A New Capital Structure for Affordable Housing

There are many complex reasons why this country has such a dire need for affordable housing. One that gets little attention is the fact that conventional real estate equity investment structures are directly at odds with the needs of renters to have predictable and appropriately priced housing costs.  How can apartment owners keep rental rates at their communities relatively “flat” to meet the economic needs of their residents when the equity investors in those assets require returns on their investments (over relatively short investment periods) that can only be met if owners push rental rates as high as possible?  

Recently, my colleagues and I worked with a group of impact investors and an impact entrepreneur to design, build and document a new investment structure that we call “Performance Aligned Equity” (PAE).  We designed PAE to create a vehicle for early stage investments in impact companies that, among other things, allows the investors to achieve a rate of return on and of their investments that is aligned with the company’s revenue stream; and enables the company’s founders to retain control of the company and safeguard its impact mission.