Increasing the supply of new affordable housing is important. Preserving existing housing units for low-income residents is existential.
Through this year, rent restrictions are expiring for nearly 300,000 units of affordable multi-family housing in projects that were built with federal subsidies and tax breaks 15 or 20 years ago. Affordable housing developers have trouble competing with buyers intent on flipping those units to market-rate rents, displacing stable and rent-paying low-income families.
“We can’t afford to lose access to affordable housing,” Jeff Brenner of Impact Community Capital says on the latest episode of ImpactAlpha’s Agents of Impact podcast.
“Market rate developers come in and they can afford to put higher bids on the properties, because their intent is to raise rents so they can produce higher cash flow. So it puts a tremendous amount of pressure to try and find ways to give developers the capital they need to preserve that housing.”
Impact Community Capital sources that capital primarily from the large insurance companies, including Allstate, Farmers, Nationwide, Nuveen and Pacific Life, that helped launch the firm in 1998. Now the San Francisco-based fund manager is opening its institutional-grade funds to outside investors as well. Since 1998, Impact Community Capital has deployed more than $1.6 billion in financing, creating more than 54,000 units of affordable housing.
“We want to add another billion to a billion-and-a-half investment in affordable housing over the next three to four years, because it’s a huge problem that needs to be solved,” says Brenner.
Impact Community provides short-term loans to developers so they can move fast while arranging longer term federal financing through Federal Housing Administration, Fannie Mae, Freddie Mac or other agencies, renew the rent restrictions and keep the units affordable for families earning less than 100% of their area’s median income.
The impact fund manager also provides longer-term, mortgage-backed products to create or preserve housing units financed with public subsidies including Low Income Housing Tax Credits for families earning less than 60% of the area median income.
Foundations, endowments, family offices and other investors, he says, have woken up to affordable housing as a stable portfolio asset. Vacancy rates remain low through both up and down economic cycles for the simple reason that when families have a home they can afford, they don’t want to leave.
“They think about it as more of a core real estate investment, something that is low risk, that doesn’t provide outsized returns, but matches up well against their assets and provides predictable income,” Brenner says.
The firm also prioritizes social services and other amenities, like transportation for seniors, childcare for parents and energy efficiency measures to reduce heating and cooling costs.
“If we can keep costs down over the long term, that keeps renters sticky, it keeps cash flow stable, and it tends to keep value in the property over the long term,” Brenner said. “So we really look at it as part of our underwriting as well.”
Impact Community Capital may have particular credibility in making the case for affordable housing as an institutional-grade asset class because it was formed for that express purpose by institutional investors. The company’s original industry partners, Brenner said, required a risk-return profile that matched their long-term liabilities for payouts on auto, homeowner and life insurance policies.
“They said, ‘Listen, we’re part of this world where there are big problems, like poverty, and to solve them, it’s going to require big amounts of capital.’” Brenner said. “‘We happen to hold big amounts of capital. So maybe there is a place where we can use that capital and drive it to not only make good investments for our policyholders, but also to have these investments help the broader communities in which we exist.”
