Why One Institutional Investor Recapped a Workforce Housing Portfolio

NEW YORK CITY—Global private markets investment management firm Hamilton Lane has recapitalized a workforce housing portfolio owned by Asia Capital Real Estate, or ACRE, for $147 million. The portfolio includes more than 1,700 apartments located in Florida, Ohio and Georgia, which have been folded into a new fund structure. It is a meaningful transaction for ACRE, says Michael Van Der Poel, co-founder and managing partner of the long-term affordable housing owner operator.

It’s significant because of its size but also because of the institutional backer, he says. “We have been investing in workforce and affordable housing for seven years and have spent much of that time educating institutional investors about their merits and differentiating factors.” Up until now, Van Der Poel says, ACRE has secured much of its financing from family offices.

“This is typically a non-institution asset class but increasingly we are seeing pension funds and other such investors express an interest in our model,” he says.

The business case is straightforward: there is an ongoing affordable housing crisis in the US along with a shrinking supply of housing among B and C grade properties. This demand-supply mismatch creates an opportunity for institutional investors that want to see buildings running full, Van Der Poel explains. “It is a chance for social impact investing with great returns,” he says. ACRE has been posting 20% IRRs for its funds, he adds.

Van Der Poel notes that this interest in still in the early days for institutional investment in workforce and affordable housing. It is still a fragmented space, he says, and there are not that many private equity shops interested in it. “There is new capital coming in but this is still the frontier.”

For example, ACRE is deploying its third private equity fund focused on workforce multifamily housing which, along with separately managed accounts, exceeds $250 million.