Why Affordable Housing Investors Are Staying in Top-Tier Metros

Not everyone is fleeing major metros during the pandemic. Remote office workers have largely driven the migration trend into the Sunbelt region. Essential workers, on the other hand, are staying put, helping to fuel strong fundamentals in affordable and workforce housing product. As a result, these housing segments have outperformed market-rate multifamily.

Avanath Capital Management, which closed its fourth fund last month with $760 million in capital commitments, is staying with its target demographic of renter-by-choice rather than following the investment trend into alternative markets. “We are in the top markets in the US, but we haven’t gone to Salt Lake City or Boise,” John R. Williams, president and CIO at Avanath, tells GlobeSt.com. “That is really a migration of people that can do that because they are renters by choice, not by necessity. Our group is renters by necessity. They probably couldn’t duplicate their job and lifestyle in another market.”

Through the pandemic, Avanath has enjoyed strong rent collections from its renter base, an indication that tenants aren’t only staying in their current homes but also succeeding through the pandemic. “Of our 11,000 units, only 70 people applied for a payment plan or a deferment. That was way below what we thought. We worked with people on that, and other people were paying the rent because they were working,” says Williams.

One reason is because affordable housing by nature is, well, affordable. Residents in Avanath’s communities have maintained their jobs as essential workers and have been able to make their payments as usual. “Our rents are set at 30% of the median area income, so it isn’t as though our residents are paying 40% to 60% of their income on rent. It is affordable for them,” says Williams. “They are working and they budget, and they are able to make their rent payment. Our residents are essential workers; they work in hospitals or at Amazon and the like. They can’t move to a market like Boise and phone their job in.”

The firm’s success during the pandemic has not only reaffirmed the business model but also helped fuel strong investor interest in the most recent fund. “[Rent collections] has a lot to do with our success of fundraising. When people were doing due diligence on our fund, they were getting real-time data and they were surprised and delighted that our collection rate was higher than market rate product. That proved out the durability of it,” says Williams.

With $760 million in its pocket for its next round of investment, Avanath doesn’t plan to change much in the way of its strategy. “We are focused in high-cost areas in the US that have good jobs and jobs that pay well, but where it is hard to find good housing at an affordable rate,” says Williams. “We continue to target those markets, and we will probably add another 18 to 20 properties over the next 18 months. We are looking at a number of opportunities. We have capital and liquidity, and we are getting a lot of in-bound calls from groups that want to sell. They want to go to a viable buyer that can execute, and we happen to be on that short list.”