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\n Bisnow\/Stephanie Smith\n <\/p>\n
\n Alliant Communities\u2019 Katie Balderrama, SDS Group\u2019s Deborah La Franchi, Turner Impact Capital\u2019s Brock Miller, Cypress Equity Investments\u2019 Shane Taugner and Impact Housing\u2019s Drew Orenstein\n <\/p>\n
As interest rate concerns and a desire for stability come to the fore for multifamily developers and investors, many are turning away from development of new properties and toward the purchase of existing assets.<\/p>\n
Prior to interest rates\u00a0rising\u00a0in 2022, Impact Housing was largely working in market-rate development, but when interest rates shifted, the company’s strategy changed.<\/p>\n
\u201cWe saw the deterioration of value on the market-rate side,\u201d Impact Housing CEO and founder Drew Orenstein said at Bisnow\u2019s Los Angeles Multifamily and Affordable Housing Summit on\u00a0Thursday at the Omni Hotel and Resort Los Angeles. \u201cAs such, we made a big pivot to the affordable side.\u201d\u00a0<\/p>\n
Naturally occurring affordable housing is a popular focus among some investors because it is simpler to assemble funding for,\u00a0according to Turner Impact Capital Managing Director and co-Head of Housing Brock Miller.<\/p>\n
Turner Impact focuses on the segment of the market that encompasses housing that isn\u2019t officially income-restricted but nevertheless rents at below-market rates.<\/p>\n
There is also a need to buy and preserve these properties so they can continue to provide below-market-rate units for renters who need them.\u00a0<\/p>\n
Investors who stuck to market-rate housing often pivoted their interest to focus on stabilized assets and away from new development, SDS Capital Group CEO Deborah La Franchi said.\u00a0<\/p>\n
\u201cThere’s a lot of sort of aversion to the new development direction right now, given the cost, given the interest rates,\u201d La Franchi said. \u201cThere\u2019s a lot more focus on preservation. Protecting the terms for the investors is sort of paramount right now versus trying to hit home runs.\u201d<\/p>\n
The undersupply of affordable housing across the country, combined with the glut of new construction that hit some of the nation\u2019s hottest markets, has shifted the attention of many investors to some of the less financially complex segments of the affordable housing market, Cypress Equity Investments Vice President, Investments Shane Taugner said.\u00a0<\/p>\n
\u201cThat’s a reason why I think we’ve seen so much new capital forming around investing in these affordable strategies, especially in the sort of 80% to 120% of median income range, where the capital stacks tend to be more conventional, less public subsidy,\u201d he said.\u00a0<\/p>\n
Some owners and investors were concerned about the impact a development pause would have further down the road, especially in a region where housing development has historically not kept up with population growth.\u00a0<\/p>\n
\u201cIt’s great to preserve housing with welfare tax exemption deals and do [naturally occurring affordable housing] deals and everything, absolutely, but we need to build more housing,\u201d Orenstein said. \u201cIt\u2019s really the only way we’re going to get out of the housing shortage.\u201d<\/p>\n
Orenstein\u00a0said developers need to get comfortable with current conditions, including interest rates that stay flat, and figure out how to lower construction costs. That is where his firm is focusing now.\u00a0<\/p>\n
\u201cThe thing that we realized is when things change, they don’t necessarily ever go back to the way that they were, and counting on that is not a good strategy,\u201d Orenstein said.\u00a0<\/p>\n