In March, the $304.9 billion California State Teachers' Retirement System, West Sacramento, committed $50 million to SoLa Impact LLC's Black Impact Fund, an affordable and workforce housing fund, through the pension fund's joint venture with Belay Investment Group LLC.
Typically, Black and Latino communities are underinvested, said Martin Muoto, Los Angeles-based CEO of SoLa Impact. The firm closed its fourth fund, the Black Impact Fund, with $250 million in March, he said.
Sixty-five percent of the fund is expected to be invested in new development with the remainder in rehabilitating existing apartment buildings in underserved Black and Latino communities.
"We focus on areas where we have a competitive advantage with the intention of improving the social outcomes of those communities" by adding more affordable and workforce housing, Mr. Muoto said.
The properties have affordable units supported by Section 8 vouchers provided by HUD as well as workforce housing "which are market rate but still affordable because of the areas in which they are located," Mr. Muoto said.
As of March, SoLa Impact had invested in the development of over 3,000 affordable and workforce housing units located primarily in Los Angeles. In addition to providing housing, SoLa Impact through an affiliated non-profit, SoLa I Can Foundation, offers tenants services including vocational training, financial counseling and scholarships, he said.
And there is a pathway to earning a top return in the affordable housing sector, Mr. Muoto said.
The areas with predominantly Black and Latino residents are where "the real estate is undervalued" and so there is "potentially more upside, Mr. Muoto said.
Anand Kannan, Irvine, Calif.-based president of Community Preservation Partners, a developer, owner and operator of affordable housing, said in an email that over the years, he has seen more real estate managers taking an interest in affordable housing investments.
The growing interest in multifamily "has brought a lot more players into the space, leading to increased competition for deals," Mr. Kannan said.
Community Preservation Partners defines affordable housing as buildings in which 100% of the tenants make 80% or less of area median income, with its properties typically serving residents making around 60% or less of AMI.
The companies that are now entering the affordable housing sector are established real estate firms that "may not necessarily have the same mission of preserving affordable housing that we do and may only focus on the financial metrics of a particular opportunity," he said.
The company uses a combination of private funds and government subsidies to maximize that the investment into each property and focuses on affordable housing in high-cost areas in 16 states including Oregon, California, Nevada, North Carolina, Virginia, Hawaii and Texas.