A new fund focused on affordable housing projects across the country is joining a wave of firms looking to keep apartment rents cheap while making what they hope are sound investments.
More affordable housing projects, mostly apartments, are expected to lose government subsidies as the number of expiring contracts that often run for 30 years more than doubles in 2025 on developments completed after the Low-Income Housing Tax Credit launched in 1987. Investors and municipalities have scrambled to find solutions for renters who earn too much to qualify for traditional subsidized housing but not enough to afford market-rate units as costs rise.
Turner Impact Capital is the latest firm to launch a fund to make apartment acquisitions for many of those renters. The Santa Monica, California-based private equity firm hopes to raise $750 million in equity from investors as it plans to pour a total of $2.3 billion into the preservation and development of affordable apartments.
The average American renter is now paying roughly $275 more per month in rental costs — a 19% increase nationwide — since the pandemic, according to CoStar data. Analyses from Harvard University’s Joint Center for Housing Studies have shown that more than 22 million renter households in the United States are now cost burdened, or spending more than 30% of their incomes on rent, a record high that has begun to affect workers in professional occupations.
Apartment investor Waterford Property Co. told CoStar News rents have risen so much near its headquarters in Orange County in California that workers in typically middle-class jobs including teachers and first responders have had trouble affording market-rate rents.
But, according to housing industry analysts, middle-income renters have largely been ignored by developers who tend to either accept large subsidies and tax breaks for low-income tenants or rely on high-end, market-rate developments to make deals profitable.
Higher Incomes
While programs such as the Low-Income Housing Tax Credit create avenues to finance projects for renters earning less than 60% of an area’s median income, John Drachman, co-founder of Waterford, said there have been few developer incentives benefiting prospective tenants earning between 61% and roughly 120% of the area’s median income.
Waterford has been successful in partnering with the city of Dallas to convert an existing market-rate property to an affordable project aimed at renters earning between 80% and 140% of the area’s median income. But some investors have warned that costs for government-subsidized affordable developments can balloon, and public resources are too scarce to adequately address the problem.
That gap between costs and available funds is creating opportunities for private capital to provide low-cost housing while earning returns from a high-demand property.
"Investors should understand that this is a good investment,” Deborah LaFranchi, managing partner at American South Capital Partners, said in an interview. “You shouldn't shy away from these investments simply because we're trying to make communities stronger by providing low-income families with quality housing."
LaFranchi oversees two funds that collectively have invested more than $140 million of a $234 million pool of capital into 24 affordable housing projects covering more than 5,400 units largely without government subsidies or tax credits. Many of the projects are reserved for households earning 80% or less of an area’s median income and generate risk-adjusted, market-rate returns comparable to other housing funds.
“We just can’t produce enough [affordable housing] if we’re relying on these tax credits,” she said, adding that “the cost of the projects gets quite expensive.”
In California, projects aimed at the state’s homeless population have at times ranged from $600,000 to $800,000 a unit. With limited government funds and cumbersome compliance regimes, these bloated costs have been one factor leading to an estimated 7 million-unit shortage of rental housing in the United States.
New fund purchases
Turner Impact, which doesn't use the Low-Income Housing Tax Credit or other government subsidies for its investments, recently made two apartment purchases through its third multifamily fund aimed at affordable housing.
“As working families struggle to find quality housing they can afford, there is an urgent need for innovative, market-driven solutions that deliver measurable and lasting results for residents, communities and investors,” Bobby Turner, chief executive at Turner Impact, said in a statement. “Through these first two acquisitions and many more investments to follow, we are once again demonstrating that well-designed impact investing can create scalable and sustainable solutions to our country’s daunting housing challenge.”
The company said its Turner Multifamily Impact Fund III is “on course” to reach its fundraising goals and has recently tapped the fund to purchase two affordable properties in Las Vegas and Minneapolis. Together the projects are expected to preserve the affordability of 483 apartments.
The larger of the two properties, Topaz Springs in Las Vegas, was completed in 1995 and contains 336 units. The apartments, which range from one to three bedrooms, are spread across 42 two-story buildings on a 15.5-acre site. Rents average $1,272, a roughly 14% discount relative to the overall market average, according to CoStar data.
Located at 3975 N. Nellis Blvd., the renter base for Topaz Springs comes largely from nearby employment centers, including the Las Vegas Medical District, Nellis Air Force Base, and several future commercial and tourism projects that are expected to create thousands of jobs, Turner said.
A second property, B-Side Apartments at 3027 22nd Ave. in central Minneapolis, opened in 2021 and contains 147 studio, one- and two-bedroom apartments in a single six-story building. The mixed-use project, near the Metro Blue Line, is among the largest so-called transit-oriented developments in the Twin Cities.
Rents at the property run 15.5% lower than the market overall, currently averaging $1,278, according to CoStar data.
Expiring affordable housing
This year, an estimated 1,075 rental properties will reach the end of their contracts and are expected to lose the governmental assistance that allows them to maintain affordability, according to the National Housing Preservation Database. That number could more than double in 2025 to 2,269 properties. In 2026, 2027 and 2028, roughly 2,000 more properties will lose their affordability designation each year.
In total, federal assistance for more than 9,500 affordable properties is expected to expire over the next five years, including more than 337,000 homes.
As the number of affordable projects expiring rises, Turner Impact has responded in kind. The company’s third multifamily impact fund follows the company’s two previous impact funds that together raised $100 million less than the current fund’s goal. Funds I and II raised roughly $650 million in equity that was used to preserve $2 billion of housing for low- to moderate-income households.
“Our financial strength and access to capital enable us to move quickly on investment opportunities arising from market dislocations and with mission-aligned partners,” Gee Kim, president of Turner Impact’s Multifamily Housing Initiatives, said in a statement. “Our track record of creating positive social, environmental and financial outcomes through the successful execution of our strategy positions us well as we launch our latest fund.”