Nuveen secures $250m TIAA commitment to seed new fund

With its US Impact Housing Fund, the Chicago-based manager is aiming to preserve affordable housing units with expiring tax credits.

Nuveen has lined up a $250 million seed commitment from its parent organization, New York’s TIAA, for its Nuveen Real Estate US Impact Housing Fund, a core-plus open-ended strategy for which the Chicago-based manager hopes to raise as much as $3 billion to $5 billion of equity.

Through the fund, the firm will make a wide swath of investments in markets throughout the US with the goal of creating housing opportunities for low-income residents, said Pamela West, portfolio manager of impact investing at Nuveen.

Nuveen has been investing with TIAA in affordable housing for more than 30 years, with both groups sharing a similar outlook on what West described as an acute shortage of affordable housing across the US.

“TIAA really understands and appreciates the mission behind what we were doing in affordable housing as well as the durable and predictable returns you can achieve with this type of investment strategy, which fits very well with its balance sheet mandates and goals,” West said.

The fund’s investments will include properties with rent subsidies, rent restrictions and income restrictions, as well as so-called “naturally occurring” affordable housing investments, referring properties that are already affordable without subsidies, typically because they are older assets and Class B or C in quality.

Part of the fund’s strategy will be to invest in regenerative development and financing to support minority and women developers of affordable housing.

“We approach this business based on supply and demand with an overlay of preservation of affordable units,” West said. “The tax credit programs available in the US have created about 3.5 million units since 1986. However, our housing deficit is about double that and, when you look closely at the properties in the program, you can predict the amount of tax credits expiring year-over-year.”

Through 2030, the tax credits on about 640,000 units are due to expire, with the tax credits on about 1 million units set to expire over the next decade. “We want to preserve units which are expiring rapidly through the tax credit program,” West added, noting the credits can be extended for at least 15 years.

While the fund will target the preservation of housing for residents earning less than 80 percent of the area median income, West sees a risk for households earning less than 60 percent of AMI and notes Nuveen will work to specifically address the needs of that part of the market.

In addition to preservation, the fund will focus on creating new supply. “We want to reinvent that housing model into one focusing on mixed-income housing and mixed-use assets with affordable housing at the core of the strategy,” West adds.

Most liquid sector

Nadir Settles, global head of impact investing at Nuveen, notes the affordable housing sector has been less affected by the volatility seen in the broader market than other sectors.

“We’re seeing that the most liquid sector right now is affordable housing and these properties [with the potential for affordable housing preservation] are seeing competitive bids,” Settles said.

The firm’s strategy going forward is to build relationships with key stakeholders in the market and in government to help create and preserve more affordable housing.

“In the past, it was always an either/or,” Settles said. “Either the public governments should solve this, or private capital could solve this problem. But this is something we believe we can all solve together and have gotten traction in all forms of government. And when you talk about new supply, we are building relationships with municipalities on assets they own because they need someone they can partner with to build, manage, or invest.”

Longer term, Settles notes there is a growing understanding of where affordable housing can fit in an investor portfolio and the types of returns it is possible to achieve.

“There should be an understanding of the portfolio contribution this can have. Affordable housing is not an either/or for the multifamily sector and both asset classes have different attributes. Affordable [housing] is very counter cyclical and steady and has durability of its underlying residents,” Settles said.

An affordable housing strategy also has a bigger impact beyond creating and preserving housing, he noted, adding the firm offers supportive financial literacy, education and healthcare services on a bespoke basis with its investments in the strategy.

“Investing in affordable housing is not just about the economic benefits,” Settles added. “There is a very important social aspect of these investments where Nuveen feels a double bottom line can be achieved. When investors make these investments, they are stabilizing housing, but they’re also stabilizing peoples’ lives.”