development also includes a 123-bed skilled nursing facility and a mental health center. One Greenway, along with 217 market-rate rentals, includes 95 permanently affordable units, as well as 50 affordable, for-sale units. Both HPET and the Urban Strategy America Fund’s work were featured in Preserving Multifamily Workforce and Affordable Housing: New Approaches for Investing in a Vital National Asset, a report published by the ULI Terwilliger Center for Housing in 2015.
Technology is also fostering closer ties between impact investors and affordable housing providers. ImpactUs Marketplace is a new online platform that provides a variety of investors—high-net-worth individuals, family investment advisers, and institutional investors—with a one-stop shop for mission-driven investment opportunities, including deals in the affordable and workforce housing space.
Set to officially launch in September, ImpactUS Marketplace has as its goal aggregating information on mission-driven projects and providing investors and their advisers with the financial due diligence and expertise to meet other regulatory requirements needed to close on investments.
“Many community organizations don’t know how to speak the language of brokers, registered investment advisers, and other institutional investors,” said Reginald Stanley, ImpactUS Marketplace president and chief executive officer. “Being an intermediary that can aggregate, scale, and assist both sides of that pipeline is ultimately what we aim to do.”
Archana Pyati is a writer on ULI’s strategic communications team.
