For example, we recently acquired Grand Pointe Park, a 156-unit workforce housing asset in the Poughkeepsie submarket of the New York metro. This property will attract many renters who are leaving the cost-burdened New York City metro to find more-manageable rents. On the West Coast, a similar migration is underway from San Francisco to more-affordable areas such as the East Bay and Sacramento.

Based on this activity, suburbs surrounding urban cores are poised for tremendous growth in investment potential this year.

GlobeSt.com: What demographic trends are emerging in the affordable and workforce housing space that owners should know?

Williams: While Millennials are certainly a demographic to watch, statistics indicate that the largest segment of the multifamily market consists of families. More than half of all rental households comprise some type of family configuration, headed by a person over the age of 45.

There's an unmet demand for larger three- and four-bedroom units to accommodate families. Only about 8% of total multifamily inventory since 2000 has included three-bedroom or larger units. This disconnect between the supply and demand of larger units creates a unique opportunity for affordable housing investors to capitalize on this demand by acquiring assets with larger floor plans and multiple bedrooms.

Based on this demand, these larger units rarely turnover, resulting in strong stable cash flow and risk-adjusted returns to investors.

The challenge of aging in place for Baby Boomers is also driving tremendous demand for affordable senior housing. According to the NIC, there are more than 12.1 million seniors over the age of 80, with growth rates expected to accelerate sharply over the next decade, and not enough affordable housing to support seniors in retirement.

GlobeSt.com: There's been some speculation that the increase in new multifamily construction will impact market fundamentals moving forward, and that some lenders are pulling back on multifamily financing. How will this affect the affordable housing sector?

Williams: Most of the new multifamily construction we are seeing consists primarily of luxury apartments that are beyond the affordable price point for the majority of today's renters. The average renter in the US earns $35,000 a year. While many multifamily investors are focused on catering to the top-tier Millennial renter, the reality is that the largest segment of the rental market is not composed of Google or Facebook workers.

While the influx in new luxury housing may impact fundamentals for market-rate multifamily, demand will remain strong and even increase in the affordable housing sector. There is a limited supply and a virtually unlimited demand for quality affordable housing, making this a strong, stable asset class that is well-positioned to deliver attractive risk-adjusted returns over the long term.

In regard to multifamily lending, there is plenty of capital available to finance affordable- and workforce-housing investments. For market-rate luxury housing, banks and other lenders are generally being more conservative in their underwriting and lowering their leverage on construction loans. Workforce-housing communities, on the other hand, are experiencing strong lender appetite, based on their stability and generally high occupancies.

GlobeSt.com: How does Avanath differentiate itself from other affordable-housing investors?

Williams: At Avanath, our investment strategy is to preserve the existing supply of affordable housing by investing in strategic capital improvements and social services that improve quality without sacrificing affordability. In doing so, we are able to maintain high occupancies and reduce turnover, resulting in stable cash flow and competitive returns to our investors.

Multifamily investors often underestimate the expenses associated with turnover, which undermines asset performance. Our affordable and workforce housing portfolio has an average resident turnover rate of 15% to 20%, whereas comparable market-rate properties have a much higher turnover of 50% to 70%. Across our national portfolio, we have an occupancy rate of 98%, and many of our communities have long waiting lists.

Our investment strategy differentiates us from our competitors in several ways. First, we add value to our properties without “over-improving” or over-amenitizing them. By investing in “smart” renovations that require minimal capital expenditures, we are able to enhance asset quality without the significant rent increases needed to justify the upgrades. For example, rather than replacing the kitchen cabinets, we will simply resurface them. The question that investors should be asking is not how much residents will pay for a certain amenity, but rather, what they would be willing to forgo to keep rents affordable.

Finally, from an impact investment standpoint, we integrate social programming such as after-school tutoring and financial literacy courses. Our holistic approach to investing not only in brick-and-mortar, but also in the community at large is what drives true returns to our investors.

GlobeSt.com: What is your outlook on the affordable- and workforce-housing market for 2017?

Williams: Looking ahead, the affordable- and workforce-housing market is poised for tremendous growth. We're seeing more investors entering this space, resulting in greater liquidity than ever before. The increase in competition is also contributing to higher valuations in the affordable- and workforce-housing sector. That said, our longevity in this space, coupled with our vertically integrated property management platform, gives us a competitive advantage as we expand our national portfolio in 2017 and beyond.

Given the fact that Avanath was founded in 2008, we have almost a 10-year head start on any recent competitors, which has allowed us to build a national platform totaling more than $1 billion in assets under management and a proprietary investment pipeline.

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IRVINE, CA—The affordable- and workforce-housing market needs larger, three- and four-bedroom units to accommodate families, creating a unique opportunity for investors to capitalize on this demand with larger floor plans and multiple bedrooms, Avanath's president and CIO John Williams tells GlobeSt.com. The firm has raised two funds—and is currently raising its third—dedicated to preserving and enhancing affordable/workforce assets. We spoke with Williams about the best markets to target for these investments, Avanath's investment strategy and other trends in this realm.

GlobeSt.com: Which markets are the best targets for affordable/workforce housing investments?

Williams: The top markets for affordable housing include gateway cities in supply-constrained coastal markets with strong job growth, mass transit options and high quality of life. The high cost of living and high barriers to entry make these coastal markets attractive targets for affordable- and workforce-housing investments.

Beyond coastal gateway markets, the suburbs surrounding expensive urban centers are also ideal targets for affordable-housing investments. One trend we are currently seeing is the regional migration from urban cores to surrounding suburban markets. As renters are being priced out of urban cores such as New York City and San Francisco, many are moving to more-affordable communities in the suburbs, located within commuting distance to major employment centers.

For example, we recently acquired Grand Pointe Park, a 156-unit workforce housing asset in the Poughkeepsie submarket of the New York metro. This property will attract many renters who are leaving the cost-burdened New York City metro to find more-manageable rents. On the West Coast, a similar migration is underway from San Francisco to more-affordable areas such as the East Bay and Sacramento.

Based on this activity, suburbs surrounding urban cores are poised for tremendous growth in investment potential this year.

GlobeSt.com: What demographic trends are emerging in the affordable and workforce housing space that owners should know?

Williams: While Millennials are certainly a demographic to watch, statistics indicate that the largest segment of the multifamily market consists of families. More than half of all rental households comprise some type of family configuration, headed by a person over the age of 45.

There's an unmet demand for larger three- and four-bedroom units to accommodate families. Only about 8% of total multifamily inventory since 2000 has included three-bedroom or larger units. This disconnect between the supply and demand of larger units creates a unique opportunity for affordable housing investors to capitalize on this demand by acquiring assets with larger floor plans and multiple bedrooms.

Based on this demand, these larger units rarely turnover, resulting in strong stable cash flow and risk-adjusted returns to investors.

The challenge of aging in place for Baby Boomers is also driving tremendous demand for affordable senior housing. According to the NIC, there are more than 12.1 million seniors over the age of 80, with growth rates expected to accelerate sharply over the next decade, and not enough affordable housing to support seniors in retirement.

GlobeSt.com: There's been some speculation that the increase in new multifamily construction will impact market fundamentals moving forward, and that some lenders are pulling back on multifamily financing. How will this affect the affordable housing sector?

Williams: Most of the new multifamily construction we are seeing consists primarily of luxury apartments that are beyond the affordable price point for the majority of today's renters. The average renter in the US earns $35,000 a year. While many multifamily investors are focused on catering to the top-tier Millennial renter, the reality is that the largest segment of the rental market is not composed of Google or Facebook workers.

While the influx in new luxury housing may impact fundamentals for market-rate multifamily, demand will remain strong and even increase in the affordable housing sector. There is a limited supply and a virtually unlimited demand for quality affordable housing, making this a strong, stable asset class that is well-positioned to deliver attractive risk-adjusted returns over the long term.

In regard to multifamily lending, there is plenty of capital available to finance affordable- and workforce-housing investments. For market-rate luxury housing, banks and other lenders are generally being more conservative in their underwriting and lowering their leverage on construction loans. Workforce-housing communities, on the other hand, are experiencing strong lender appetite, based on their stability and generally high occupancies.

GlobeSt.com: How does Avanath differentiate itself from other affordable-housing investors?

Williams: At Avanath, our investment strategy is to preserve the existing supply of affordable housing by investing in strategic capital improvements and social services that improve quality without sacrificing affordability. In doing so, we are able to maintain high occupancies and reduce turnover, resulting in stable cash flow and competitive returns to our investors.

Multifamily investors often underestimate the expenses associated with turnover, which undermines asset performance. Our affordable and workforce housing portfolio has an average resident turnover rate of 15% to 20%, whereas comparable market-rate properties have a much higher turnover of 50% to 70%. Across our national portfolio, we have an occupancy rate of 98%, and many of our communities have long waiting lists.

Our investment strategy differentiates us from our competitors in several ways. First, we add value to our properties without “over-improving” or over-amenitizing them. By investing in “smart” renovations that require minimal capital expenditures, we are able to enhance asset quality without the significant rent increases needed to justify the upgrades. For example, rather than replacing the kitchen cabinets, we will simply resurface them. The question that investors should be asking is not how much residents will pay for a certain amenity, but rather, what they would be willing to forgo to keep rents affordable.

Finally, from an impact investment standpoint, we integrate social programming such as after-school tutoring and financial literacy courses. Our holistic approach to investing not only in brick-and-mortar, but also in the community at large is what drives true returns to our investors.

GlobeSt.com: What is your outlook on the affordable- and workforce-housing market for 2017?

Williams: Looking ahead, the affordable- and workforce-housing market is poised for tremendous growth. We're seeing more investors entering this space, resulting in greater liquidity than ever before. The increase in competition is also contributing to higher valuations in the affordable- and workforce-housing sector. That said, our longevity in this space, coupled with our vertically integrated property management platform, gives us a competitive advantage as we expand our national portfolio in 2017 and beyond.

Given the fact that Avanath was founded in 2008, we have almost a 10-year head start on any recent competitors, which has allowed us to build a national platform totaling more than $1 billion in assets under management and a proprietary investment pipeline.