Working-class housing fund eyes more acquisitions as demand, cost pressures grow

An investment fund focused on preserving working-class housing in Austin is nearing its first property acquisition of 2021, and moving ahead with its reactivation after the slowdown in 2020 caused by the Covid-19 pandemic.

The Austin Housing Conservancy Fund is expected to close on the purchase of another multifamily property in June or July, with hopes to add 1,000 units of housing to its portfolio by the end of the year. That would double its current lineup of workforce housing options throughout the city, which currently stands at 1,000 units and 1,500 residents who fall between 80 and 120 percent of annual median family income.

That class of housing doesn’t qualify for affordable housing subsidies or other assistance programs and is in danger of becoming scarce for the area’s middle-income hourly workers, public employees or young professionals at risk of being priced out of the area by rent increases. The housing conservancy was created by the nonprofit Affordable Central Texas to buy and hold multifamily properties, keep rents affordable and deliver moderate single-digit return rates for investors.

In December, the fund acquired the Melrose Trail apartment complex in North Austin. Unlike a traditional purchase, with that acquisition the fund brought in new capital and additional partners to help the existing owner refinance the property.

David Steinwedell, CEO of Affordable Central Texas, said Austin made it through the pandemic and the accompanying recession with no dip in demand or performance on its properties. He hopes the data showing strong tenant retention and rent payments should help more banks and other institutional investors looking to grow the social impact portion of their investment pool, with a target of attracting $15 million from new investors by the end of the year.

“Before the pandemic a lot of people looking at the fund would ask us what would happen if there was a downturn in the market. One of the things we talked about was providing stable housing with affordable rents, and in a downturn people are more likely to stay and pay their rent because they want to keep that housing, especially when it is close to good schools,” he said. “We have very little volatility and risk in the investment, and when the pandemic hit we got to live that and prove out that all the properties in the portfolio did better than the market in terms of occupancy, tenant retention, rent collections and all the other relevant measures you would use to prove out that investment.”

The softness in multifamily housing that did hit the Austin market was mostly felt by downtown high-income properties, Steinwedell said, with even that bit of slack mostly gone now.

In addition to more acquisitions, the housing conservancy is working on its first ground-up development, with more recapitalization deals likely to help reach the goal of owning 5,000 workforce housing units by 2023.

Steinwedell said one positive factor in the multifamily market in Austin is that there are enough projects planned and in development to keep rental prices from spiking as they have in the single-family home market over the past year.

Looking at the whole housing landscape for the Austin area, Steinwedell said the growing interest in social impact investing and the demand for affordable and middle-income housing will keep more supply coming, but might not be enough to have a significant impact on the city’s homelessness problem.

“Normally when you have a recession or something like what we just survived, prices fall, and that creates the opportunity for more affordability, but that didn’t happen in Austin and the need for what we’ve been doing has been magnified. From a capital perspective, Austin is attractive to a whole variety of investors,” he said.

“There’s always a need for more housing, and when there’s a limited supply you always seem to have people with various interests all fighting each other for a limited supply of money. You see that now with homelessness and no one can deny there’s a need for more money and more programs to make that work, but you need to do that by bringing in additional dollars, not trying to take money from one program and use it for another program. The real problem for the city and (county) commissioners is how to find tools and additional sources of capital so you’re not taking away from one need to serve another.”

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