When Newton Gardens, a 112-unit apartment property in affluent Newton, Mass., went up for sale, its affordable rents were vulnerable to a familiar market-rate play: raise rents and price out existing residents. But thanks to a local sponsor’s work, the property will remain affordable.
With deep relationships in the Massachusetts market, the sponsor secured soft financing from several local housing finance sources that made up about one-third of the deal’s capital stack. In exchange, the partnership placed affordability restrictions on the property extending for at least 30 years.
The deal represents a significant preservation win, said Emily Greenwalt, director of preservation and impact investments for Boston Financial, which partnered with the sponsor as the equity investor. “We really felt that, but for the sponsor’s ability to assemble a creative financing stack and our partnership’s investment, this property would not have remained affordable.”
Affordable housing investment has long relied heavily on the Low-Income Housing Tax Credit (LIHTC), often for new construction. But as a wave of existing LIHTC units begins to reach the end of their mandated federal affordability requirements, preservation is emerging as a more visible investment strategy. It offers investors the opportunity to invest in a stabilized, cash-flowing property while keeping existing affordable units in service.
That matters at a time when resources already fall short of the country’s affordability needs. Preserving existing units is key to protecting the current supply. “Let’s not take a step back by losing what we have,” Greenwalt said. “We absolutely need to create more affordable housing, but we can’t lose sight of preserving the existing supply.”
A wave of opportunities
Preservation opportunities fall into two broad categories, Greenwalt said. The first is housing with formal affordability restrictions, particularly LIHTC properties whose commitments are approaching expiration.
The so-called affordability cliff could affect more than 440,000 units by 2030 as restrictions expire across the country. For owners, investors, and housing advocates, those expirations represent a critical opportunity — recapitalize properties and extend affordability commitments or risk losing units from the affordable housing inventory.
“A lot of the conversation about affordable housing is coming front and center because people are recognizing this expiring wave of LIHTC units that is upon us,” Greenwalt said.
The second category is naturally occurring affordable housing, she said. These properties have no formal rent limits but remain relatively affordable because of their location, condition or ownership. In markets where rents and property values are rising, however, they can become targets for investors looking to renovate and reposition them as market-rate housing. Without preservation, another portion of the existing affordable housing supply could be lost.
Why investors are paying attention to preservation
Investors’ interest is being driven not only by the growing number of properties in need of preservation, but also by a broader recognition of affordable housing as an attractive investment opportunity. The sector’s compelling risk-return profile is drawing interest from a broader range of investors, Greenwalt said.
While preservation is a natural extension for some established affordable housing investors, conventional investors also are beginning to see its value, said Thomas Paramore, Boston Financial’s head of housing and community investments. “Affordable housing is now a mainstream, front page issue.”
That broader interest in preservation reflects both the sector’s practical advantages and its strong investment fundamentals. Affordable housing is often needed in high-demand areas, where land can be expensive and new projects may face complex zoning requirements and neighborhood opposition, Paramore noted. Preserving an existing property allows investors to maintain affordable housing in those communities without navigating the hurdles of finding and developing a new site.
Preservation also offers diversification benefits and a degree of inflation resilience because affordable housing behaves differently from other real estate sectors. Demand, for example, remains strong or even increases as market rents and other household costs rise, helping support property performance during periods of inflation or economic downturns.
“From a more traditional real estate investor’s standpoint, this is a really strong way to round out a portfolio,” Greenwalt said.
Especially when acquiring an occupied property with an established operating history and in-place cash flow, investors typically can avoid many of the uncertainties associated with other real estate investment strategies. “You’re going in day one with established [net operating income], occupancy is generally higher and turnover is lower,” Greenwalt said. “From a risk perspective, these are a lower risk execution than the market rate plays.”
A preservation playbook
Preservation deals, however, require a different approach from conventional market-rate acquisitions or new construction. By nature, they can be more complex. Greenwalt and Paramore shared three pieces of advice for investors to keep in mind.
- Work with experienced affordable-housing sponsors.
Preservation deals require specialized knowledge of local programs, tax abatements and financing sources. Experienced partners can identify those resources and assemble a capital stack that makes preservation as financially attractive as conventional real estate investments, Greenwalt said. “Partnering with sponsors who are deeply ingrained in the affordable world is critical.”
- Be ready to move quickly.
Preservation buyers typically face short bidding and due diligence periods. The typical window from a property becoming available to closing is 90 to 120 days, much less than a typical LIHTC deal, Paramore said.
“Speed is definitely necessary and certainty of execution is critical,” Paramore said. “So making sure you've got the right investor partner is something you need to be focused on.”
- Plan for the residents.
Resident stability contributes to stable operations, so services should be tailored to the community, such as connections with local nonprofits and financial literacy programs, Greenwalt said. “Our sponsors are very intentional about providing supportive services to residents. Those services help create stable communities and support long-term resident retention.”
In a recent deal for Boston Financial’s team, the long-term owner of a three-property senior Section 8 portfolio needed a new equity partner to help address capital needs while preserving affordability through a new 20-year project-based housing assistance contract. The operator’s familiarity with the properties and residents added to the investment’s appeal, Greenwalt said.
“We felt really good about being able to go in and continue the successful work that the sponsor was already doing,” she said. The recapitalization is providing the resources to keep the apartments in good condition for the seniors who live there today and for years to come.
For Greenwalt, that continuity underscores what preservation is all about. Beyond the financial performance of an investment, it can provide residents with the stability of a long-term home.
“People in the impact space are beginning to see housing as such a foundational piece of people’s well-being,” she said. “Safe, secure housing — everything stems out from there. Educational outcomes, health outcomes are all more positive when folks have that stable housing as a base.”