Lincoln Avenue Capital, a leading investor in and developer of affordable housing, has signed an agreement to acquire the majority stake in the Housing Partnership Equity Trust (HPET), a social purpose real estate investment fund.
The transition is expected to be complete by the end of this year after which Lincoln Avenue Capital will serve as one of the largest, single private investors in affordable housing, announced the Santa Monica, California-based firm. It will own HPET alongside other institutional investors.
HPET, which grew from an idea proposed by the Housing Partnership Network, was founded nine years ago by major Wall Street banks, prominent foundations, and nonprofit housing organizations that wanted to pioneer an innovative approach to affordable housing investment and preservation.
Until now, HPET has been principally owned by some of the nation’s largest and most respected nonprofit developers and operators of affordable and workforce housing. The nonprofit partners will retain ownership of 7.5% of the company. Other investment partners include the MacArthur Foundation, Prudential Impact Investments Private Equity, Citibank, Morgan Stanley Bank, and Charles Schwab Bank.
In partnership with HPET nonprofits, Lincoln Avenue Capital plans to purchase at least $150 million annually in workforce and affordable housing to expand HPET’s investments.
HPET’s nonprofit members are AHC, Aeon, BRIDGE Housing Corp., Chicanos Por La Causa, Eden Housing, Enterprise Community Development, Hispanic Housing Development Corp., Homes for America, Housing Partnership Network, Linc Housing, Mercy Housing, Nevada HAND, The NHP Foundation, NHT Communities, and Preservation of Affordable Housing.
The investment fund will continue to focus on naturally occurring affordable housing (NOAH).
“We started doing NOAH deals earlier this year,” says Jeremy Bronfman, CEO and founder of Lincoln Avenue Capital. “Those have gone well, but we realized that a lot of the value in NOAH deals is in local relationships.”
Part of this includes working with local governments to secure needed support and resources, such as tax abatements, to acquire affordable housing developments.
Bronfman’s firm can bring capital to the table while the nonprofit housing organizations can bring their relationships and other expertise. “It felt like a great match,” he tells Affordable Housing Finance, noting that although his company is a for-profit business, it is mission driven.
“We bought HPET and are excited about these assets, and we think it’s an investment that meets our return hurdles, but the reason we’re really excited about it is for the deal flow and partnership with these nonprofits,” Bronfman says.
He hopes the relationships will grow so that Lincoln Avenue Capital can be a capital partner on other new deals with the nonprofit organizations.
When HPET was created, the thesis was there had to be impact investment dollars out there to acquire and preserve affordable housing, particularly NOAH, says Anne Segrest McCulloch, HPET CEO and president.
“The nonprofit members were convinced there was a market where we could attract private equity capital to partner with our best-in-class nonprofit housing owners and operators to preserve more naturally occurring affordable housing,” she says. “This deal with Lincoln Avenue proves that to be true.”
The entry of the firm as a majority owner will “turbo charge” HPET’s work, according to McCulloch.
“Our biggest barrier has been getting enough capital to the table to acquire properties,” she says.
When the deal is finalized, Lincoln Avenue’s management arm will take over the day-to-day operations of HPET. That means some team members will be departing.
“For me personally, this deal is a success,” says McCulloch, who will be leaving HPET but plans to remain in the industry. “When I joined HPET, I was looking to capture impact dollars and find a way to scale it up. With this deal, we will do both. … We will be able acquire a lot more properties.”
This is the second big deal for Lincoln Avenue Capital this year. The firm acquired a majority interest in 37 of LHP Capital’s multifamily properties in a $125 million transaction.