IRVINE, CA—Avanath Capital's Affordable Housing II Fund has attracted investor groups including state pension funds, banks, insurance companies, a foundation and a family office, president and CIO John Williams tells GlobeSt.com. Having recently closed the fund after completing a $200-million capital raise, we spoke exclusively with Williams about why the fund has such wide appeal and how the firm approaches its acquisitions.

GlobeSt.com: What does it take to create a fund with such broad investor appeal?

Williams: I think the niche strategy is appealing because it's not a difficult concept to grasp, especially in high-cost cities and on the coast where there's almost unlimited demand for affordable workforce housing. The market serves people who make between 50% and 80% of area median income. It's a highly underserved market because, if you think about it, anything being developed today is reaching for that top .001% of folks making $150,000 to $350,000 a year—that's what you need to make to afford those homes. In the broadest group of our renters, the average rents are about $1,000 per month, and about 60% to 70% of renters in the US can afford that. When we speak to new investors, we talk about the importance of reinvesting in the community and helping communities to be sustainable with workforce folks, but also investing in a product with basically unlimited demand.

GlobeSt.com: What do you look for in the affordable and workforce-housing assets you acquire?

Williams: A lot of the assets we acquire are developed under a tax-credit program or have some regulations on them, so we look for assets like that. A lot of them are owned by banks and institutions, they have the tax credits and we enhance and improve them. We're also looking for assets like a C product in an A market that was never invested in to the standards of that community. We improve them to a level where we're not trying to hit the top tip of the market, but more mid-level. Instead of granite countertops, we put in Formica countertops, and instead of new cabinets, we repaint them. These units are not amenity rich or design rich; we're improving the product but not so much that you have to get the highest rents in the area.

GlobeSt.com: Which new markets are you exploring as competition for acquisitions continues to be fierce in primary markets?

Williams: In Cary, NC, we just bought an asset. It's a high-cost area, and there are high incomes there. We're also buying four buildings in Brooklyn that are rent regulated. In New York, there's an unlimited demand for affordable rents.

GlobeSt.com: What else should our readers know about your company and/or the fund you just closed?

Williams: Our properties are 99% occupied; there's very little turnover because there are not a lot of alternatives for tenants to go to. What we try to do is create communities that have a great atmosphere so people want to stay. We invest in social programs free of charge to residents like after-school homework clubs, literacy programs for single moms and mentoring programs for teenagers. In one of our Long Beach assets, we have a program funded in party by the NFL Players Association where retired NFL players come in one night a week and mentor teenagers. This gets a lot of attention from the kids because these are ex-athletes. They talk about how their lives have changed, what life is like after sports and what they needed to do to succeed. This improves the value of the property. People like the asset, and they don't have programs like that in market-rate or high-end apartment communities. People want to stay and want to be good citizens. They are good residents and want their community to improve. They like where they live and don't want to leave.