Sola Impact, the Los Angeles-based real estate firm known for an irresistibly capitalist approach to building affordable housing affordably, has been facing major obstacles that could jeopardize its plans and poke holes in its idealistic pitch.
In less than a decade, Sola Impact built and rehabbed hundreds of apartment units across some of the poorer neighborhoods in Los Angeles, led by the charismatic Martin Muoto. By the early 2020s, Muoto had made Sola Impact a firm to know. Celebrities came to his project announcements, officials paid attention and the press fawned.
What made Muoto’s pitch so sticky was that it departed from the accepted method of relying on nonprofits and hefty government tax credits to create affordable units. Instead, Sola Impact’s thesis was to bring in private funding and then keep costs down. As a result, Muoto could build at a third of the cost of many housing developers, he claimed.
By mid-2022, Sola had 1,500 units renovated and 4,500 new units across different stages of development, Bloomberg reported. It had become the largest Section 8 landlord in L.A. and claimed to provide returns in the mid-teens.
These accomplishments landed Muoto, who is Black and from Nigeria, in the national spotlight just as the Black Lives Matter movement was gaining traction in the corporate world.
Companies were seeking to invest in “doing good,” and Muoto needed big investors to scale his vision. In 2022, California State Teachers’ Retirement System, or CalSTRS, made a investment of $50 million into a vehicle that invested alongside Sola Impact’s fourth fund, a transaction that gave the investor world assurance that Muoto’s idea was viable and profitable.
Sola Impact was a “high-caliber operator with a disciplined investing approach,” CalSTRS’ real estate investment director wrote at the time.
But the industry, regulators and investors began asking questions about some of the firm’s practices. Previously undisclosed documents obtained recently by The Real Deal also allege that Muoto might not yet have cracked the code on how to scale affordable housing with funds from the private sector.
“We have had projects that have needed additional equity to complete. We have restructured loans successfully and have been able to obtain the additional equity needed,” said Muoto. “With over 30 ground-up projects in a challenging time for most developers, we are not pretending we have not encountered our share of problematic projects.”
By 2023, with Muoto’s star still rising, the Securities and Exchange Commission was looking closely at some of Sola Impact’s deals, totaling about $96 million, according to the documents, which mention numerous related-party transactions and challenge whether these transactions benefited investors versus Muoto and his co-founder, Gray Lusk. (The current status of the examination isn’t clear, and the SEC declined to comment on the existence of any investigation.)
More than a year after the SEC inquiries began, investor updates and internal emails from the beginning of 2025 indicated that Sola Impact was in a tough spot, with dwindling cash on hand for at least two of its funds. Investor distributions for Sola Impact’s Fund II have stopped altogether.
Now, its most prominent backer and the second-largest pension fund in the U.S. is heading for the exit: CalSTRS is in the process of buying out its interest in the $50 million investment with Sola Impact, according to sources. (Other high-profile funders, like PayPal, have remained.) Muoto declined to comment on the matter or on individual investors.
As pressures mounted, Muoto worked to slash construction expenses and tried to find the margin to make required returns to investors.
To help with the cost-cutting mandate, he and Lusk co-founded a separate company called Model/Z, to make 420-square-foot “Lego blocks” at a factory they leased in Watts; the blocks combine into units that can be built more cheaply than with on-site construction, they claim. But Model/Z appears to have its own struggle, recently filing a mass layoff notice with the state of California.
Muoto said Sola Impact is exploring strategic joint ventures and opportunities in the debt market. He has also sold some properties. In March, Sola Impact scored a $35 million loan for an 188-unit affordable development in South L.A. So far, no known investor lawsuits have been filed against Sola Impact or its principals.
Muoto also emphasized he is pushing ahead with his mandate: raise private money, build housing economically and return money to investors.
“Our investors have all invested in Sola to make market returns and we have a fiduciary [responsibility] to give them market returns… That’s what we are fixated on,” he said in an interview with The Real Deal. “It’s a challenging business at all times.”
“Doing well by doing good”
Muoto was born in Northern Nigeria. At 18, he left for the U.S. with $440 in his pocket and a scholarship to the University of Pennsylvania.
“It changed my life,” Muoto said in an interview with The Wall Street Journal in 2021. “Had I not had that, I don’t know what I would be doing: running some internet scheme where you send your money to an African prince?”
Muoto took a common Ivy League path after graduation, spending over 16 years in private equity. He was simultaneously buying his own properties in L.A. He eventually built a home in the Pacific Palisades, which he lost in the fire.
”There’s no more honest way to learn a business than using your own money,” Muoto told the Wall Street Journal in 2021. “I screened the houses myself. I did open houses, I negotiated with drug dealers.”
Critics warned about the neighborhoods he was buying in. Properties would be vandalized, they said. But Muoto, perpetually optimistic, was not afraid. “Being a minority, I was able to navigate the streets and nobody bothered me,” he said to the Journal.
With Lusk, an experienced investor in L.A. housing, Muoto launched Sola Impact in 2014, laying out a strategy for high-poverty neighborhoods. Traditionally, affordable housing builders rely on low-income housing tax credits, but Muoto believed a better approach was to cut costs everywhere possible. Nonprofit builders who relied on government funding lacked the incentive to look for savings, Muoto stressed. (Muoto did rely on government-funded Section 8 residents to fill units, however).
And Muoto looked everywhere. At a 23-unit project on Compton Avenue, for example, Sola Impact picked speckled stucco at $8 per square foot instead of the usual smooth stucco at $12 a square foot, Sola Impact’s vice president of construction told Bloomberg.
This kind of small saving, repeated across the project, could dramatically lower the price per unit, Muoto claimed. Sola Impact could construct new housing at about $250,000 per unit, whereas a unit funded by tax credits typically totals three to four times that, Muoto claimed.
“The entrenched players said it couldn’t be done,” he told one publication.
Muoto said he had the results audited by a third party, which found his units cost $253,000 to build on average, a hair above the $250,000 assertion.
Sola Impact branched out. Muoto started raising new funds, soliciting investments from family offices and larger institutions.
The portfolio soon had new construction, rehabs, market-rate rentals and Section 8 affordable housing. The company’s sweet spot was apartments with 25 to 50 units. Today, the strategy has shifted. Sola Impact’s focus now is new construction. Similarly, despite an earlier ethos of private sector funding being the future of low-income developments, Sola has heavily tapped into tax credit programs like Opportunity Zones.
Muoto raised about $115 million in Opportunity Zone funds, using some to construct the Beehive, an eight-building, 92,000-square-foot business campus about 10 minutes from Downtown L.A. It offered training and space for minority-owned businesses, including a Black-owned craft brewery and a tech and entrepreneurship center. Then-Secretary of Housing and Urban Development Ben Carson, current HUD Secretary Scott Turner and former NBA star Baron Davis, an investor, attended its launch.
“This is a mission. This is an initiative that is aimed at long-term sustainability, aimed to have a revolutionary transformation, generational impact on the United States of America,” Turner said at the launch, the LA Sentinel reported.
Muoto, playing the role of entrepreneur and community organizer at once, turned to platitudes to show how important it was to let capitalism work. “We’re not giving the community a handout, we’re giving them a hand up,” he said, according to Bisnow.
By 2020, Sola Impact had raised three funds totaling $180 million and wanted to deploy money outside of L.A. to places like Atlanta or Fresno, California. Big-talking and ambitious, he thought he could invest $1 billion in minority communities, he told the Wall Street Journal, which would make him one of the largest builders in minority communities nationwide.
Then, CalSTRS, a pension fund with $327 billion in assets under management and a mandate to make investments that would do some social good, agreed to anchor Sola’s fourth fund, called the Black Impact Fund, with $50 million. A firm called Belay Investment Group acted as a connector for CalSTRS to the local developers.
“We believe that Sola is an organization that helps prove that ‘Doing well by doing good’ is a viable business model,” Eliza Bailey, Belay’s managing principal, said in a statement announcing its investment in 2022.
The SEC examination
Slogans only go so far. Some sources in the industry wondered how Sola Impact could invest $1 billion in low-income neighborhoods without relying on tax credits. When interest rates rose, large multifamily operators in prime markets struggled to cover debt payments, but somehow Muoto was largely unaffected.
Yet by April 2023, there were misgivings inside the company too. Two Sola Impact executives allegedly raised concerns about some of the company’s financial moves, according to documents from an SEC examination into Sola’s funds.
On April 4, 2023, Mike Mahurin, Sola’s chief compliance officer, and Chief Financial Officer Joe El Rady wrote an internal memo to Sola’s compliance committee. It also went to Muoto and Lusk. In the memo, which was among the documents from the SEC examination, they voiced objections about Sola Impact’s deals between funds. Millions of dollars were flowing among various Sola Impact funds, with some funds providing loans to others.
“It is the opinion of the compliance committee that the intercompany loans are violative of the Advisers Act and should be discontinued as a future practice when practicable,” the memo reads.
The Investment Advisers Act requires advisers to act in their investors’ best interest, rather than the managers. If violated, the SEC can enact fines or sanctions. The executives warned these loans also created conflicts of interest.
If intercompany loans continued in the future it “would constitute improper lending between managed clients and should be strictly avoided, whether or not such transactions are on ‘market’ terms,” the memo said.
Muoto and Lusk appeared to go ahead with the deals anyway, according to the SEC.
In an interview with TRD, Muoto and Lusk disputed the SEC’s account. They said they were not aware of the two executives’ concerns prior to the SEC examination.
“That was brought to our attention after the fact,” Muoto said. “That was introduced during the SEC investigation retroactively.”
(Mahurin is still Sola’s general counsel and chief compliance officer, while El Rady left the company in September 2024. El Rady declined to comment. Mahurin did not return a request to comment).
The examination revealed other intercompany transactions. In total, Sola’s funds bought $43.8 million of properties from other Sola funds. In addition, Sola made over $51.9 million in loans to other Sola funds.
Instead of selling properties, such as a 29-unit affordable housing project in South Los Angeles, to outside investors and letting the free market determine the price, Sola Impact funds sold properties to other Sola Impact funds. The company also essentially became a lender to itself with funds offering loans to other funds at attractive rates, according to the SEC.
The regulator wanted to know why these conflicted deals were not disclosed to investors.
One series of loans stood out to the SEC. Sola’s Opportunity Zone fund had lent $7 million to Sola’s Fund II in 2022. That loan was covered by another Sola Impact fund a year later.
Fund II did not have enough liquidity to make monthly interest payments on the loan, according to the SEC. Yet it still managed to obtain the loan at a market rate. In addition, by taking on new debt, the Opportunity Zone fund might have violated the program’s rules, according to the SEC.
In a response to the SEC, Sola Impact denied it breached any of the program’s rules.
The Sola Impact fund provided the loans in part because of a requirement that Opportunity Zone funds get deployed within a certain timeframe, Muoto told TRD. Muoto said he had about $90 million in capital in the Opportunity Zone funds that had to be invested in six to 18 months, per the program’s rules. In addition, he said he was working on a loan with First Republic Bank around the bank’s collapse. So he decided to make the loans, instead of letting the money sit in treasury accounts.
“I understand it ultimately gave the investors a higher return on their capital,” Muoto added.
The status of the SEC investigation is not clear.
If CalSTRS cancels
Over the summer of 2024, a Sola executive received a letter alerting him to the ongoing SEC investigation, which sought to “determine if violations of the federal securities laws have occurred.”
Then, on a Friday night that September, Belay’s managing director Amy Ko sent Muoto an email. Was there a review, investigation or audit by the SEC? She gave Muoto a Monday deadline to respond.
Muoto replied that evening. His tone suggested concern.
Julie Donegan, CalSTRS’ real estate investment director, had cancelled her participation in Muoto’s upcoming “In My Dream Backyard” symposium at the Beehive, sort of like a Burning Man for impact investors. In My Dream attracted 300 community leaders, investors and developers. L.A. Mayor Karen Bass spoke at the event via video and Michael Johnson, the four-time Olympic gold medalist, gave the keynote. JPMorgan, Freddie Mac and the Milken Institute executives showed up. Muoto had written back quickly because of Donegan’s cancellation and the nature of the questions, he said. (Donegan had a scheduling conflict, according to CalSTRS.)
In Muoto’s email, he told Donegan and Ko that Sola Impact was under a routine SEC review of an SEC registered fund. The “audit” flagged three sets of issues: three interfund loans valued at less than $8 million, three sales from Fund III to Fund IV and deficiencies in controls.
(The actual amount of loans flagged by the SEC totaled around $52 million, not $8 million.)
“I want to state unequivocally and without hesitation and that Sola Impact’s principals [Gray and Martin] have never engaged in any fraud, anything closely resembling fraud, any unethical business or [personal] practices, and never placed our economic interest ahead of our investors,” Muoto said toward the bottom of the email.
He added: “While we understand the nature of the inquiry, and have certainly taken our share of naysayers and haters, we are wholeheartedly disappointed that anyone in the industry would go out of their way to purposely damage our reputation or question our integrity.”
CalSTRS is now seeking to get out of its investment, though its reasons aren’t clear. The pension fund and Sola Impact are in talks about buying out the CalSTRS position in the fund, according to sources.
“We cannot comment on any current or future transactions,” Muoto said. “That is highly proprietary confidential information.”
CalSTRS declined to comment. Belay did not return multiple requests for comment.
Cash-strapped
CalSTRS wasn’t Sola Impact’s only concern. High construction costs and rent collection issues were hitting hard, internal emails to lenders and investor updates suggest, a tough scenario for a firm devoted to keeping outlays low.
Sola’s Fund II had stopped paying distributions to investors and was selling off properties with a negative 7.4 percent return as of September 2024, according to internal emails.
And, projects stalled: 11001 Vermont, a 84-unit modular housing project; 4252 Whittier Boulevard, a 70-unit apartment; and 6100 Main Street, a 87-unit modular housing project.
Some of the delays at 6100 Main Street were caused by an affiliate of Sola’s go-to construction firm Tennex, according to a letter to Sola’s lender. Tennex Builders’ Francisco Zepeda denied it was the contractor for the project, in a LinkedIn message when reached for comment. But building permits filed in L.A. County list the contractor as Tennex Construction, which shares an address with Zepeda’s Tennex Builders on filings.
Muoto said in an interview only two projects had stalled, and that they have since been restarted or are in the process of being restarted.
By January 2025, Sola’s Fund III and Fund IV’s Opportunity Zone segment were in desperate need of cash, according to one internal correspondence to Muoto and Lusk, which also noted that the company was exploring ways to raise more money.
“Fund 3 is cash strapped with only around $500,000 in cash,” the Sola executive wrote. “As you know, Fund 3 is unable to pay several of its debts as they come due, namely the asset management fees, construction management fees, and overhead reimbursement amounts.”
“Fund 3 is over-levered and not creditworthy,” the executive added. And Fund IV’s Opportunity Zone segment “was barely able to meet its commitments to pay related party fees.”
Muoto disputed these numbers. He sent over screenshots showing over $1.2 million in two separate undated checking accounts tied to entities within Fund II.
As evidence that Fund III is credit-worthy, Muoto provided TRD with a closing statement from March for a $7 million refinancing of a Sola Impact property in that fund.
In general, the documents provided by Muoto are hard to analyze. Muoto declined to provide a balance sheet for Fund III. Banks will often lend on the value of a property, not the creditworthiness of a fund or company. Money held in checking accounts can change rapidly due to revenue or expenses and does not reflect the actual cash position of a fund or company.
The pivot
Months after the tumult, not much looks different at Sola from the outside. In March, the company announced a $12 million investment from CEI-Boulos Capital Management and Allivate Impact Capital for a $63 million affordable housing project. The following month, news came of $29 million in tax credit financing for a mixed-use project in Crenshaw, where Sola will create a training center for technology, digital media and music jobs.
Muoto said he is exploring additional strategic joint ventures. His timing is still good, he stresses: Supply is at historic lows, leading to more rent growth. He said he’s 60 days away from completing five projects.
He also has a new venture, Model/Z, the modular housing startup, which can produce 1-2 modular units per day, according to Muoto. Turner, now HUD Secretary, appeared with Muoto on a post-confirmation national tour, touting the modular building factory.
Muoto has always relied on capitalism as the force to make change, even in places the outside world associates with crime and gang violence. Where some saw nonprofit or government as the answers to affordable housing, he turned to private investors. The free market operates better than unnamed government bureaucrats or unmotivated nonprofit workers — that’s the pitch he made again and again.
But even Muoto confronted problems trying to show that he, or any builder, could meet the high bar: reliably constructing a large number of units at a third of the going cost with no government tax incentives while churning out the double-digit returns institutional investors seek.
Model/Z is the latest solution. In its investor update, Sola Impact said Model/Z focuses on affordable housing, giving it an edge over modular competitors. (In an investor update, Sola Impact said it buys Model/Z modules at a 7 percent discount to market rate and that the deals were approved by an advisory committee).
The set-up, if successful, could allow Sola Impact to deliver the mid-teen returns that institutional investors are seeking in its funds. Investors in future funds can expect better profitability, thanks to the new structure, another investor update says.
“It provides the funds with strategic options that we believe will lead to lower costs, higher returns, and faster time to market for new construction projects,” a Sola Impact investor update from mid 2024 says about Model/Z.
But modular construction has had mixed success. One startup, Katerra, filed for bankruptcy in 2021 despite a $3 billion investment led by SoftBank.
In late April, Model/Z announced it planned to lay off 102 permanent employees in a notice with the state. The layoffs, mostly of assembly workers, were set to go into effect in late June.
But Muoto had an explanation for the Worker Adjustment and Retraining Notification. He said, “Model/Z scaled up ahead of our internal need to ensure the factory could handle a throughput of 3 units per shift to be able to take on third-party clients. We then moved some permanent employees to seasonal staff.”
The notice shows that while over half were assembly workers, positions to be laid off included the head of human resources, director of supply chain and senior vice president of manufacturing.
He added that Model/Z has “a pipeline over several clients that are in advanced contract negotiations.” It has a partnership with Logos Development to build modular housing on church-owned land, but those projects have not started construction.
Since he got notice of the SEC examination, Sola Impact has increased disclosures, Muoto claims, adding that Sola Impact had made mistakes in the past. Any related-party transaction now has to be approved by Sola Impact’s limited partner advisory committee, he claims. He acknowledged that Fund II stopped making distributions. He said he deferred management fees in Fund II and Fund III.
For him, the bigger picture matters more. He hoped this story would be about how he’s building in L.A., a market full of red-tape and taxes, for as low as $280,000 per door, or about the urgent need for investment in housing, something that is “one degree of separation between everything good and everything troubling in this country,” as he put it.
“If we don’t get institutional investors to want to invest in this category, it’s never going to be done by nonprofits alone and never going to be done by the government,” he said.
In May, Muoto spoke on a panel at the Milken Institute, an event attended by power players in finance. His talk sounded like the pitch he’s given for years, but with more urgency and focus. He has dialed in on the need for long-term, patient capital to invest in affordable housing and look beyond headline risk. He brought up the need to find the right operator, one with a track record, one who can really execute with the community in mind.
“A lot of people just think that we’re knuckleheads because we continue to stick to it, but that long game is critical to be able to withstand,” he said at Milken, before turning to a well-worn aphorism. “Tough times don’t last. Tough people do.”