Investing in Affordable Housing: A Strong Asset Class
The following report provides a thorough look at how investment decision-makers view Affordable Housing as an asset class. It combines: Perceptions of Affordable Housing Investment: 2019 Study Key Findings Based on content from confidential interviews with 31 key decision makers in the institutional investment world assessing their perceptions about affordable housing investment Page 1 Perserving America’s Affordable Housing An article exploring how affordable housing offers institutional investors an impact investment opportunity, as well as steady income and solid returns.The article also explores the benefits residents of such housing receive via onsite Resident Services. The report is produced by Institutional Real Estate, Inc. (IREI) a force, providing institutional real estate and infrastructure investor s as well as private wealth advisers with decision-making information and tools via its publications, conferences and related information services Page 5
Perceptions of Affordable Housing Investment: 2019 Study Key Findings
As housing prices around the country have risen in recent years, groups like The NHP Foundation (NHPF) are encountering new populations in need of affordable housing such as retirees, public servants, and recent graduates. NHPF sought to address this growing need by gauging institutional investor interest in affordable housing. To achieve this goal, NHPF engaged Kingsley Associates, a firm with over 30 years’ experience in market research consulting for the real estate sector, to conduct confidential interviews with 31 key decision makers in the institutional investment world. Institutional Real Estate Inc. (IREI), a global media firm specializing in institutional real estate and infrastructure marketplaces, also provided expertise in shaping the study. Most of the participants are part of IREI’s list of the largest Global Investor Managers and are responsible for real estate investments in North America totaling more than $550BN. Defining Affordable Housing The definition institutional investors use for affordable housing varies, with the terminology sometimes getting confused with a couple of different terms. True affordable housing is defined as housing for a renter population which earns less than 80% of AMI (Area Median Income). This asset class is often confused with “workforce housing,” which The Urban Land Institute defines as: “housing that is affordable to households earning 60% to 120% of the AMI.” Fifteen percent of respondents use the terms interchangeably. Further confusing the definitions, is Naturally Occurring Affordable Housing (NOAH) which simply refers to affordable, unsubsidized rents that are relatively low compared to the regional housing market.
Candid and confidential answers from the leading global investment managers participating in the study reveal that a majority (74%) currently invest in affordable housing, 10% do not invest, but plan to in the future, and 16% do not currently invest and have no plans to do so. However, the barriers for those who do not invest, those who invest because of requirements, or those who wish to do more but aren’t, fall into three very compelling categories that set up fascinating opportunities for affordable housing developers and providers. 1.The Federal Government’s “onerous rules and regulations” The first issue investment advisors cited as a challenge to investing in affordable housing, is “onerous government regulations in the development and funding process” commenting that government red tape and bureaucracy make investment in affordable housing “more cumbersome than investment in conventional multifamily projects.” Additionally, those who do not invest in affordable housing and do not intend to in the future, perceive the regulations and “specialized knowledge on how to navigate these unique rules” as their top reason for staying out of this asset class. Respondents indicated that the bureaucracy around housing programs should be simplified, to create a more streamlined process. There is also this question raised by some participants: Since the most common form of government subsidy, the Low Income Housing Tax Credit (LIHTC), does not offer a real benefit to public pension funds since they are already tax-exempt, how do such investors profit? INDUSTRY TAKEAWAY: The discussion around government barriers provides the industry with an opportunity to work with top housing advocacy groups to lobby Congress to simplify the rules and look for a different set of benefits to encourage more pension fund investment. 2.The miseducation (or under-education) of the investment community According to respondents, the second greatest roadblock to institutional investment in the affordable housing sector is miseducation or under-education. The areas cited here include confusion or lack of resources to determine “the right return on investment,” though half of those who currently invest cite “good return on investment” as incentive for continuing work. The lack of awareness of proven ROI coupled with a solid way to categorize returns (Core? Core-plus? Core-minus?) keeps many investors out of the sector but a majority believe that simple case studies of successful projects will help generate more interest. INDUSTRY TAKEAWAY: The affordable housing ecosystem needs to develop more tools to communicate accurate information and create more opportunities to present the data. 3.Investing in affordable housing solely to meet a mandate Based on the quantitative and qualitative interviewing conducted by Kingsley, it was concluded that the third challenge for those considering affordable housing investment is finding ways to affect an attitudinal shift. Those who currently invest in affordable housing strictly because “it is required by the local jurisdiction as a set-aside for the development rights” or to “satisfy an ESG or Environmental, Social and Governance mandate” will benefit by decision-making that couples financial returns with the halo effect of investing for social good. There are growing segments of investors—particularly environmental and socially conscious millennials and women—who look past the requirements and invest because “doing well to do good” is inherent in their lives. INDUSTRY TAKEAWAY: Those in affordable housing need to use creative and thoughtful storytelling—in addition to financial returns—to engage investors. The Top 3 Industry Challenges Very simply, NHPF leadership was seeking answers to two primary questions: “Do you currently advise clients to invest in affordable housing?” And “If not, why not?”
Conclusion This study was just the beginning of a larger conversation about investment in affordable housing. Given the continuing confusion between workforce housing, affordable housing and NOAH, the industry must become better informed about the differences in investing in each. Those in the affordable housing equation must also seize the opportunity to work with housing advocacy and governmental bodies to push for eased entry into tax benefit and other stimulus programs to fund the creation and preservation of future affordable housing. The study shows that investors with institutional capital are familiar with meeting guidelines for sustainable practices or ESG criteria. However, meeting ESG goals or set-aside requirements are never the only benefit of building and preserving America’s affordable housing. To help generate more interest, it will be important for those that have experienced success to share their stories through data, case studies, events, hands-on experiences and other forms of storytelling to help educate investors and bring them into the fold. “It is hard to argue that housing is not a fundamental human need. Decent, affordable housing should be a basic right for everybody in this country. The reason is simple: without stable shelter, everything else falls apart.” —MATTHEW DESMOND, AUTHOR OF EVICTED: POVERTY AND PROFIT IN THE AMERICAN CITY
Perceptions of Affordable Housing Investment Presentation by Kingsley Associates
Does your company have an impact investment policy?
Goals • Gauge investor perceptions of a ff ordable housing: Current or future investment Factors in fl uencing investment decisions How to generate more interest • Broaden the conversation about a ff ordable housing Project Overview Methodology • Phone interviews: 31 respondents. • Respondents are primarily institutional investment management fi rms. • All responses anonymized for con fi dentiality reasons.
“Yes, we de nitely have policies and directives based upon developing communities within urban settings and making positive changes to those communities.” “From my understanding, no, but obviously we are big on ESG (Environmental, Social, and Governance) in all aspects of our business.”
Perceptions of A ff ordable Housing Investment 2
What are your clients’ primary motivations for investing in this sector?
Do you advise clients to invest in a ff ordable housing?
Yes. Types of Investment: • Required as a Set Aside: 59% • Subsidized Low-income: 36% • Naturally Occurring A ff ordable: 32%
“De fi nitely to fi ll ESG requirements, as well as to fi nd favorable returns. If we see that there is a need for a ff ordable housing and we can fi nd a way to make it accretive as well as promote ESG, that’s what we're trying to do.”
No, but plan to in future
No, and no plans in future
(continued on back page)
Perceptions of A ff ordable Housing Investment 4
Perceptions of A ff ordable Housing Investment 6
Perceptions of Affordable Housing Investment Presentation by Kingsley Associates
Primary Motivations for Investing: Common Themes
What are some of the unique bene fi ts of investing in the a ff ordable housing sector?
Good Return on Investment
“People are looking for yield opportunities with downside protection because the capped or regulated rent properties will always be full. You don’t have the risk of vacancy or falling rent in a recessionary period of time. We think the income stream would be very durable and would be able to provide a very consistent return throughout economic cycles.”
ESG Mandate / Social Bene fi t
Required as a Set Aside
Stability of Renter Base
Right Project at the Right Time
Perceptions of A ff ordable Housing Investment 7
Perceptions of A ff ordable Housing Investment 12
What are the biggest challenges your clients face with investments in the a ff ordable housing sector? “There are increasing restrictions and government oversight. The government can change the rules at any time midway through the underwriting process. When this happens, it results in an inability to rely on the stability of the program in order to forecast valuations.” “Understanding the returns. There is a need to educate the investor base on how the returns work on these set aside deals. Recently we have seen more lenders and joint venture partners that better understand how to look at the returns to better evaluate value.”
How would you categorize the returns on a ff ordable housing investments?
Core Core Plus Core Minus / Less than Conventional Don’t Know Returns Vary Value Add
Perceptions of A ff ordable Housing Investment 8
Perceptions of A ff ordable Housing Investment 13
Challenges to Investing: Common Themes
What do you think should be done to generate more interest in a ff ordable housing investment?
Onerous Rules & Regulations Getting the Right Return Construction Costs Lack of Awareness of Proven ROI Finding Product / Inventory Public Pension Funds Eneligible for Tax Credit Ability to Grow Revenue
“Increased awareness is what is really needed. Today, a ff ordable housing is predominately considered a negative because it is seen as something that dilutes returns. I would stress the good that comes from a ff ordable housing investments, the bene fi ts for the city, and the bene fi ts outside of the ballot process. It just needs more positive press.”
10% 10% 10%
Rules & Regulations Vary by Locality Regulations Can Change Anytime
Perceptions of A ff ordable Housing Investment 9
Perceptions of A ff ordable Housing Investment 14
What are some of the unique bene fi ts of investing in the a ff ordable housing sector?
Generate More Interest: Common Themes
Education / Case Studies of Successful Projects
“As a business venture, it’s a recession-proof element of our business. In fact, we have not started a conventional deal in the last three years, but we have a constant revenue stream from the development fees from the a ff ordable communities.”
Simplify Bureaucracy & Reporting
More Clarity of Bene fi ts of Government programs
Create Tax Bene fi t for Public Pension Funds
Conferences or Forums
Increase Volume of Section 8 Vouchers
Perceptions of A ff ordable Housing Investment 10
Perceptions of A ff ordable Housing Investment 15
Unique Bene fi ts: Common Themes
• Lots of misconceptions • Need is greater than ever A ff ordable Housing De fi nition
ESG Ful fi llment / Social Bene fi t
Stability of Renter Base
Good Return on Investment
Win-Win For ESG Goals and Returns • Variety of tools & incentives if you know where to look • Solid return on investment • Meet Environmental, Social, and Governance (ESG) goals
Tax Bene fi t
Diversi fi cation of Assets
Perceptions of A ff ordable Housing Investment 11
Perceptions of A ff ordable Housing Investment 16
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Preserving America’s Affordable Housing by Richard Burns
T he NHP Foundation’s (NHPF) success for the last 30 years is owed to 21 early insti- tutional investors who saw the potential of the affordable housing asset class to produce worthy returns, both financially and socially. Those initial
Incorporating the concepts of impact invest- ing and ESG criteria enhances the attractiveness of affordable housing investment. By combining these with our own empirical affordable housing investment database, we are able to demonstrate to institutional investors the benefits of including this stable asset class in their portfolios.
investments from pioneering com- panies such as Aetna, John Han- cock, Northwest- ern and PNC created the origi- nal capital that NHPF has lever- aged into today’s portfolio. Investment in NHPF coin- cided directly with the pas-
Everyone in the affordable housing ecosystem needs to seek ways to overcome these barriers and provide a host of new solutions aimed at increasing institutional investment.
We partnered with Kingsley Associates, a real estate industry research leader, to gain insight into institutional experience with this asset class. The firm conducted dozens of in- depth confidential interviews with fund man- agers to gauge their perceptions of investing in affordable housing as well as some recom- mendations for the industry. The results of the study were presented at the highly success- ful 3rd annual NHPF Symposium & Dinner. The presentation served as the springboard for a thought-provoking panel, led by Jona- than Schein of InstitutionaI Real Estate, Inc., that discussed the ongoing need to provide millions of Americans with quality, service- enriched affordable housing. As this special report will illuminate, the study found there are significant barriers ham- pering or preventing participation by institu- tional investors at this time. Meanwhile, the average full-time worker earning the minimum wage cannot afford the rent for a modest two- bedroom apartment in any state, metropolitan area or county in the United States. Everyone in the affordable housing ecosystem needs to seek ways to overcome these barriers and pro- vide a host of new solutions aimed at increas- ing institutional investment. v
sage of the highly successful LIHTC (Low Income Housing Tax Credit) tool created by Con- gress, which has made possible the vast majority of affordable housing. This remarkable, bipartisan legislation benefits everyone in the equation — renters, developers and investors. Our founding investors contributed approxi- mately $6 million, an investment which, over 30 years, has been leveraged into 100 multifamily properties containing 18,000 affordable hous- ing units. We currently serve more than 29,000 residents at 56 properties, providing over 10,000 affordable housing units in 15 states and the Dis- trict of Columbia. These early affordable housing investors were pioneers of impact investing, setting the stage for future corporate investors. Since that time, many traditional funders have success- fully entered the affordable housing market, including a variety of private equity and pri- vate debt funds. However, the need remains great. At a time when traditional investors such as pen- sion plans are falling short of their projected returns, we are calling for a new generation of institutional investors to take up the challenge.
Richard Burns is president and CEO of The NHP Foundation.
A Difference Maker
Shore Hill Housing, Brooklyn, N.Y.
Realizing Impactful Returns in Affordable Housing Institutions look beyond challenges to tap investment opportunities in affordable housing
By Beth Mattson-Teig
S olving the affordable housing crisis in this country is a daunting task that will require a collaborative effort from a myriad of pub- lic, private and philanthropic capital sources. Institutional investors have an opportunity to take a bigger step into the affordable housing sector, and, in the process, drive positive social and financial results for their companies, share- holders and communities. The shortage of affordable housing is a well- documented issue across the country from rural towns to major metros. According to The State of
the Nation’s Housing 2019, published by the Joint Center for Housing Studies of Harvard University, nearly half of all renter households (47.4 percent) are cost-burdened, paying more than 30 percent of incomes for housing. Institutional capital fills a critical need with investment opportunities on both the equity and debt side of both financing new development and preserving existing afford- able housing rental properties. “Institutional capital has come to under- stand affordable housing more as an asset class, and come to understand some of the unique
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characteristics of it,” says Reuben Teague, vice president of impact & responsible investing at Prudential. “You can see that in the size of vehicles or funds that managers are raising these days, and the interest from institutional man- agers and pension fund managers and others investing in those vehicles.” Prudential has had an impact investing group since the 1970s. Over that time, it has executed more than $2.2 billion of impact investments and currently manages a portfolio of impact investments for the company valued at about $1 billion. About half of the portfolio includes real assets that fall into three main categories: affordable housing, transformative development and sustainable infrastructure. The mission is to make investments that can produce both a social and a financial return. “I think institutional capi- tal in general has developed a greater appetite for affordable housing investments as a steady source of returns, particularly when they are managed really well,” says Teague. Similar to Prudential, many institutional investors are already at the table, putting capital to work in affordable housing projects. Accord- ing to a 2019 Perceptions of Affordable Housing Investment study commissioned by The NHP Foundation (NHPF) and conducted by Kingsley Associates, three out of four respondents (74 percent) currently invest in affordable housing. Survey results were based on confidential inter- views conducted with 31 key decision makers in the institutional investment world. Very simply, NHPF leadership was seeking answers to two primary questions: Do you currently advise cli- ents to invest in affordable housing? And, if not, why not? The survey found that a further 10 percent who do not currently invest plan to do so in the future, and 16 percent do not currently invest and have no plans to do so. The survey also revealed that the barriers for those who do not invest, those who invest because of require- ments, or those who wish to do more but aren’t fall into three very compelling categories. Spe- cifically, the three main hurdles are: • Miseducation, under-education or confusion related to affordable housing development • Views of “onerous” government regulations in the development and funding process •Investing only to satisfy mandates or require- ments, and not recognizing other value-add benefits One of the goals for NHPF is to expand the breadth and depth of capital commitments
from institutional investors to help move the needle on the housing crisis in this country. Driving that change starts with opening a dialogue with investors to help them better understand both the social and financial ben- efits to investing in affordable housing. “The lack of affordable housing is such a national crisis right now, and there is so much capi- tal looking to invest,” says Richard Burns, president and CEO of NHPF. “We need to find a way to marry the two, and I think that requires creative solutions and education of investors to the opportunities that are out there.” Overcoming obstacles Affordable housing stakeholders broadly agree there is more education needed to better inform the institutional investor community on the nuances of affordable housing, and to correct some of the misperceptions related
“The lack of affordable housing is such a national crisis right now, and there is so much capital looking to invest. We need to find a way to marry the two.” — Richard Burns
to challenges and opportunities. True afford- able housing is defined as housing for a renter population that earns 80 percent or below of AMI (area median income). This asset class is often confused with workforce housing, which is often defined as households earning 80 per- cent to 120 percent of AMI. Some groups, such as the Urban Land Institute, have an even broader definition of workforce housing that includes households earning 60 percent to 120 percent of AMI. Investors frequently use the terms affordable and workforce housing interchangeably. Further confusing the definitions is another subset, “nat- urally occurring affordable housing” (NOAH), which refers to unsubsidized rents that are rel- atively low compared to the regional housing market. Mixed-income projects is another sub- category under the broader affordable housing umbrella that can include a portion of units as a set aside for low-income renters at fixed and/or subsidized rents. Part of changing the dialogue on afford- able housing is getting private capital to look beyond the generic issue of affordable housing. The depth of affordability is a real issue in the
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affordability housing crisis, notes David Wood, director of the Initiative for Responsible Invest- ment, a project of the Center for Public Leader- ship at Harvard Kennedy School. Investors that say they are participating in affordable housing don’t necessarily distinguish between “deep” affordable housing that serves the population below 60 percent AMI and workforce housing at between 80 percent and 120 percent AMI. “I do think we need more public policies that support affordable housing, but from the investor’s side, we want investors actively seek- ing and changing their behavior in order to cre- ate new affordable units, deeper affordable units and affordable units that are linked to other ser- vices, like transit or health,” says Wood. One impediment that survey respon- dents cited to investing in affordable housing is “onerous” government regulations in the development and funding process. Respon-
dents commented that government red tape and bureaucracy make investment in affordable housing “more cumbersome than investment in conventional multifamily projects.” Additionally, those who do not invest in affordable housing and do not intend to in the future, perceive the regulations and “specialized knowledge” on how to navigate these unique rules as their top reasons for staying out of this asset class. “Government programs can actually work to your benefit,” notes Burns. For example, project- based Section 8 vouchers provide an incredible insurance policy for steady income at a prop- erty. In addition, the default rates on affordable housing are miniscule, he adds. “Government programs are designed to financially support the residents so they can afford to live in apart- ments. For that, the government wants some restrictions on the rents going forward. Is that such a bad thing? I don’t think so, not if you
Case Study: Multiple Factors Influence UnitedHealthcare’s Affordable Housing Investment Strategy U nitedHealthcare Group looks at affordable housing investment through a fairly wide- angle lens. The group is looking to be an
Over the last nine years, UnitedHealthcare has invested a little over $400 million in LIHTC deals. UnitedHealthcare has further refined its affordable housing investment strategy over the past year in three core ways that allows it to take a more targeted investment approach. One, the firm is focusing invest- ment on extremely vulnerable populations, such as extremely low income families, seniors and people experiencing homelessness. Two, the group is target- ing investments in affordable housing that have some integration or connection with healthcare services. Three, they are looking at investing in projects where they can track the outcomes and impacts that having a safe, affordable place to live has on residents. Two other areas where UnitedHeatlhcare has been active in a limited capacity is on direct equity projects and also “pay for success” and other out- comes-based financing mechanisms. For example, UnitedHealthcare was the senior investor in Just-in- Reach, a 300-unit supportive housing initiative in Los Angeles County that focuses on getting people off of Skid Row and out of the L.A. County jail and into housing that is connected to support services that they need. “We are currently looking at other initia- tives where we could diversify the ways that we are investing to better use our resources to create hous- ing opportunities,” says McMahon. — Beth Mattson-Teig
investor, a partner with public housing agencies and developers, a policy influencer to support advocacy efforts around housing, as well as a data analyzer to better understand the impacts of safe, affordable housing. Part of that commitment to affordable housing is linked to its own core mission. “As an organization, we fundamentally believe that housing is healthcare, and that absent a safe, affordable place to live, it is impossible to have positive health outcomes in your life,” says Andy McMahon, vice president, Health & Human Services Policy at UnitedHealthcare Group. The organization does recognize that building safe, affordable housing helps with community develop- ment and community revitalization for its members, while at the same time serving as a solid investment instrument. “As part of our impact investing strategy, we’re certainly looking to make a modest return on our investment, but candidly if we were just looking to maximize our investment, we wouldn’t invest in that way. We are absolutely looking to understand the health impacts that our investments are having on individuals and families that they serve,” says McMahon.
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can get meaningful returns relative to the risks you’re taking,” says Burns. Another stumbling block for investors is they think they need to have expertise in the sector. The reality is they can obtain the nec- essary expertise by working with an experi- enced partner. Investors that invest in properties that have a component that requires operating expertise, such as hotels or assisted living, typi- cally partner with those experts. The same is true for affordable housing. Changing investor perception is another big challenge, adds Cherie Santos-Wuest, NHP Foundation trustee and a managing partner at Celadon Venture Partners. Santos-Wuest worked as principal investment officer for the Connecti- cut State Pension Funds and served as a director on TIAA’s (now Nuveen) Global Social and Com- munity Investment’s private equity team. “The perception that one has to give up some returns to do good is a misconception that remains in the investment world today. And many institu- tional investors are held to fiduciary standards, which requires them to maximize returns,” says Santos-Wuest. “The investor simply needs to pick their spot on the spectrum of investment risk, from philanthropic [foundations] to mar- ket rate [institutional investors]. Educating the investment community to the risk-adjusted basis of returns on capital is a long, arduous and not- so-sexy task, in my experience.”
Strong business case for affordable housing investing
Investors can be quick to focus on obstacles, preventing them from investing in affordable housing projects. At the same time, institu- tions are attracted to affordable housing for a myriad of different reasons. According to the NHPF study, 62 percent of respondents said they have an impact investing policy. Half of investors cited good return on investment and an ESG mandate/social benefit as their top motivations for investing in affordable housing, while 42 percent also said it was a required set aside; 21 percent noted the stability of the renter base as an incentive and 4 percent said investment was due to the right project at the right time. When asked to describe the unique benefits of affordable housing investing, one respondent wrote: “People are looking for yield opportu- nities with downside protection because the capped or regulated rent properties will always be full. You don’t have the risk of vacancy or falling rent in a recessionary period of time. We think the income stream would be very durable
Bayview Towers, Stamford, Conn.
and would be able to provide a very consistent return throughout economic cycles.” Affordable housing is not going to offer the same returns that investors are finding in mar- ket-rate housing opportunities. That being said,
“We believe that affordable housing should really be a platform for economic opportunity, and we look for partners that have that same philosophy and are trying to implement that at the project level.” — Reuben Teague
affordable housing can deliver favorable risk- adjusted returns. Most respondents would cate- gorize returns on affordable housing investments as core (35 percent) or core-plus (27 percent). In
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Pepper Tree Manor, Houston
addition, affordable housing is a very stable per- former. “While the conventional market is riding really high right now, it’s a lot more cyclical than affordable housing is, because there is so much more demand than there is supply,” notes Burns. Some investors have an impact investing mandate, or simply a desire to be more socially responsible, to support investments in their com- munities. The growing focus on environmental, social, and governance (ESG) scores, and spe- cifically the social component of ESG also is bringing impact investing and affordable hous- ing more to the forefront. ESG refers to the three central factors in measuring the sustainability and societal impact of an investment in a com- pany or business. Increasingly, investors have an opportunity to look at the benefits of affordable housing more holistically and the overall value in terms of the risk-adjusted returns and port- folio diversification, as well as the value to be gained for a brand in corporate social responsi- bility and higher ESG scores. When asked to describe their clients’ primary motivations for investing in affordable housing, one survey respondent wrote: “De nitely to ll
ESG requirements, as well as to nd favorable returns. If we see that there is a need for afford- able housing and we can nd a way to make it accretive as well as promote ESG, that’s what we’re trying to do.” Investors’ strategies span different vehicles There are different entry points into afford- able housing on both the equity and debt side. The U.S. system has been built around tax credits that leverage private capital to support affordable housing. The Low Income Housing Tax Credit (LIHTC) program has long been a key financing tool for affordable housing projects. “Especially, in the United States where we have these different forms of blending public and private subsidies; the role of private capital in marrying up to phil- anthropic and government subsidy in order to generate affordable housing is part of the way we produce it,” says Wood. Additionally, private capital investors have been actively partnering with developers and sponsors in joint ventures and commingled funds. For example, Prudential actively invests
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Harvest Homes Apartments, Chicago
in affordable housing across different channels, including lending to affordable housing pro- viders, investing directly through joint venture deals and indirectly investing with sponsors who have created affordable housing funds. In par- ticular, Prudential’s impact & responsible invest- ing group likes doing direct investment deals, because it provides more insight and exposure into transactions, as well as an ability to develop more meaningful relationships with partners. In particular, Prudential is looking to partner with developers that have an authentic commit-
discussion is going on, it’s just not being taken up by as many investors as you might imagine given broader commitments to responsible investment or ESG information and those sorts of things that we associate with this growing field,” says Wood. On the impact investing side, there is still a lot of education that needs to be done on what the opportunities are and how they can fit within portfolios, he says. “There is still a disconnect between the people who have interest in taking up impact investment and the consultants and managers who have input into actual decisions on investment portfolios,” he adds. Part of the problem is spending time to convince investors that affordable housing is a worthwhile venture, and then sending them out to find opportunities. More work needs to be done in generating projects that meet social goals and are investable, notes Wood. “I have certainly talked to institutional investors who think affordable housing is an obvious target of interest; however, financial conventions push them to find vehicles that are at the right scale, that meet their criteria, that fit into their portfolio and have staff and consultants who are famil- iar with the field in order to execute on invest- ments, and that is not always easy,” he says. When asked what should be done to generate more interest in affordable hous- ing investment, one survey respondent wrote: “Increased awareness is what is really needed. Today, affordable housing is predominately considered a negative because it is seen as something that dilutes returns. I would stress the good that comes from affordable housing investments, the bene ts for the city and the bene ts outside of the ballot process. It just needs more positive press.” v
“The perception that one has to give up some returns to do good is a misconception that remains in the investment world today.” — Cherie Santos-Wuest
ment to impact that goes beyond the four walls of the unit, adds Teague. “We believe that affordable housing should really be a platform for economic opportunity, and we look for partners that have that same philosophy and are trying to implement that at the project level,” he says. For example, Prudential looks for developers who are trying to create housing that has a positive impact on tenant health, or projects with locations that afford good economic opportunities for residents, such as proximity to transit, jobs or good schools. “Those are the kinds of things that over the long run are going to make a difference in people’s earning capacity and their ability to get to the next rung on the economic ladder,” says Teague. Affordable housing can play an important role within investment portfolios in terms of delivering safe, stable returns that are often coun- tercyclical to other property and asset types. “That
Beth Mattson-Teig is a freelance writer based in Minneapolis.
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Operation Pathways Helping residents lead more rewarding lives By Kenneth White
2 019 saw a year of remarkable change and recognition for The NHP Foundation’s Resi- dent Services subsidiary, Operation Path- ways. Provider of strategic, results-oriented onsite services for nearly 5,000 residents of NHPF’s affordable communities, Operation Pathways employs innovation and works side by side with residents to effect real change in their daily lives. Operation Pathways offers comprehensive programs in five categories: academic achieve-
dent services, Operation Pathways was able to determine that resident services programs reduced property vacancy losses, legal fees and bad debts. The organization’s analysis also shows that Operation Pathways’ resident services programs decrease the number of skips and evictions. These results indicate that 83 percent of evictions and skips were from households that had not received any assis- tance from resident services. This information underscores the value of resident services programs to a property’s bottom line, but the value of resident services programming goes much deeper. Operation Pathways was one of the first resident services providers in the U.S. to adopt Family-Centered Coaching, rooted in an under- standing of the combined institutional forces preventing families from moving forward. Family-Centered Coaching, developed by the Prosperity Agenda with the support of the W.K. Kellogg Foundation, equips staff with the mindset, skills and ongoing resources to work holistically with families toward financial wellness. The approach teaches human service organizations to better engage with, and assist, families experiencing poverty and other hard- ships. The entire Operation Pathways staff has been trained in Family-Centered Coaching and several of its senior leaders are certified trainers of the process. In 2019, residents took part in coaching, creating more productive and meaningful relationships with resident ser- vices coordinators, and leveraging their mutual strengths as creative, capable and resourceful partners to problem-solve together. Family-Centered Coaching transcends the traditional, transactional method of helping a resident fix a problem, which, while well- intended, falls short in bringing about long- term positive lifestyle changes. Residents achieve more for themselves and their fami- lies via the Family-Centered approach, which focuses on their strengths and the value they bring to the table. The results of this approach have included important breakthroughs in the
ment, healthy living, financial success, aging in place, and case management — a one-on-one guidance and referral process. In addition, data show that resident ser- vices in affordable family properties, work- ing in combination with local social services, can reduce rental property management costs. Reductions in turnover and nonpayment of rent have been observed, likely as a result of fami- lies becoming more financially stable. This is often the result of forming relationships with a network of reliability, beginning with resident services coordinators, and an overall stronger sense of community. This data demonstrates how properties and owners can improve their bottom lines by implementing resident ser- vices programs. By comparing family properties with resi- dent services to family properties without resi-
A Difference Maker
daily lives of the people who live in NHPF’s properties. For example, Dorothy Williams had a fam- ily emergency and needed to travel out of state. She spent her rent money on her travel and found herself and her 3-year-old son in danger of eviction. Operation Pathways resi- dent services coordinator (RSC), Adeela, imme- diately helped Dorothy find an agency to pay the rent and late fee. The focus had been: find a solution to the problem, “check the box” for eviction preven- tion, case closed. But based on her training, Adeela adopted a more holistic approach. Dorothy recognized her need for a finan- cial safety net for situations such as these, so she wouldn’t need to spend her rent money on emergencies. Adeela offered financial coach- ing, and Dorothy started working toward that goal. Adeela recognized Dorothy’s strengths — steady work, childcare, a network of friends and family — and Dorothy did the rest. Charles and Gennifer Ratliff represent another shining example of coaching at its best. The couple has built a strong and trust- ing relationship with their RSC, Tiffany, who used Family-Centered Coaching techniques to assess the couple’s readiness to partner with her to help achieve their goals. The Ratliffs worked with Tiffany to uncover short-term objectives to eventually achieve their larger goal of maintaining financial security throughout retirement. Of utmost importance to the Ratliffs was identifying a new, affordable prescription plan that would cover Gennifer’s medication costs to treat the chronic diabetes that has confined her to a wheelchair. Through active listening and asking the right questions, the Ratliffs and Tiffany strategized and found a new, more affordable prescription plan. The couple next worked with Tiffany to create a household budget so they could be ready for future unexpected expenses. In addition, Charles and Gennifer, who previously were socially isolated from other residents, began to participate in commu- nity events and meet their neighbors. Charles started attending weekly fitness classes, and
Charles and Gennifer Ratliff
his doctor soon noted his decreased blood pressure levels. Dorothy and the Ratliffs are perfect exam- ples of the capable, creative and resourceful individuals who live in affordable housing communities. Family-Centered Coaching reminds us that it is not our job to empower residents. In fact, the power already resides in them. It is the purpose of Operation Pathways’ staff to walk alongside these residents as they work toward their goals and coach them along the way. Operation Pathways realizes that recog- nizing and emphasizing residents’ strengths makes us all stronger. v
Kenneth White is vice president, resident services for Operation Pathways.
Copyright © 2020 by Institutional Real Estate, Inc., 2010 Crow Canyon Place, Suite 455, San Ramon, CA 94583. Material may not be reproduced in whole or in part without the express written permission of the publisher. The publisher of this special report, Institutional Real Estate, Inc., is not engaged in rendering tax, accounting or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment.
A Difference Maker
About The NHP Foundation
H eadquartered in New York City with offices in Washington, D.C., and Chicago, The NHP Foundation (NHPF) was launched on Jan. 30, 1989, as a publicly supported 501(c) (3) not-for-profit real estate corporation. NHPF is dedicated to preserving and creating sustainable, service-enriched multifamily housing that is both affordable to low- and moderate-income families and seniors, and beneficial to their communities. NHPF has realized extraordinary achieve- ments in the preservation and creation of value- added affordable housing, operating with both a charitable mission and business-like financial dis- cipline. This has led to the preservation of 100 mul- tifamily properties containing 18,000 affordable housing units. We currently serve more than 29,000 residents at 56 properties, providing more than 10,000 affordable housing units in 15 states and the District of Columbia. NHPF accomplishments include: • 20 tax credit deals completed in the last 30 years •Received $187,589,957 in total funding from Low Income Housing Tax Credits and Historic Tax Credits •One of 12 founding not-for-profits forming the
Housing Partnership Equity Trust, an $80 million private real estate investment trust for the acqui- sition and preservation of affordable housing •The NHPF Affiliate Program, which offers our development, financial, asset management, resi- dent services, and fundraising support to local housing not-for-profits facing financial and orga- nizational challenges. We also partner with state housing agencies, helping them preserve prop- erties in their portfolios as well as develop land they own into new affordable housing •Ongoing, effective resident services via NHPF onsite services provider, Operation Pathways, Inc. • Measurable results, producing and tracking out- come-based programs and services and continu- ously seeking the best results for our residents •Producers of three highly successful symposia tackling critical affordable housing issues via panel discussions, presentations and opportuni- ties for those from our industry as well as poli- cymakers, advocates, healthcare leaders, and others to engage and forge new relationships For more information, visit www.nhpfounda- tion.org. IREI also offers subscriptions to its proprietary FundTracker database, which contains information on more than 4,800 real estate funds and more than 700 infrastructure funds sponsored by investment managers from across the globe. In 2006, the firm launched a conference and seminar division. IREI’s events have gained a stellar reputation and solid following within the industry. The firm’s menu of events includes Visions, Insights & Perspectives (VIP) confer- ences in North America, Europe and for Infra- structure, as well as a new event for young, promising executives titled IREI Springboard. On the consulting side, IREI has more than two decades of experience providing research and advice to the investment-management, bro- kerage, development and technology communi- ties. Services include strategic information and advice on presentations, organizational struc- tures, product development, proposal responses, and design and implementation of market research projects. To learn more about Institutional Real Estate, Inc. and its businesses, visit www.irei. com.
About Institutional Real Estate, Inc. S ince 1987, Institutional Real Estate, Inc. (IREI) has been a force, providing institu- tional real estate and infrastructure inves-
tors as well as private wealth advisers with decision-making information and tools via its publications, conferences and related informa- tion services. IREI publishes a diversified portfolio of news magazines, special reports and directories for the benefit of the global infrastructure and institutional real estate investment community and for private wealth advisers in the United States. Each publication provides subscribers with news, insights and perspective on the trends and events shaping the industry and the investment landscape. The company also is the sponsor and operator of the Institute for Real Estate Operating Companies (iREOC). The firm’s flagship publication, Institutional Real Estate Americas, has been the industry’s go-to resource for 30 years. Other IREI titles include Insti- tutional Real Estate Europe, Institutional Real Estate Asia Pacific, Institutional Real Estate Newsline, Insti- tutional Investing in Infrastructure, Institutional Real Estate FundTracker and Real Assets Adviser.
A Difference Maker
A Difference Maker Affordable housing offers institutional investors an impact investment opportunity, as well as steady income and solid returns
PUBLISHED BY INSTITUTIONAL REAL ESTATE, INC. IN CONJUNCTION WITH THE NHP FOUNDATION
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