Affordable housing has come a long way as an asset class in recent months.

While it may not claim most-favored status with all institutional investors, REITs, private equity firms, and family offices, there’s little doubt the pandemic has revealed the sector’s remarkable durability. That performance is particularly intriguing to investors weighing high-impact ESG (environmental, social, and governance) strategies for their portfolio.

Few understand the dynamics at work better than Warren Horvath, senior vice president at CBRE Affordable Housing. Horvath is a 20-plus-year investment and finance veteran who has represented both debt and equity as an operator and investor. Horvath recently shared his thoughts on the asset class:

You’ve said there is a growing focus on ESG investing by institutional players. How does this impact affordable housing?
Many investors are looking for ways to broaden their portfolio with product types they may not have historically pursued—affordable housing among them. Affordable housing certainly merits strong consideration in any ESG discussion. The impact case is a very strong one, one made even more compelling by the pandemic.

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

How is affordable housing generally viewed as an asset class?
Old ideas that the class was riskier and inferior have been dispelled. Investors with higher-cost capital, or with business plans based on yesterday’s yields, should re-evaluate those plans in light of the sector’s demonstrated performance.

As a result, we’re seeing increased demand from institutional investors. The more capital we can attract, the better. Heightened demand ultimately lowers the overall cost of capital.

What do you like about taking a position in affordable housing?
From a financial standpoint, it’s the confidence of cash flows. From a social standpoint, it’s the impact on residents’ lives. I don’t know another asset class where that double bottom line is so achievable.

What considerations should an investor be mindful of with affordable housing?
What’s paramount is finding the right fit from a strategic and cultural perspective. Given the generally longer-term nature of the asset class, I always prefer the term ‘partner’ as opposed to ‘investor’ because the relationship should endure and expand over several years.

What do you see foresee going forward?
Many investors were on the sidelines in 2Q and 3Q, but things have somewhat returned to normal. Apartments overall have weathered the pandemic relatively well, with values holding steady and well-capitalized thanks to the GSEs [government-sponsored enterprises].

Given where we are today, multifamily investing relative to office and retail is a safer bet. Many have had their eyes opened to the merits and safety of affordable housing. The pace of that understanding will only accelerate in coming months.

How are you advising investors and developers?
This is a good time to identify suitable operating partners that align with your strategy. Many investors understand the promising opportunities before them but may not have the time or resources to properly investigate them on a full-time basis. That’s where my office can be of service.

Learn more about affordable housing capital markets advisory services.