Avanath launches third affordable housing fund

Avanath Capital Management is back on the fundraising trail for its largest vehicle yet.

The Irvine, California-based private real estate investment firm is seeking to raise $300 million for Avanath Affordable Housing III. PERE has learned the firm could hold a first close at the end of the quarter with about $100 million. Similar to its previous fund, Avanath has a net internal rate of return target of 13 to 15 percent for its latest offering.

The firm is employing a similar strategy for its latest fund that it used for prior funds in the series, investing in affordable and workforce housing assets across the US. Avanath concentrates in urban areas with need for affordable housing, from California to New York. The firm also looks outside of gateway cities to areas with high barriers to entry for mid-market workers. John Williams, the firm’s president, said these areas include Orlando, Florida, where the firm develops housing for residents who make between $35,000 and $55,000 a year.

“We think our space is great in that there’s unlimited demand and very limited supply because it’s not being built today,” Williams told PERE. “There’s not one person that asks if there’s a need for affordable housing – everyone gets it. It’s just that there’s no solution to it yet.”

The firm held a final closing for Avanath Affordable Housing II in July after nearly two years in the market. The firm raked in $200 million of commitments from 10 investors, including three state pension funds, two banks, three insurance companies, one foundation and one family office. One of those investors, the General Assembly Retirement System of Illinois, allocated $12.4 million, according to PERE Research & Analytics.

Williams said Avanath benefits from a fractured market, with 80 percent of apartments controlled by non-institutional owners. He said the firm has high returns from making improvements to its investments and selling the assets without removing rent controls.

“The business isn’t as institutionalized as office,” he said. “One day, you’re competing against some rich guy you’ve never heard of in your life, and you might compete against a large opportunistic fund the next day.”