Avanath Capital Management has held the initial close for its first open-end affordable housing fund, amassing $536 million in commitments, PERE has learned.
Launched in September, Avanath Affordable Housing Renaissance Fund was backed entirely by international capital in the initial close. The limited partners included a mix of new and returning groups, primarily consisting of pension funds and financial institutions. UBS Asset Management, part of the Swiss financial services firm, is an anchor investor in the fund. UBS made its first affordable housing investment with the recapitalization of Avanath’s debut fund, Avanath Affordable Housing Fund I, in 2019.
Avanath will use some of the initial equity raised to purchase a seed portfolio encompassing 27 apartment communities totaling 4,256 units and with a gross asset value of $830 million. All 27 of the assets are stabilized, meaning the vehicle will have current cashflows from inception, according to John Williams, Avanath’s president and chief investment officer at Avanath.
The Avanath Affordable Housing Renaissance Fund also marks a major shift in the Irvine, California-based multifamily firm’s fundraising strategy. Previously, Avanath had raised a series of closed-end, value-add funds focused on affordable and workforce housing. The most recent vehicle in the series, Avanath Affordable Housing IV, attracted a total of $760 million in equity in January 2021, beating its $550 million target.
Avanath targets returns in the low-to-mid teens for its value-add fund series. Fund II was generating a 1.8x equity multiple and net internal rate of return of 11.4 percent as of Q1 2021, according to a September 2021 agenda from the New York City Fire Department Pension Fund.
Going forward, however, the new core-plus fund will serve as the firm’s sole investment vehicle for new acquisitions, according to Daryl Carter, chairman and chief executive at Avanath.
“This closing of our very first continuous fundraising vehicle marks the beginning of an exciting new chapter for the Avanath team,” Carter said in a statement shared with PERE. “In addition to accelerating the firm’s growth and expanding our acquisition capacity, this fund’s infinite lifespan enables us to invest on an ongoing basis in affordable housing that serves residents and communities in need throughout the country.”
Most of Avanath’s properties are rent regulated under the US Low-Income Housing Tax Credit program, which issues tax credits for the acquisition, rehabilitation, or new construction of rental housing targeting lower-income households. Such tax credits also involve a long-term covenant, which makes such investments more compatible with an open-end strategy, according to one source familiar with the new fund. An open-end fund also allows for a larger and more diversified portfolio with assets that can remain affordable for longer, the source said.
According to a 2020 report from Harvard University’s Joint Center for Housing Studies, only 24 percent of US apartment supply is rent regulated, with a shortfall of 8.3 million affordable rental units for very low-income households. “This vehicle will continue to aid our successful strategy of investing in affordable and workforce communities in high-cost and high-growth job markets that are underserved by this type of housing,” said Wesley Wilson, partner and chief financial officer at Avanath.
San Francisco-based capital advisory firm Accord Capital Partners served as the sole placement agent on the capital raise.
Avanath, which currently has $2.8 billion of assets under management, is one of the few private real estate managers owned and led by a Black executive. The firm was co-founded in 2008 by Carter, who previously was co-founder and co-chairman of Capri Capital Finance and Capri Capital Advisors.