A Los Angeles-based investment firm is raising private capital to build housing for low-income Americans.
The latest fund from SDS Capital Group, a woman-owned impact real estate fund manager, is American South Real Estate Fund II, a joint venture with Shreveport, La.-based real estate firm Vintage Realty Company that finances affordable housing in low-income and majority-minority communities in the southern United States.
Since its founding in 2001, SDS Capital Group has financed over 5,000 units for low-income families in states including Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North and South Carolina, Tennessee and Texas.
The firm's founder and CEO, Deborah La Franchi, previously worked as Los Angeles' assistant deputy mayor for economic development where she witnessed the need for affordable low-income housing.
The American South Real Estate funds make money by financing land and construction, she said.
"The tenants move in and start paying rent. The sponsor refinances the project, and it has a higher value now that it's built. We're in for whole construction, then we're taken out" by successive investors, and harvest profits, she said. "This isn't a non-profit, this is mission-driven for-profit venture. Our exits are very straightforward – typically a commercial loan takes us out. Pretty simple."
American South Real Estate Fund I fully invested $58 million of capital into 15 projects with 2,157 multifamily units financed, 75% to families with lower incomes.
ASREF II, now closed at $174 million, has invested in 7 projects, financing 2,919 multifamily units, 92% of these units are affordable. ASREF II still has capital available for investment.
The second fund was anchored by $50 million in public pension fund capital managed by GCM Grosvenor, a Chicago-based firm that manages over $5 billion of real estate emerging manager programs on behalf of institutional investors. The $259.9 billion New York State Common Retirement Fund, Albany, is one of five pension fund investors in the fund through Grosvenor.
La Franchi said she's created a funding model that finances permanent housing for low-income Americans, and for the homeless, using exclusively private capital. The firm financed 800 units in construction for homeless in California using all private-sector money.
Since its founding in 2001, SDS has cumulatively invested and is currently managing more than $2.4 billion — with over $1.3 billion in active capital under management currently in five funds or investment vehicles.
