Social impact investors increasingly are putting their money into affordable housing. It makes sense, particularly amid the triple pandemic of the coronavirus crisis, the economic downturn, and the widespread social unrest roiling the nation. Preserving the affordability of rental housing that otherwise would be converted to high-cost apartments and condos is a mission-driven pursuit. It is the case that affordable housing for low- and moderate-income families and individuals makes a direct, positive impact on the social determinants of people's lives, including access to education and job training, health care, food and other services, and economic opportunities. Simply put, affordable housing is social change. Social change is the defining matter of our time.

Daniel Cunningham
Tamzin B. Smith Daniel Cunningham

Since last year, I have served as the chief investment officer of a social-purpose real estate investment trust. We work with nonprofit developers to acquire, renovate, and preserve what is called naturally occurring affordable housing, or “NOAH”—safe and decent rental properties where owners keep rents affordable with limited reliance on federal subsidies. Our investors are financial institutions, foundations, and wealthy individuals whose needs are twofold: make a difference and make a return.

Over a long career, I have seen the U.S. go through many economic downturns and crises that have affected the kind of work we do. Nothing comes close to what our country is experiencing today. Driven by the dramatic turn of events over the past several months, our organization has taken a long and careful look at what it means to be in the business of affordable housing. We have learned some lessons, ones that apply to others in similar enterprises.

In early 2020, before the onset of the COVID-19 pandemic, we reviewed operations of our various real estate investments, and all signs were “go." Occupancy rates were in a very healthy range, and rents remained affordable to tenants who, on average, were earning less than 60% of the area median income. Our investors were seeing stable returns.

Enter the triple pandemic. Remember that many of the residents in properties where we have invested are exactly the people most affected by the crises. They are the classic front-line workers, for whom it is necessary to be present physically at their jobs—that is, if they still have them. They are the lifeline folks upon whom we all depend, working in the grocery stores, health care facilities, distribution centers, and other parts of service industries. Many of our residents have continued to work while navigating the new challenges created by the closing of schools, day cares, and elder care facilities, by reliance on limited public transportation, and by the special health risks they face in the workplace. (In spite of these challenges, our residents have continued to pay their rent, with rental payments running more than 92% since the onset of the pandemic.)

So, what have we learned, while we manage our investments in nearly 3,000 rental units across the country? Given our experience so far, here are what we would say would be the top five things any operator or investor in affordable housing should target right now:

1. Focus on the things at hand. Continue the commitment to provide safe, decent affordable housing for people in need and at risk. Encourage realistic rental regimes that limit or freeze rent increases, while acknowledging the state and local protections against COVID-19-related evictions.

2. Preserve cash against the risk of a sustained downturn. Limit capital expenditures to those necessary to address life and safety issues. Like us, many in the industry have been wise to have set aside reserves to cover the proverbial “500-year flood.” Well, it’s “raining” pretty hard now. So, spend those funds on immediate needs to stabilize assets.

3. Remember short-term challenges do not last forever. Recognize that if the need to dip into capital reserves arises, address the deferral of capital spending sooner rather than later. Remain committed to making the investments designed to maintain properties.

4. Be aware of the long-term effects of the crises. The economy is facing challenges from all sides. Job losses are significant. The profile of low- and moderate-income households could mean that their temporary job furloughs and layoffs might become longer term. The toll has been huge on the job sectors where many affordable housing residents work.

5. Seek opportunities that abound in the current market environment. The economic calculations are changing for many existing owners of NOAH. Be on the lookout to acquire properties that are consistent with a social mission.

Change is happening. The exact direction of the economy is unknown. The way we will continue to live with a health pandemic is uncertain. The question to how the country grapples with the long-standing need for racial fairness and equity is unanswered. Still, more than ever actually, because of these challenges people need affordable housing. There are ways for private capital to play a pivotal role in its creation and preservation. Good management leads to good investments. Most important, good investments lead to social impact.