BH Properties has placed a $1 billion bet on affordable housing.
The Sawtelle-based commercial real estate investor has pivoted with a $1 billion plan to buy affordable homes, the Los Angeles Business Journal reported.
BH, manager of $2 billion in retail and industrial assets, is staking its new investment strategy on low-income housing tax credits, federal Section 8 subsidies and age-restricted affordable housing properties.
BH will target several states, including Texas, Arizona and California.
“Over the last 10 years or so, we’ve acquired over 3,000 multifamily units … and we’ve always catered to a lower-income demographic,” Andrew Van Tuyle, senior managing director of investments at BH, told the Business Journal. “But as far as investing in actual affordable housing where there are the (tax credit) components to it and things along those lines, this is a new venture for us.”
The company’s strategy is not driven by the assumption of tax credits, but the “durable and manageable” income stream that affordable housing assets can provide.
The new portfolio will target properties at the end of their 15-year low-income housing tax credits compliance period.
To qualify for the tax credits, owners must buy or build affordable housing and keep it income and rent controlled for a set period. Such properties generally must agree to maintain affordability for 30 years. The tax credits can be sold to investors to obtain equity for projects.
Van Tuyle said as BH takes on more risky investments, such as industrial or office buildings, affordable housing assets offer a more immediate, annuity-like revenue stream that can “prop up” negative returns of the higher-risk properties.
He said he expects a quick revenue turnaround, since the properties aren’t vacant when they are purchased and provide cash flow from the first day.
“That sort of consistent demand to remain occupied is very different than buying a vacant building and sort of hoping that you can find a tenant in the near future,” Van Tuyle told the newspaper.
The firm’s long-term goal is to collect $1 billion in affordable housing properties, including $100 million in the portfolio’s first year, and $250 million the second year. The initiative is less than two weeks old, and the company has yet to purchase any affordable housing assets, according to BH President Jim Brooks.
Brooks pointed to BH’s status as a private company to explain its decision to aim for such a large portfolio in a previously untouched sector.
“We don’t have any third-party investors, we have no limited partners, so our ability to move quickly, pivot and turn is really unmatched,” Brooks said. “That’s really one of our big hallmarks. … no niche focus leaves a lot of paths open to pursue, and that’s really how the firm operates. It moves very quickly, very opportunistic, without a single set of focus.”
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