Goldman Sachs JV Buys 90 Affordable Multifamily Communities for $1.2B

A three-party joint venture called the Essential Housing Impact Partnership — formed by The Michaels Organization, Goldman Sachs Asset Management’s Urban Investment Group, and the Community Development Trust — completed a $1.2 billion acquisition of 90 affordable housing communities with a combined 10,000 units. That works out to $120,000 per unit.

The properties were acquired from Harmony Housing and managed by Greystone Property Management Corporation. They are across eight states: Florida, Illinois, Indiana, Kentucky, New York, South Carolina, Texas, and Wisconsin. Michaels will manage all of them.

“Cristhian Codorniu, vice president of capital markets at Michaels, told Bloomberg the joint venture is targeting core to core-plus returns, which are typically an annual rate of 6% to 12%”. The story also quoted executives as saying that the average rent is less than $1,000 a month.

“A typical core investment is characterized by low leverage (40% – 50%), stable and predictable income, new or like-new construction, high-end finishes, and no major structural or operational issues,” says First National Realty Partners.  “In addition, core investments typically have an excellent location with full or near full occupancy with credit tenants on long-term leases.  Examples of core real estate properties include Class A multifamily assets, high rise office buildings, or high-end retail shopping centers.”

That would suggest the joint venture is making a deliberate tradeoff, seeking a moderate and low risk return at an affordable price so the financial aspects of the acquisition don’t depend on significant rent increases to make profit possible.

The 90 communities had been initial developed and rehabbed with Low-Income Housing Tax Credits. This federal program is often a cornerstone in the financial feasibility of workforce and low- to moderate-income housing. But LIHTCs come with some powerful strings. There are limitations on the incomes of people in the units and how much landlords can charge for rent. The restrictions last 30 years. Breaches can involve the requirement to refund the tax credits, an expensive proposition.

“In a separate but related transaction, Michaels will also serve as the property manager for 31 communities, all in North Carolina, which have been acquired from Harmony Housing by Foresight, a non-profit organization dedicated to preserving affordable housing,” the release from the companies said. “Michaels has a long-standing relationship with Foresight and manages the majority of its affordable portfolio. The 31 acquired communities will add 1,923 affordable apartment homes to Foresight’s portfolio.”