Investing in Affordable Housing: A Strong Asset Class

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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