The exterior of Portola del Sol, a complex Turner Impact Capital's multifamily fund owns in Las Vegas.
Turner Impact CapitalTurner Impact Capital has closed its second affordable workforce housing fund at US$357 million, including injections of capital from the foundations of NBA star Chris Paul and activist investor Bill Ackman.
By leveraging those dollars, the Turner Multifamily Impact Fund, one of the real estate firm’s private-equity vehicles, will be able to buy close to US$1.25 billion in new properties in urban areas, according to Bobby Turner, CEO.
So far the fund has made seven investments in several cities, including Chicago, Austin, Las Vegas, and Dallas. The properties include more than 3,000 units serving more than 6,000 residents. These are renters who don’t qualify for subsidized housing, yet don’t make enough to qualify to buy homes in the cities where they live and work, the firm says.
The lack of quality affordable workforce housing is an issue that “is huge, growing, and the demand is unmet,” Turner says.
While affordable housing is of key concern to many impact investors, there were only eight dedicated affordable-housing private-equity and venture-capital funds that responded to a survey by US SIF: The Forum for Sustainable and Responsible Investment for its biennial report on the sustainable investment landscape released in November.
Turner’s private-equity funds attract interest from traditional institutional investors—including university endowments, banks, and insurers—concerned mainly with achieving private-equity-like risk-adjusted returns.
But investors also include foundations and other philanthropists—such as Paul, Ackman’s Pershing Square Foundation, and the Rockefeller Brothers Fund—which are looking for another tool to enhance their philanthropic impact. For these investors, especially, Turner reports on its efforts to improve the environmental footprints of its properties—by reducing water and energy use, for instance—and on concrete measures that assess social impact, such as tenant satisfaction.
“In the wake of this pandemic, continuing to preserve affordable, high-quality housing for families with close proximity to their workplaces, schools, and other community resources could not be more important,” Ackman said in a press statement.
Generally, the minimum needed to invest is US$10 million for institutions and US$5 million for individuals.
The new fund follows the model of Turner’s first multifamily impact fund, by investing in existing properties, and then “enriching” them, not with capital improvements, per se, but by strengthening the fabric of the communities with services, such as health-care clinics, after-school programs, and community policing.
One way Turner accomplishes this is by setting aside between 2% and 3% of units in each property for teachers, health care workers, and security officers, with the mix depending on the needs of each location. In return for rent subsidies that range between 25% and 100%, these residents provide community services, such as after-school mentoring and instruction by teachers.
Providing these kinds of services gives residents more pride in their communities, and as a result, they stay longer. That has a direct bottom-line effect, Turner says.
“In urban environments, the biggest expense of operating and owning workforce housing is not insurance or taxes—it’s turnover,” Turner says. The fund’s properties, to date, have experienced a 30% rise in lease duration, he says.
Focusing on teachers and health-care workers also allows Turner to integrate the firm’s investments in charter schools and community healthcare facilities designed to enable access to care at a lower cost for low-and-middle income individuals. “We’ll recruit from them the teachers and health care workers to live in our portfolio properties,” he says.
For the first multi-family fund, Turner raised US$264 million, which he leveraged into US$700 million to buy 7,840 workforce housing units for 14,000 residents also in urban areas that includes Dallas, Austin, Chicago, and Las Vegas, as well as Washington, D.C., and Atlanta. That fund’s second and final closing was in September 2016.
Both funds focus on creating housing in communities that are dense (with at least 250,000 people within a five-mile radius), diverse, and where existing demand is not being met—a criteria Turner says isn’t difficult to meet. He also wants to ensure that the investment allows the fund to “do good by doing well.”
“If I don’t believe my business model will work, I won’t invest,” Turner says.
The first fund is on course to generate a 10.3% return, net of fees, but the goal is to create an eventual “permanent capital solution,” for both funds, possibly by taking them public or turning them into a non-tradable real-estate investment trust.
“It’s not our goal to be selling assets—it’s to build a portfolio and season and harvest them to drive that pride in renter-ship across the entire portfolio before we take it to a permanent capital solution,” Turner says.
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