27 Sep With first acquisition, workforce housing fund looks for capital to grow
A real estate investment fund aimed at preserving Austin’s fast-disappearing supply of workforce housing announced the acquisition of its first 308-unit rental property in North Austin.
The Austin Housing Conservancy recently closed on the Preserve at Wells Branch in a deal that saw the Austin Affordable Housing Corporation and the Community Development Trust join with a group of private investors. The fund, which is managed by the nonprofit Affordable Central Texas, has a stated 10-year goal of acquiring up to 1,500 units per year of housing priced for middle-class workers, who are increasingly seeing apartment complexes bought and improved by investment groups who increase rents by 30 to 40 percent to appeal to high-end consumers.
David Steinwedell, CEO of Affordable Central Texas, said the fund has five more acquisitions in the pipeline while more socially conscious investors and foundations are brought on board to provide capital. The fund is targeting properties throughout the city that are close to transit corridors, schools, grocery stores and employment centers that can serve residents earning from 80 to 120 percent of the area’s median family income.
“This first property checks all the boxes because it’s walking distance from an elementary school and close to a greengrocer and transit stop,” Steinwedell said. “Investors look at this as a low-risk investment with the icing of doing something that is for the benefit of Austin. Many of them have felt the pain of things like losing an employee or a favorite teacher at their kids’ school because those people can no longer afford to live close to their jobs.”
Steinwedell said the workforce segment of the housing market has proven hard to preserve because long-established programs for affordable housing target a lower price point and the private investment community typically prefers the large returns that come from properties that command upper-class rental rates. Once the fund exhibits its stability, he said, the pace of investment will increase, with plans to deploy $500 million in capital in the next 10 years.
Mayor Steve Adler said he began searching for a solution to the city’s workforce housing dilemma in 2014 after reading a report that forecast the city would lose 40,000 units of middle-income housing located near transit corridors within a decade. Meetings with real estate and investment professionals as well as experts in municipal housing policies resulted in a “conscious investment” model that could deliver a low but stable rate of return since the properties’ rent levels will be kept in line with the area’s median income level.
In November voters will decide whether to approve $250 million in bond funds for the city to use toward the creation of affordable housing units.
“It’s hard to subsidize anything that’s 80 percent (median income) or so, and for that you need a private market answer, and we kept finding that the model for that didn’t exist,” he said. “We started putting together summits with people who manage billion-dollar funds and securities attorneys and went through our lists of investors. What we came up with was something like a (real estate investment trust) that could be a reliable return on the funds invested.”
While the fund is currently focused on acquiring existing housing properties, Steinwedell said in the future it could pursue partnerships with the city or local school districts that would provide land where the fund could use its capital to build new workforce housing developments. Adler said no city funds or other resources have been used in support of the fund, which is a for-profit investment vehicle.
Steve LeBlanc, board chair for Affordable Central Texas and a founding partner in the CapRidge Partners real estate investment group, said the investment community is largely aware of the workforce housing issue but in the past has proven hesitant to put dollars at risk to solve the problem.
“The challenge is we’re new and something like this has not been done before. So now that we have our first community purchased, they can see that we’re following through with what we said we were trying to do,” he said. “We’ve laid out the business plan, and we’ll show that we can be successful. But it’s been hard because it’s always been easier to make money in communities where rents are increasing faster than the area’s income, which is not sustainable.”