Investors Scramble for Affordable Housing

LOS ANGELES—Affordable housing product is attracting major investor interest. A 150-unit, three-property portfolio recently traded hands for $24.8 million—$700,000 over the list price—and garnered 10 offers in a week. An unnamed California-based investment firm has purchased the portfolio from a private investor, and plans to use government tax credits to upgrade the building.

“There is an extraordinary amount of interest in affordable housing because they are tax credit deals and the government is paying a portion of the rent,” Kitty Wallace, senior EVP at Colliers International, tells GlobeSt.com. “This property was in need of refurbishment, so there were tax credits that offered an additional incentive. If you add all of that together, there is really no downside risk. We have sold four affordable portfolios recently, and the sales price has consistently exceeded the listing price.” Wallace represented the seller in the transaction, along with her colleague senior associate Rob Shiels.

All of the offers the sales team received were at or above the asking price from private investors from across the country. Typically, Wallace would have extended the marking process to augment the pricing further; however, in this case, they found a great buyer early on. “This was a very worthwhile endeavor for the seller because we had a collection of buyers at list and higher,” says Wallace. “This is the time in the market when you really wish you had a couple more buildings to sell.”

Located at 7850 S. Normandie Ave., 1742 West 84th St., and 1818 West 71st St., the properties were all built in the early 1980s under the Housing Assistance Payment program for low-income residents. The buyer plans to complete the renovation of the building using 4% bonds that are available for government-backed housing. Wallace says that these types of government incentives helped to attract a strong buyer base to the sale.

However, it isn't only the upside and tax credits that attracted so many investors to the portfolio. The properties are located in a primary L.A. market near some major developments, including the City of Champions Revitalization project, which is located at the former Hollywood Park in Inglewood and is being considered for an NFL stadium. “In general, the market continues to remain very robust. Southern California remains the high priority market to own,” says Wallace. “In addition, we are finding that, as the market gets tighter, products like student housing and affordable housing are at the high end of the market.”