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Daryl Carter: Avanath Buying Spree Pays Off

$4B AUM for affordable housing investor

Last year, apartment investor Avanath Capital Management LLC grew its assets under management by more than 40% to $3.7 billion, following a multifamily acquisition spree topping $1 billion, including a $314 million portfolio buy in New York that marked the company’s largest buy to date.

As the housing market continues to face an imbalance of supply and demand, the Irvine-based firm is poised for another year of success.

“Most of our properties are at 100% occupancy with waiting lists,” founder and Chief Executive Daryl Carter told the Business Journal. “While interest rates increased more than we expected, which will make new acquisitions trickier, it doesn’t change the basic fundamentals of the investment space.

“There is virtually unlimited demand for quality affordable housing.”

With an apartment portfolio topping 14,000 units, including more than 400 in Orange County, Avanath is now squarely among the top 20 of the country’s largest affordable housing owners, according to multifamily industry data.

Avanath will continue to add that count in the new year through investments and ground-up developments, a new strategy for the company.

“In regions like Detroit where I grew up, we can buy vacant city land on a very favorable basis. We believe there’s an opportunity to build up to 2,000 apartments in Detroit over the next five years,” said Carter, named a Business Journal Businessperson of the Year, for the real estate sector.

Top-Dollar Deals

Avanath, which acquires and operates affordable, age-restricted and workforce housing on behalf of institutional investors, has about 40,000 residents living in its communities in north of 50 cities, with rents averaging about $1,300 per month. Residents earn about $40,000 per year on average.

Last year’s buys were in the company’s existing markets, all of which show “considerable market demand,” according to Carter, who has been in the apartment sector for over 40 years, and in September was the Multifamily Executive Magazine’s 2022 Hall of Fame inductee.

“All of our acquisitions were fundamentally sound, and purchased considerably below replacement costs,” Carter said.

It made its largest acquisition to date in May when it spent $315 million for a pair of mixed-use communities in Brooklyn from Greenland USA. The properties include the 308-unit 38 Sixth and the 298-unit 535 Carlton.

Closer to home, Avanath paid $220 million for a 669-unit apartment community, Baldwin Village Apartments, in the Crenshaw neighborhood of Los Angeles. Avanath partnered with the Housing Authority of the City of Los Angeles for the August deal.

That same month, Avanath paid $181.6 million for six apartment communities in the Sacramento region, significantly expanding its Northern California presence.

Avanath also expanded its Orange County holdings last year, acquiring its fourth asset in the county in April.

It paid $11.1 million for the 44-unit Yorba Linda Palms, which serves residents at 30% to 50% of the area median income.

In addition to Yorba Linda, Avanath owns 382 units in Costa Mesa, Anaheim and Garden Grove.

“All of the properties we own in Orange County have performed very well, and we would love to own more,” Carter said.

Renaissance Fund

Avanath’s ramped up pace of buying seen last year was in part spurred by a move at the start of the year to close its first open-ended fund, totaling $536 million.

The fund is a consolidation of the firm’s first two funds and serves as the company’s sole investment vehicle for new affordable and workforce housing acquisitions moving forward.

The company has previously opened four funds; all of them have had a 10-year shelf life, which has limited the possibility of long-term holds for Avanath. The new fund’s open-ended structure changes that.

“We plan to make this a $7 billion fund over the next five to six years,” Avanath Partner and CFO Wes Wilson told the Business Journal in April.

The fund currently counts about $1 billion worth of assets.

“Investors have gotten more conservative in this environment, but the fundamentals of our business are sound, and capital flows into the affordable sector continue,” Carter said.

This year is likely to be a slower acquisition year following last year’s record volume, but the firm will remain in buying mode with a goal of investing at least $500 million in new purchases.

“We continue to be very bullish on the market,” Carter said.

Development Plans

This year is also likely to bring the first development projects for the company, as it looks to convert excess or adjacent land on projects it already owns into additional housing units.

“We have one ground-up development in the works in Detroit through a public-private venture that will deliver about 200 units as part of the first phase,” Carter said.

The company is scouting development opportunities elsewhere. One of its projects in downtown Oakland can accommodate up to 70 additional units, while another project in Los Angeles is also being discussed, Wilson previously told the Business Journal.

Walking the Walk

Avanath has set itself apart in the affordable housing space by investing in the communities it’s in to create better lifestyles for its residents.

The company does this through partnerships with community nonprofits to implement programs and services across its portfolio, as well as through investments in eco-friendly practices.

“These initiatives vary from property to property, market to market,” Carter said.

Such efforts include after-school programs, healthcare and wellness resources, financial literacy classes, as well as upgrades to convert the apartments into more sustainable buildings.

“There’s a bias for brand-new properties that are LEED certified, and we are typically acquiring buildings that are 25 to 100 years old. We are constantly looking at innovative ways to make these buildings more energy efficient,” Carter said.

This commitment to ESG—or the Environmental, Social and Governance sectors—begins with Avanath’s team, many of whom “grew up in communities like the ones we serve,” Carter said.

“Our own diversity makes us a better manager of these communities. That’s part of our secret sauce.”

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