“Sacramento is one of the hottest real estate markets in the nation right now and is experiencing explosive growth,” says John Williams, president and chief investment officer of Avanath. “The market has made a tremendous comeback since the recession and leads the nation in highest annual effective rent growth, with rental increases exceeding 10.5% last year. This surge in market-rate rents is placing enormous pressure on renters and driving demand for affordable housing throughout the region. While still an affordable alternative to the Bay Area, Sacramento is now seeing rapid rent appreciation and not enough supply of quality affordable housing to meet current demand. This acquisition will allow us to preserve affordability in one of the fastest rent-growing markets in the country, while also amassing economies of scale.”

Built in 2005 and 2006 under the low income housing tax credit program, the three-building portfolio was 98.5% occupied at acquisition and of relatively new vintage, providing strong in-place cash flow and an opportunity to add value through minimal capital improvements, according to Williams.

The portfolio consists of a diverse range of affordability types, including senior housing, family housing and mixed-income housing, making it well positioned to cater to different age and income demographics. In addition, the properties offer large units averaging 922 square feet and boast a unit mix of one-, two-, and three-bedroom options.

“80% of new multifamily developments in the largest US metros target the affluent millennial demographic, while the majority of renters are low- and middle-income families earning an average of $35,000 a year,” explains Williams. “This disproportionate supply of luxury to workforce inventory indicates a severe lack of affordable housing to support the largest stock of renters. By catering to these underserved families and seniors, we will be able to maintain high occupancies and drive consistent, risk-adjusted returns for our investors.”

Avanath's investment strategy is to acquire affordable and workforce housing assets in supply-constrained markets with strong growth fundamentals. The firm generates long-term value through property level renovations and social services that improve quality while maintaining affordability, according to Williams.

“Overall, this portfolio acquisition advances our mission to generate strong risk-adjusted returns for our institutional investors while simultaneously achieving social returns that deeply benefit the communities in which we invest,” says Williams.

Planned renovations include upgrading exterior paint, installing LED lighting throughout the portfolio to optimize energy efficiency, revitalizing some common areas and addressing deferred maintenance items, among others. Social services at each property include after-school tutoring programs, fitness classes and computer literacy courses. Avanath will team with longtime nonprofit service provider COR-CDC to offer these community-enriching social services.

Avanath acquired the three properties from a repeat seller, an affordable housing developer, in this off-market transaction. The three-building portfolio includes properties in Elk Grove, Dixon and Antelope, CA.

Geneva Pointe comprised of 152 affordable units is located at 8280 Geneva Pointe Dr. in Elk Grove, CA. This community serves families earning between 50 and 60% of AMI. The property includes a clubhouse, business center, fitness room, pool and detached parking garage, and offers social services such as after-school programs.

Lincoln Creek is a mixed-income community that comprises 172 apartment units: 95 affordable family units, 48 affordable senior units and 29 market-rate units. Community amenities include a clubhouse with a business center, fitness room, pool and spa, separate community center dedicated entirely to seniors, a laundry room and detached garage parking. The property is located at 1395 N. Lincoln St. in Dixon, CA.

Encompassing 144 units, Sierra Creek is an affordable senior housing community serving seniors earning 50 to 60% of AMI. Sierra Creek benefits from favorable demographics and market fundamentals with its location at 4500 Elverta Rd. in Antelope, CA. No new multifamily construction is underway in Antelope, making this a supply-constrained market with limited competition and high demand. In fact, the waitlist for this property includes more than 200 applicants.