Harbor Group Acquires Workforce Portfolio for $390M

Throughout the pandemic, workforce housing, as it does in most recessions, has held up well.

For affiliates of Harbor Group International (HGI), a privately owned international real estate investment and management firm, that sort of resilience was undoubtedly a driver behind the acquisition of a 56-asset multifamily portfolio. Image Capital partnered with HGI on the $390 million deal. Henry Bodek of Galaxy Capital was the broker for the transaction.

The 5,490-unit portfolio consists of single-story workforce housing properties across five states in the eastern United States. Approximately 70% of the properties are located in Florida and Ohio, where HGI already has a large footprint. Other properties are located in Indiana, Kentucky and Pennsylvania.

The acquisition represents a value-add opportunity for HGI. The company plans to invest $25 million in capital improvements and enhancements to the properties, including $3.6 million on unit renovations.

“The portfolio demonstrated strong performance amid the economic downturn resulting from the pandemic, maintaining high occupancies and rent growth, and presenting an attractive opportunity for HGI,” said Richard Litton, President, HGI, in a prepared statement.

As Litton indicated, workforce housing has been a strong performer throughout the pandemic. Value-add plays in the affordable sector have yielded strong returns.

“We’re able to generate value-add multifamily returns in the low to mid-teens,” Daryl Carter, CEO of Avanath Capital Management, said on CBRE’s “The Weekly Take” podcast. “The one thing about the affordable housing industry is the income is very stable.” 

The bigger problem is producing enough affordable housing supply. Developer Repvblik has found the distressed asset market to be a goldmine of opportunities for adaptive reuse into affordable and workforce housing. It has already built a pipeline of redevelopment projects, including transforming a Days Inn hotel into a 341-unit affordable property in Branson, MO. The development is the largest affordable project to be developed without federal funding or tax credits.

Discounted distressed assets help make affordable deals—which are notoriously challenging—pencil. “A lot of these asset classes had PPP loans and other federal programs that allowed owners to kick the can down the road,” Richard Rubin, CEO of Repvblik, tells GlobeSt.com. “When it comes to a lot of these programs, they eventually run out of runway. For the properties that don’t have a discernible path forward, there is going to be a lot of lender-owned stock available. It is very clear to see what is happening, and I think a lot of the distress is going to be a bridge for the housing.”