Los Angeles-based apartment investor Standard Communities completed the acquisition of an affordable housing portfolio that could affect more than 13,000 residents across four states in what the company says is the largest affordable housing transaction of the year.
The company signaled it's looking to make similar deals in the future. Valued at more than $1 billion, this portfolio includes over 60 properties with more than 6,000 apartment units serving families and older adults with residences that have an average opening year of 2002, and most are developed by a seller Standard Communities wouldn't name.
Standard Communities said it plans to spend an additional $30 million across the portfolio in capital improvements and deferred maintenance.
“Due to volatility in capital markets and rising interest rates, new housing starts have significantly declined in recent years. This poses a long-term threat to new unit development while inadequate housing supply [worsens] the ongoing housing crisis,” a spokesperson for Standard Communities told CoStar News.
Combined with the rising cost of homeownership, including house prices that have ballooned more than 50% since the pandemic, according to the S&P CoreLogic Case-Shiller Home Price Indices, vacancies at market-rate units are expected to further decline, driving up rents even higher.
“There is no better time to invest in affordable housing,” Standard's spokesperson said. Chris Cruz, senior managing director of essential housing at Standard, indicated more acquisitions are to come.
“We are actively pursuing additional large-scale opportunities like this. We’re uniquely positioned to handle sizable portfolios amid increasing consolidation within the industry. We expect portfolio acquisitions to continue to play a key role in our growth, and we have significant capital ready to support these strategic investments,” he said.
Portfolio financing
The purchase expands Standard Communities’ portfolio of assets under management to more than $5 billion covering nearly 27,000 apartments across 21 states and Washington, D.C. The portfolio adds 11,000 units to the firm’s California holdings and marks its first acquisitions in Arizona, Colorado and Texas.
Financing for a majority of the portfolio comes from participation in federal, state and local subsidy programs — including property tax abatements, tax-exempt bonds and local funding sources — in exchange for long-term income restrictions designed to maintain affordable rents for individuals earning between 30% and 60% of the area’s median income, according to the company. Many of the properties also receive Low-Income Housing Tax Credits, or LIHTC.
“In a market environment considered challenging, Standard is experienced and well positioned to finance and complete large and highly complex multi-state acquisitions,” Jeffrey Jaeger, a co-founder and principal at Standard Communities, said in a statement. “Our strategic planning in this difficult interest rate environment has allowed us to enter into new states, greatly expand our portfolio and continue to invest in people’s futures by offering them affordable places to live."
Properties included in the deal include 42 units at Maroon Creek Apartments located at 100 Stage Court in Aspen, Colorado, where rents rose 7% over the past year, according to CoStar data. Harmony Court Apartments in Redondo Beach, California, includes 187 units with asking rents averaging $1,324, a 42% discount to the overall market. And Oaks at Georgetown has rents for its 192 units averaging 26% less than market-rate apartments in the Texas town.
Increasing opportunities
In the affordable housing sector, many projects are offered for sale as their income requirements granted through programs such as LIHTC expire.
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 without fresh investment from owners or buyers willing to negotiate new deals, according to the National Housing Preservation Database.
The number of properties reaching the end of their affordability structures could more than double in 2025 to 2,269 properties. In 2026, 2027 and 2028, roughly 2,000 more properties are expected to 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.