Avanath Capital Management, a private real estate investment manager and adviser, has launched a multifamily development company that will focus primarily on affordable housing.
Avanath Development will be led by Jun Sakumoto, who has been promoted from Avanath’s COO to president of the newly formed entity.
“There is a great need for the development of affordable, workforce, and value-oriented apartment communities in markets throughout the country,” says Daryl J. Carter, founder, chairman, and CEO of Avanath Capital Management. “Now is the right time for us to introduce our own division that is devoted to meeting that need.”
Initially, Avanath Development plans to concentrate on opportunities within its existing portfolio, which is made up of about 78 communities with more than 9,500 units that are home to more than 35,000 residents. In 2018, the firm acquired 11 properties with an aggregate purchase price of $400 million and added 1,819 units to its property-management portfolio.
“Our primary business focus at Avanath has been acquiring older assets and renovating them,” says Carter, noting that several sites can likely be expanded with additional housing units.
Avanath Development’s initial focus will be on four multifamily development projects—three that exist within the firm’s portfolio and a new project in Detroit. The existing properties that will launch the new entity include Arbors at Cary in Cary, N.C.; Woodside in Ontario, Calif.; and Ravenna in Orlando, Fla.
To capitalize its multifamily development efforts, Avanath is looking at investors seeking projects in Opportunity Zones (OZs). A new federal program, OZs aim to spur economic development in underserved communities by providing tax benefits to investors.
“The recent OZ legislation will fuel capital flows into the affordable-housing investment sector,” says Carter. “Avanath has been a leading investor in this sector, serving many markets that are in OZs. So, it is consistent with Avanath’s mission and capabilities to create a strategy for OZ investors.”
The firm has 14 properties located in OZs.
Avanath is planning to launch an OZ fund with a tax-oriented investment firm. While the initial capitalization of this fund will be $200 million, Carter believes the fund has the potential to evolve into a $1 billion enterprise over the next five years.
Like many people, Avanath is still in the “R&D phase” as it waits for additional program guidance from the Treasury Department, according to Carter.
The firm is looking at creating a fund around part of it existing portfolio assets, so one of the advantages of that is it’s not launching a “blind pool” but instead will have specified assets, he says.
“We’ve been investing in many of these underserved markets for many years,” Carter says. “We now have a number of portfolio assets that are in OZs. There will be little sourcing risk in our OZ fund because we have assets that we can immediately contribute to that fund.”
Sakumoto has a track record in building new enterprises. He has worked with Carter for years at Avanath and Capri Capital, where Sakumoto built the Capri/CalPERS Urban Multifamily platform. He’s also a founding partner at Avanath, where he will remain a partner of the company and its subsidiaries and will continue to serve on the Avanath Investment Committee.