Beautiful view from backyard of apartment complex building at evening time during fall season. Pile of dried leaves on grass lawn and bright yellow fall foliage
Trong Nguyen

The events of the last seven months have challenged our industry like no other. The market pause of March and April, a restorative summer, and now growing uncertainty over inexplicably-delayed public assistance during a deepening pandemic adds needless drama to a tough year.

For some in the business, it may provoke thoughts of “What’s my next move?” For affordable housing owner/operators, that move may be identifying new sources of capital, weighing succession or buy-out options, joining forces with a respected peer, recapitalizing current assets, beefing up an internal investment/financing unit, or advancing another strategic goal.

Warren Horvath has made a career working with both sides of the aisle – advising the affordable housing owner/operator and the investor and executing next-move strategies as an operator. Today, the CBRE Affordable Housing senior vice president offers clients insights gained from a remarkably diverse and successful 20-plus year record of serving affordable housing owner/operators and investors.

What is one of the biggest challenges affordable housing owner/operators face?

Raising third-party equity for acquisitions and growth. Most developer are quite sophisticated and proficient at pulling together the myriad of sources it takes to bring a tax credit development to fruition. Because developer skillsets – and mindsets – can be very different from those of an investor, it sometimes takes some third-party help to make that transition. In addition, in-house capital and balance sheet capacity is typically fully dedicated to development efforts, so it requires looking to outside – or third party – equity to execute this. Dealing with those type of investors is often very different than dealing with a tax credit investor, and the relationships just don’t typically exist.

Warren Horvath, senior vice president, CBRE Affordable Housing
Warren Horvath, senior vice president, CBRE Affordable Housing

When is an outside capital adviser helpful?

There is no single answer, but typically operators are looking to leverage adviser expertise and experience or save time. Whether for succession planning, a partner seeking liquidity, portfolio recapitalization or sourcing growth capital to expand or diversify, an adviser can help navigate the possibilities. This should involve not simply hunting for the cheapest cost of capital but understanding what the operator wants to achieve and thoughtfully aligning them with the best fit from both a strategic and cultural standpoint. It often involves just being a translator between the two.

What can the reward be?

The stability and durability of the recurring, long-term cash flows provided by building a portfolio of existing, seasoned assets can effectively serve as a hedge to the volatility of relying solely on developer fees. Some have done it – and many more are considering – creating investment/acquisition platforms in order to accomplish this.

For those with in-house, or affiliated property management arms, increasing portfolio size in this more efficient manner also allows them to achieve greater economies of scale within the management company, thereby increasing their margin.

How can an adviser assist in that process?

Part of it is knowing where to look for prospective investment candidates and vetting them for a strategic and cultural fit. It could be an investor with no previous history in affordable housing, but likes the idea of safe, stable all-weather return.

It’s not an easy process for home-grown finance talent. Hiring that skill on a permanent basis isn’t a practical step for many developers. An outside adviser serves as a temporary chief investment officer (CIO), speeding the way to a satisfactory outcome. For most housing operators, dedicating those resources in house on a permanent basis is cost-prohibitive, and even having a dedicated capital markets person or CIO may be considered a luxury.

Learn more about affordable housing capital markets advisory services.