A private equity fund and an affordable housing provider bought tax-advantaged multifamily properties with nearly 5,000 units across four states, extending a string of recent investments by firms trying to capitalize on higher costs and expiring affordability contracts at government-subsidized apartment complexes.
Affordable housing investor Hudson Valley Property Group and private equity firm Wheelock Street Capital have acquired 22 multifamily properties in Washington, Colorado, California and Idaho. The properties — concentrated in the Denver; Seattle; and Spokane, Washington areas — will be reserved for tenants earning less than 60% of the area’s median income as part of the federal Low-Income Housing Tax Credit program.
More federal subsidies are expiring in the coming years under that tax credit program launched in the late 1980s that developers rely on to help make projects work. The expirations are creating a plethora of acquisition targets for affordable housing firms looking to leverage high housing expenses.
"The U.S. is dealing with an affordable housing crisis that continues to face challenges due to a major supply-demand imbalance, having added only about 7.3 million housing units in the past decade, while the population has grown by 22 million," Jason Bordainick, co-founder and managing partner of Hudson Valley, told CoStar News. To meet the need, he said, Hudson Valley "focuses on preserving and rehabilitating the country’s existing affordable housing stock which are at risk of leaving the affordable supply."
The flurry in recent weeks of U.S. affordable housing deals valued at well over $1 billion comes as affordable and middle-income apartments have emerged as a high-demand segment of the multifamily industry, and as a flood of new high-end supply and changing demographics has accelerated rent growth in many markets.
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, which is considered a tipping point for personal financial stability.
Expanding portfolio
While Hudson Valley declined to provide financial terms of its deal, the move increases the firm’s total portfolio to include 87 properties with nearly 15,500 units.
Hudson Valley acquired its latest portfolio from Inland Group, with Wheelock Capital providing the majority of the deal’s equity through its Long Term Value Fund. Additional partnerships with local housing authorities, including the Washington State Housing Finance Commission and the Colorado Housing and Finance Authority along with several nonprofit groups, is expected to let Hudson Valley finish improving the portfolio while maintaining affordability.
Hudson Valley’s closing comes about a month after another affordable housing portfolio sale involving more than 6,000 units across 60 properties sold for $1 billion to Standard Communities.
The portfolio added 11,000 units to the firm’s California holdings and marked its first acquisitions in Arizona, Colorado and Texas. Standard said it would continue to pursue similar large-scale acquisition opportunities for affordable housing.
“There is no better time to invest in affordable housing,” a Standard Communities spokesperson said.
Additional firms have also entered the Colorado affordable housing market this month, including Turner Impact Capital. The Santa Monica, California-based firm made two purchases this November through its Turner Multifamily Impact Fund III. The fund is expected to raise $750 million in equity from investors, with plans to spend $2.3 billion on the preservation and development of affordable workforce housing.
Discount to market
Acquisitions included Silverbrook, a 165-unit property located at 15403 E. First Ave. in Aurora, Colorado, that sold for $32 million, and Canterra at Fitzsimons that fetched $36.2 million and includes 188 units at 358 Potomac Way.
Average asking rents at both properties run at a discount to the overall Aurora market. At Silverbrook, rents are more than 8.5% below the surrounding area. Residents at Canterra currently realize a 12.5% discount on rents, according to CoStar data.
Last week, Sagard Real Estate closed on an affordable housing purchase in California's Inland Empire where market-rate rent growth has been among the strongest in the country. The deal included 158 garden-style units at Riverside’s Vitsa Imperio.
Sagard will implement a renovation program at the circa 2005 property but will keep rent levels affordable to tenants earning between 70% and 120% of the area’s median income.
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 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 these contracts run out, some market watchers worry rents at those properties will return to elevated market rates, driving out current tenants, if there's a lack of new investors ready and willing to preserve the property's affordability structure.
As part of Hudson Valley's business model, the firm works to extend those regulatory agreements to ensure housing remains affordable while leveraging partnerships with private and public entities to deliver returns to investors.