TruAmerica raises first affordable housing fund to close this year

Apartment specialist TruAmerica Multifamily closed its debut fund this week on $575 million, making it the first vehicle focused solely on US affordable housing to close this year, PERE has learned.

With the TruAmerica Workforce Housing Fund, which surpassed its $400 million target, the Los Angeles-based manager will invest in class B properties in first- or second-ring suburbs in growing markets. The vehicle’s strategy is to target value-add opportunities in the Southwest, Southeast and Northeast sections of the US.

Originally launched as TruAmerica Multifamily Value-Add Fund I in 2017, the vehicle was rebranded in 2018 to reflect its focus on assets priced for the average renter. The properties in the fund will cater to blue-collar workers and middle-income office workers, the firm’s founder and chief executive Robert Hart said.

Rental housing has been one of the strongest convictions among institutional investors this year, with 48 funds focused on North American properties closing on more than $20 billion combined, according to PERE data, including 16 between $500 million and $1.5 billion. But capital formation around modestly priced properties in the sector has been limited. TruAmerica Workforce Housing was the only fund branded around affordability.

There are two types of affordable housing strategies: one focuses on government subsides – sometimes labeled social or Affordable housing – and the other keeps prices low through market forces. The latter is sometimes called workforce or attainable housing.

Another 141 funds are still in the market, targeting an additional $20 billion in equity for US apartment strategies, per PERE data. Nearly half those funds have no set target, meaning the actual fundraising potential is far greater.

Within that group of funds in market are four vehicles focused on affordability: Bridge Workforce & Affordable Housing Fund II, which is targeting $1.5 billion; Hillpointe Workforce Housing Partnership III, targeting $190 million; Thrive Workforce Impact Fund I, targeting $22 million; and Avanath Affordable Housing Feeder IV, which has reported no target.

Hart said tenants who live in that category of property tend to be stickier and more reliable than renters at the higher or lower end of the income spectrum. Throughout the pandemic, those tenants have paid their rent even more consistently than white-collar renters in certain markets, he added.

Hart said his firm will target market-rate properties that are attainable for the average working renter without government subsidies. TruAmerica’s strategy typically involves buying older properties that command rents below market rate levels. The firm then improves properties to bring them up to market rate, often while keeping the same tenants in place.

That consistency, coupled with an occupancy rate in the high 90-percent range has made the affordable sector very popular among institutional investors, Hart told PERE. Because of that strong demand, more than half the equity for the fund came from investors that were new to TruAmerica.

“We were a first-time sponsor, which makes your fundraise challenging, but institutional investors really want to put money to work in this asset class,” TruAmerica chief administrative officer Mark Enfield told PERE.

Previously, TruAmerica raised and invested capital through joint ventures with a total of 30 institutional investors, Hart said, adding that most were sophisticated groups capable of taking an active approach to the strategy. The fund investors tended to be smaller groups seeking passive positions, consisting of foreign and domestic insurance companies, public and private pension funds, global asset management firms and family offices.

Hart expects demand for affordable housing strategies to continue gaining popularity among institutional investors as household formation in the US continues to outstrip the production of new housing stock.

“We think investor appetite is going to be there for the long run,” he said, “and it’s been building as rentership has increased and ownership has declined throughout the country.”