Last month, Carter, whose Avanath is one of the country’s largest owners of affordable housing rental properties, was talking to a different type of potential investor: The Church Pension Group, a financial services organization that serves the Episcopal Church and counts some $13 billion in assets.
The topic of discussion was investing in economically disadvantaged communities.
“We primarily make investments in communities of color, and there are a lot of stigmas related to that and affordable housing here in the U.S.,” Carter, who founded Avanath in 2008, told the Business Journal.
That’s forced the apartment investor to often seek out nontraditional sources of funding, from churches to investors outside the country.
While the IPO for Aspire has been tabled for the time being, there’s still plenty of interest in Avanath from those groups.
Last month, Avanath raised $760 million in its fourth U.S. affordable housing fund. It is reported to be the company’s largest such fund to date.
And money it’s raising is now going to buy properties in Orange County, thanks in part to another local church group, Irvine’s Christ Our Redeemer AME Church, the largest African American congregation in Orange County.
Fund Growth
Avanath’s latest housing fund surpassed the firm’s original goal of $550 million.
This is partly due to a broadened financing pool that included institutional investors from Europe and Asia.
“European investors are very active in creating affordable neighborhoods in diverse communities,” Carter said.
The effort to tap foreign markets kicked off about eight years ago, after Avanath closed its first fund for about $120 million, he said.
The following funding rounds have nearly doubled with each close.
“In addition to speaking to the need for more affordable housing, our company’s focus on ESG—or Environmental, Social and Governance sectors—has appealed to our investor base,” Carter said.
The latest funding is part of Carter’s prior stated goal to double its $2.5 billion portfolio in the next three years.
Avanath, which acquires and operates affordable, age-restricted and workforce housing on behalf of institutional investors, has more than 80 properties with some 10,000 units in 43 cities across a dozen states.
COR Support
Carter said that Avanath has already deployed about 35% of the latest fund’s capital on new buys throughout the country, including the first of two planned acquisitions in Orange County.
It recently closed on The Grove Senior Apartments, an 85-unit independent living community in Garden Grove.
The property, just north of the 22 Freeway along Garden Grove Boulevard, sold for $19.9 million, or about $234,000 per unit, property records indicate.
It’s the first local property for Avanath.
Though OC has served as a great home base for the firm, the company did not have any local projects, “which isn’t for lack of trying,” Carter previously told the Business Journal.
Prominent barriers to entry in OC are higher development costs and a reluctance from residents regarding affordable housing, which Carter referred to as the “not in my backyard” train of thought, he said.
Avanath’s partner in the Garden Grove buy, property records indicate, is COR Community Development Corp., a business development offshoot of Irvine’s Christ Our Redeemer AME Church.
The Spectrum-area church and its business offshoot are led by the Rev. Ralph Williamson.
“Rev. Ralph and his predecessor, Rev. Mark Whitlock, have been tremendous partners for us,” Carter said.
“The organization supports our effort to create upward mobility and support in the communities we invest in by providing strong resident services and after-school programming.”
In addition to offering financing support, Irvine-based COR sees real estate deals as a way to expand the church’s presence in disenfranchised communities.
“Just like Avanath, we take a holistic approach when looking at real estate, providing social services and resources for members of our communities,” Williamson told the Business Journal.
One way COR is doing that is by preparing to become a vaccine center for Orange County residents and “providing new opportunities for members of the community to visit African American churches,” he said.
Busy Season
COR and Avanath count more than 600 affordable housing units in the state, and have made several deals together in the past year.
The duo late last year entered the San Jose market, buying a historic apartment tower in that city for a reported $17.5 million
Avanath’s also made recent investments in Boston, Seattle and Denver.
“We cater to people who have low to moderate incomes in very expensive locations throughout the country,” said Carter, adding that residents typically make between $30,000 and $70,000 per year.
“A lot of owners don’t like to take residents with Section 8 housing, while we have some projects with 100% Section 8 housing renters,” said Carter, noting that Section 8 housing renters make up nearly half of the company’s total portfolio.
“A good percentage of our revenues are derived from Section 8 housing, which has served as a stable source of business throughout the pandemic,” Carter said.
About 15% of Avanath’s portfolio is senior housing, with residents using pensions to pay rent, “which also has not changed during the pandemic.”
“We’ve been fortunate to have strong rental collection and occupancy rates throughout the pandemic.”
A second OC property is slated to close soon for Avanath, according to Carter. It’s not known whether COR is part of that forthcoming purchase.
IPO Plans
Avanath has nearly doubled in size in the past three years and there’s no slowdown in sight, with plans to do that again in the next three years.
The company’s portfolio is valued at $2.5 billion, and the firm hopes “to reach $5 billion in the next few years by expanding in new and existing markets,” Carter said.
Going public will aid in this expansion, especially in the Opportunity Zone realm.
An offshoot real estate investment trust of Avanath led by Carter, Aspire Real Estate Investor intended to become the first publicly traded REIT to pursue a strategy focused on affordable and workforce multifamily housing, and also expected to qualify as the first publicly traded Opportunity Zone Fund REIT listed on a national securities exchange.
After filing its IPO in October, Aspire launched its roadshow just after the election. It ultimately pulled the proposed offering, citing market conditions.
“Though we had some initial traction, concern about the election results as well as ongoing coronavirus issues dampened investment interest, and prompted us to press the pause button,” Carter said.
“We may relaunch this year, but we are still evaluating our time frame.”
That works with Avanath’s schedule, and continued success with the company’s private fund business.
“Private market valuations have fared better than public valuations throughout the pandemic, and we plan on giving it a few months to make sure we secure solid investments for our fund before launching another platform,” Carter said.
