AMERICAS NEWS: Make them stay, not pay more

Robert ‘Bobby’ Turner is on a mission. The principal and chief executive officer of Santa Monica, California-based Turner Impact Capital believes that a fund for affordable housing across the US can make market-rate returns and is not the preserve of not-for-profit organizations. He spoke to PERE last month as his firm announced the first acquisition for the Turner Multifamily Impact Fund, which has raised almost $300 million in equity and whose investors include Citi Community Capital, the University of Michigan endowment and the Rockefeller Brothers Fund.

The first asset is Regency Pointe, a 599-unit, 48-building garden-style housing community built in 1963 on around 25 acres of land in Forestville, Maryland within the Washington-Arlington-Alexandria metropolitan area. The complex offers lower-cost housing alternatives for residents who work in the Washington DC area with a mix of one to three bedrooms, a community pool, two playgrounds, a fitness facility, laundry facility, and leasing center where 1,300 people live with children attending local public schools. The asset should be one of many for the fund.

Turner is already well-known in the social impact investments industry. In 2000, he founded Canyon Capital Realty Advisors and worked with basketball legend Earvin “Magic” Johnson until 2008. He established Turner Impact Capital 18 months ago and has already been finding success. The first fund he established was a $201.7 million joint venture with tennis legend Andre Agassi to build charter-schools in some of the worst US neighborhoods.

Speaking of the Turner Multifamily Impact Fund, he told PERE: “This new affordable housing fund consumes 100 percent of every waking hour as I try to define my legacy.”
Explaining the problem, he added: “Twenty-five percent of all renter families spend over 50 percent of their income on rent. That is unconscionable on top of healthcare, food, education and so on.”

So, he is working to attract for-profit capital in a market where the traditional investor has been not-for-profit. With leverage, the fund will acquire up to $1.5 billion of assets and investors like the little-to-no correlation with the wider real estate market and indeed the economy. Typically the fund is targeting between 10 percent and 12 percent returns net of fees.

This is not a low income housing fund where numerous government or state-sponsored programs exist. Instead, it is a fund to provide “workforce housing for the backbone of America,” said Turner, referring to teachers, firemen, and municipal workers that make too much money to qualify for subsidized housing but not enough to afford home ownership or luxury homes. In other words, it is for people that make between 50 percent and 90 percent of the median average income.

The problem for such workers is that while there has been generally no wage inflation, rental rates have risen. Meanwhile the market for affordable housing is growing. Turner reckons there are 43 million renter families in the US and that is set to grow by another 5 million over the next five years, primarily made up of immigrants and minorities.

Normally, it does not make sense to build affordable housing because after factoring in construction costs and the modest rents to be charged, market returns cannot be made. Should an opportunistic investor buy a lower renting property typically its strategy would be to improve the property and then put up rents. But that strategy can force people to leave their homes. In contrast, Turner is looking to retain families rather than encourage the transient nature of families faced with rising rents because that just brings with rising turnover costs.

Instead of putting up rents, the firm is “enriching” properties by providing services which is resulting in tenants lengthening their average lease terms from two years. Subsequently, families take more pride in their homes and that reduces maintenance costs.

In one example, the firm built a charter school in a challenging neighborhood in south Dallas for 800 children. Nearby is a 300 unit workforce housing project up for sale. The firm is looking to invest in it and reserve three or four units for teachers and their families at the school. In return for free accommodation, those teachers can supply evening sessions every school night in rotation, using a converted common area as a tutoring lounge. The same idea can apply to law enforcement officers. Insurance costs should fall as the number of criminal incidents falls, explained Turner.

“With these actions, the tenants will not move if they don’t have to. There are a lot of people that come from the mission-driven side – from philanthropy – but we need to invest intelligently and responsibly,” he said.