Avanath Oversubscribes Fourth Fund with $760M in Commitments

Avanath Capital Management has closed its fourth discretionary housing fund. The fund closed oversubscribed with $760 million in capital commitments, significantly higher than the original target of $550 million. In keeping with Avanath’s core business strategy, the fund will invest in affordable and workforce housing across the US with a focus on assets in underserved neighborhoods and communities of color.

“We have really been successful in institutionalizing the product and getting large investors interested. It has become accepted as a viable asset class that is durable and stable—and safe,” John R. Williams, president and CIO at Avanath, tells GleobSt.com. “We also expanded our network much more aggressively into Europe and Asia. Because of the durability and the defensive nature of the asset class, the dynamics of affordable housing are very of interest and interest to European and Asian investors.”

Avanath started fundraising in May of 2019, before the onset of the pandemic, but extended the closing due to the public health crisis and market dislocation. “We invested the earlier capital at a nice pace, and we could extrapolate out that we would be able to invest the remaining capital over a three year period. We are about half way into that right now,” says Williams about the firm’s decision to oversubscribe the fund.

Avanath’s past funds helped to drive investor interest, but the pandemic and surging demand for affordable housing across the country also didn’t hurt. “We have had great success and returns with our earlier funds, so not only have we proven that not only can we invest the money but also that we can generate good cash flow. We proved out the thesis, and investors accepted it,” says Williams.

Avanath was also able to provide real-time data to interested investors, including some that showed concern about committing capital during the pandemic. Avanath maintained 98% collections through the pandemic and actually saw the unit turnover rate decline. It’s unique tenant profile helped to drive stability through the downturn. “About 40% of the income that we collect is direct payments from the government. We collect all of that on day one, which puts us ahead of the market rate investors on day one. About 20% of our assets are senior, age-restricted assets, and most of those tenants are on a fixed income. So, those collections are about 100%,” says Williams.

For those tenants that pay rent directly every month and rely on employment income, Williams says that most of them actually worked in essential industries and didn’t suffer job loss. “The last thing is that most of our workers are essential workers,” he says. “They either work for hospitals or they work for the city, and they continued to work. We had very little exposure to retail workers.