EL SEGUNDO, CA-Locally based Highridge Partners, New York City-based Citi and prominent low income housing tax credit leader Michael Costa have formed Highridge Costa Housing Partners to own and manage a $3.4 billion affordable housing portfolio of 275 properties totaling 26,000 units across the US. The portfolio is composed of family and senior apartment communities, housing 80,000 residents in 34 states and Puerto Rico, with almost 50% of the properties in California. All were developed using federal low-income housing tax credits.

In addition to to owning general partnership interests in and managing the existing portfolio, which was built over the past 15 years, Highridge Costa Housing Partners will pursue new opportunities in the affordable housing arena. Costa, who will serve as president and CEO of HCHP, most recently was president of MacFarlane Costa Housing Partners and previously he served for eight years as president of Simpson Housing Solutions LLC, the entity responsible for developing most of the portfolio now controlled by HCHP.

Citi is contributing a previously foreclosed portfolio of which Costa was a partner. Highridge Partners, a contrarian strategy investor with roots in residential real estate, is providing required new equity capital, global capital markets relationships and strategic financial management perspective. Costa brings a business operations and strategic planning background and experience in the tax credit syndication and affordable housing development industry.

John Long, founder of Highridge Partners, tells GlobeSt.com that one of the primary reasons for the company's move into affordable housing is that, "In  this market, which is still pretty much treading water, multifamily is probably the strongest sector," particularly the multifamily affordable housing segment financed via tax credits. Long points out that, with tax credit financing, developers can charge rents that are 25% to 30% less than comparable market-rate projects. Regarding the timing, Long says, "We're a little more comfortable understanding this marketplace now, whereas a year ago it just was very difficult to anticipate where it was going."

Long describes the HCHP portfolio as "attractive, well-managed properties that were part of a company that was the victim of a broken capital structure” He adds, "We have recapitalized the business in a way that results in a stable, strong, and viable company going forward" and that also protects the investments of the original lenders and partners in the portfolio. Steven N. Fayne, a managing director for Citi Community Capital, the community development lending and investing arm of Citi, says that Citi "explored several options for these properties and determined that a partnership with Highridge Costa maintains much needed affordable housing throughout the United States while protecting Citi’s investment.”

During the time of Citi’s ownership, Costa continued to manage the properties ensuring that they are fully occupied and properly maintained, allowing a seamless transition to Highridge Costa Housing Partners. In addition to Citi, HCHP expects to partner with other financial institutions with which it has long standing relationships including Bank of America, J.P. Morgan Chase, Union Bank, Wells Fargo, Ambac Financial Group Inc., American Express, Zurich Financial Services Group, Fannie Mae and Freddie Mac.

Highridge Costa, through a separate operating company, will continue to develop new affordable communities under the tax credit program, primarily in California. Long says that the company is focusing first on coastal markets in California "where the demand for affordable housing far outstrips the available supply.”

The company already has seven projects in various stages of pre-development and will submit applications for several of them in the October tax credit allocation round. More immediately, HCHP expects to break ground within the next 30 days on a 62-unit multifamily community in Hesperia, CA.

Highridge, which sold its commercial real estate at the height of the market and held onto its cash during the recent real estate buying binge, recently reentered the commercial market with office property acquisitions in Orange County and San Francisco. The company is pursuing office properties in core business markets via a $500 million office investment program.