Private Capital’s Role in Multifamily Affordable Housing

Nathaniel Kressen 00:06
Welcome to Bank Notes, the podcast from the Federal Reserve Bank of New York. I'm your host, Nathaniel Kressen, and this season, we're focusing on private capital's role in multifamily affordable housing, which is separate from the government's role in developing affordable housing and making subsidized housing available. The Community Development team here at the New York Fed published a report and hosted their third annual conference on the subject, highlighting recent trends in institutional investments in this sector. This episode, we speak to two of the authors behind that report and dig into what's top of mind for them. The views expressed here do not necessarily represent those of the New York Fed or the Federal Reserve System.

Nathaniel Kressen 00:52
Jonathan, Carmi, welcome back to the Bank Notes podcast. For anyone who hasn't listened to our season "CDFIs: Serving the Underserved and Making Missing Markets," could you introduce yourselves and share a little bit about what you do here at the New York Fed?

Carmi Recto 01:06
Thanks again for having us here today, Nathaniel. My name is Carmi Recto. I am a community development specialist here at the Federal Reserve Bank of New York.

Jonathan Kivell 01:16
Hi, Nathaniel, thanks for having us. I'm Jonathan Kivell, director of community investments at the Federal Reserve Bank of New York.

Nathaniel Kressen 01:23
So, we're here to talk about affordable housing, which has become an increasingly timely topic, both in urban and rural communities. As a baseline, though, how is affordable housing defined?

Carmi Rector 01:35
So there, there is a sort of conventional framework in the affordable housing industry, where they call it, there's "big A" and "little a" affordable housing. "Big A" affordable housing refers to, sort of, income-restricted units affordable to households earning between or up to 60 percent area median income, whereas "small a" affordable housing is also commonly referred to as naturally occurring affordable housing, where it's just because of the property's characteristics that they become more affordable to lower income bands in a community.

Jonathan Kivell 02:17
So our lane for researching and conducting outreach and convening around affordable housing is around multifamily rental. So there's a lot of different conversations and sort of investment strategies and parties involved in various parts of the affordable housing industry: home ownership, mortgages, low-income communities and financial counseling. Our lane is around the development, preservation, and financing of multifamily affordable rental units. That's, that's something that we've been researching and convening around for a few years now. And we think about affordability as a measure of rents as a percentage of area median income. How does the income that a household earns in a given community compare to that median income, and how does that compare to the rent that's charged to live in those apartment units?

Nathaniel Kressen 03:19
Yeah, I was about to ask about that area median income.

Carmi Recto 03:23
So, area median income. Yeah, so the, sort of, middle income across a certain population. And we talk about, when we say "affordable," we say, "Is a household paying 30 percent or less of whatever they're making toward housing cost?" And that's what we sort of think, how we think about "affordable."

Jonathan Kivell 03:47
The standard for cost burden, the HUD standard, is 30 percent of household income paid towards housing. So, if you're earning lower than median income, 50 percent of area median income, what is affordable to you, given that standard, that 30 percent standard?

Nathaniel Kressen 04:08
So, speaking to your lane, which you talked to, which is multifamily affordable rental units: Your team published a report examining how an increase in private sector investments in institutional capital are kind of changing the landscape of this sector. So, talk us through that report. How did you assemble this data? What were some of the key takeaways, and what was anything in these findings that particularly surprised you?

Jonathan Kivell 04:35
Yeah, so we had published a report two years ago on this topic, where we surveyed investment managers of various investment vehicles that are investing in multifamily affordable housing. And maybe I can just take a step back and talk about why this is interesting. So, there are a few different strategies that these investors sort of utilize. They're either acquiring existing buildings or they're providing debt or equity financing to others who are active in this space. The biggest federal program that's utilized to incentivize developers of new affordable rental units, or preservation of existing affordable units, is the Low-Income Housing Tax Credit Program. It was approved and passed in 1986 as part of the Tax Reform Act, and then has subsequently been revised, but that program includes affordability restrictions on a property that's developed utilizing that, you know, financing source. And so within that program, properties remain affordable for a 15-year compliance period where an investor will stay in as a, as an investor in a property and earn tax credits, and, you know, other benefits, tax losses, and then for the additional 15 years, what's called the extended use period, the property is also to remain affordable. So, many of the properties that have been developed in this program are now reaching, or starting to reach the end of that 30-year extended use period. And there are states that have included additional affordability restrictions on the properties that win awards or utilize the tax credits in that you know, that particular geography, that state, but for the number of properties that are starting to approach the end of their extended use period. That story, in many ways, is unwritten. What happens to those properties next and to the tenants who live there? Are those properties going to be sold? Are they going to have rents that convert to market? Are those properties in neighborhoods that look very different today than they did 30 years ago, and rents are much higher in those neighborhoods, because that can be very impactful for tenants who are low or moderate income. And so that's a big reason why we're interested in this topic, because it really starts to get at, who are these entities that are acquiring these properties once they reach the end of their extended use period, or in the middle of their extended use period, what have you? And how are these entities, that are acquiring these properties, how are they financed? Where are they sourcing their equity capital? And the LIHTC program, the Low-Income Housing Tax Credit Program, is one of a few different types of properties that these investment managers are acquiring and are financing. But it's just important to call out, I think, that there is this sort of growing number of properties that's going to reach the end of their extended use, you know, period within the tax credit program or other affordability restrictions, and what happens to them could go a lot of different ways.

Carmi Recto 08:08
So to that end, we thought as a team, we could use our sort of research capabilities to survey investment managers that are doing this and getting in the weeds. So we gathered responses from 22 managers of these private affordable housing investment vehicles, just to build a profile of what their investment vehicles look like. So, how much equity they've raised, how much they've invested, what are or who are, the households that they are trying to serve, and what their investor base looks like. From that data, or based on that data, we saw that they raised a total of $18.4 billion and invested $18.6 billion in, again, multifamily affordable housing over, over a five-year period between October 2019 and September 2024.

Nathaniel Kressen 09:18
That sounds like a lot. Is it a lot?

Jonathan Kivell 09:21
It depends.

Nathaniel Kressen 09:22
What does it depend on?

Jonathan Kivell 09:26
Well, affordable housing, as we've learned, is just one of a lot of different asset classes that institutional investors are interested in. You know, it's one of several subsectors within real estate that institutional investors care about. And so, is $18.4 billion a big number? Yeah, that's a big number. But how does that number compare to all of the other things that you know investment managers raised capital for over a similar time period? It's not as big.

Carmi Recto 10:00
Sorry, we should also mention that, and we always say this, the data that we gathered are not representative of the full state of the market, but it does represent a unique data set that is not as easily accessible, nor publicly accessible, and so in the spirit of providing good information out there that sheds light on a particular topic which we think our team is uniquely positioned to provide, it is still, we think it could be helpful for the field.

Jonathan Kivell 10:39
Let me just piggyback on that. So, we generally have seen, as we're thinking about affordable housing and this space within multifamily and institutional investment, that there is a lack of data on what these investment vehicles look like, how they're sourcing equity and the levels of affordability within their portfolios for the rental units they're acquiring and that they're financing. And so to Carmi's point from earlier, we don't know the overall state of the market in terms of how many managers are out there, how many vehicles are out there, even the number of, you know, assets that these different groups are acquiring, but we were able to identify this pool of respondents and have them complete this survey, and we were able to use the survey results to conduct this analysis that led to the report. So, it's a unique data set to Carmi's point from earlier, but it also is helpful, we hope, because it gets at shedding light on an area of the affordable housing world where there's been a less data, less publicly available data.

Nathaniel Kressen 11:53
Yeah, I think that makes a lot of sense. So, to echo back what I'm hearing, it's not representative of the entire market here, but it kind of gets at a subset that isn't more commonly understood. It allows insight into changes in this market, you know, like the chemical makeup, kind of, of what these investment vehicles are doing. And that kind of gets to the core of this season, it's going to be the event that you guys hosted. It sounded like this was the third annual event on this topic, focusing on institutional investments in multifamily affordable housing. And what's interesting, what you guys were just talking about, is rethinking affordable housing as an asset class. So, when I hear affordable housing, I think of families, individuals, needing a place to live, needing a secure place. But what it's becoming, especially as these extended use time periods come to their end, it becomes an investable resource. It becomes an asset, like other assets. So, something interesting, that is, examining what happens when something that is about livelihood and home becomes another thing to invest in? What listeners will hear this season are the two main panels from that conference, one with investment managers, one with the institutional investors. And I'm curious to hear from you guys to tee that up, what were some things that jumped out at you in terms of thinking about multifamily, multifamily affordable housing as an asset class? Why is it attractive to investors? What's happening in this space with new interest in investments toward it?

Jonathan Kivell 13:29
That's a really good question. So, a lot of things jumped out at me as key themes that were discussed on those panels. And first off is just defining affordability. What is affordable housing as defined by the people who are on these panels and who they talk to, both in terms of who they're investing in and who is giving them the capital that they are then deploying? We, for our survey purposes, defined affordability as units that are affordable up to 120 percent of area median income, and our analysis sort of stratified out the extent to which those portfolios have units affordable up to 50 percent or 60 percent of AMI, up to 80 percent of AMI, 100 percent and then 120percent. And there's different definitions as to why, as Carmi mentioned, but we thought that was a helpful sort of target for us, just to be able to figure out what is responsive to this question of affordable units within the respondent pool that completed our survey. And you'll hear it in the remarks during the panel that a lot of the managers, or a few of the managers, mentioned up to 80 percent as a key number. So, that's something that you know, they they talk about, is that's their focus point.

Nathaniel Kressen 14:57
And when the panelists, and earlier you, mentioned that term "income bands," that's what it means? Is, what is it at 50 percent, 80 percent, up to, it sounds like, 120 percent of AMI?

Jonathan Kivell 15:07
I mean, there may be managers that are not investing in anything north of 80 percent, but also, you have to think about what the underlying property looks like. So, some properties are developed and they're what's called mixed income, where they have some affordable units that are affordable up to 50 percent or 60 percent or 80 percent of AMI. And then they have some market rate units. Sort of comes back to the old city planning, right? The old Jane Jacobs' "The Death and Life of Great American Cities," you know, mixed income, mixed use, those kinds of things. So, there may be some properties that have commercial spaces on the ground floor and then apartments above. It really just depends on what the underlying asset is.

Nathaniel Kressen 15:30
So, really broad definition, it sounds like, like affordable housing can kind of mean a lot of different things.

Jonathan Kivell 15:50
Yeah, and that, you know, we had this event last year where we had a few presenters, and this issue came up as well. One speaker last year, I don't want to put words in his mouth, but was Greg MacKinnon from the Pension Real Estate Association, and that's a trade group, he's the director of research, and he talked about in his presentation, one of the challenges being, defining affordability. Institutional investors being able to define what is affordable housing. "What am I looking at when I'm looking at this asset class?" So, I think that was a theme that came up. Another theme that came up was just the growth of institutional capital in this space. Several of the panelists remarked that, you know, 10, 15, years ago, you wouldn't necessarily be able to convene all of these institutional players around this topic, because there just weren't as many in their view. And so, that's kind of been something that we've observed about the paper, as well as just looking at the various types of institutional investors. It's not just banks, it's pension funds, it's insurance companies, it's high-net-worth individuals, foundations, endowments. That there is this broad, you know, array of institutional investors who care about this asset class, and what that looks like in terms of the strategies of the investment managers and the vehicles that are actually deploying the dollars into these communities and these properties, that's a different story. Just because, you know, somebody's investing in it, doesn't mean that it necessarily has one strategy or another.

Carmi Recto 17:25
If I can just jump on to that, too. So, in our last case study on pension fund investors, that was really, that came about because from the first case study of investment managers, one of the key takeaways is that non-bank investors, like pension funds, are a material source of investments for these types of vehicles. And I think what to me, one of the key takeaways that I got from the event is sort of the articulation, also, of more global interest in investing in U.S. affordable housing. And so, I think that's one of the another dimension when we talk about who is or which institutional investors are interested in this as an asset class.

Jonathan Kivell 18:24
In the paper, we looked at the extent to which the investors in the respondent manager investment vehicle, those firms, the investors are based abroad. And so it was interesting. Of the $18.4 billion of equity capital that was raised in the five-year period of the survey, 16 percent was raised from investors based abroad, with Europe being the largest representative region within that.

Nathaniel Kressen 18:51
Is there a way to unpack why that is?

Jonathan Kivell 18:54
We don't know. We don't know past the reasons that other investors within the U.S. have given what is it uniquely about European or also Asian investors that makes affordable housing, multifamily affordable interesting to them. We don't know the difference between what U.S. investors are thinking versus what they're thinking, but just the idea of sort of this global view into U.S. multifamily affordable that managers are able to go abroad and raise capital for these assets locally here. That's noteworthy. That's interesting. I don't know if you had done the same survey 15 years ago, if the data would have shown that. My sense is probably not.

Nathaniel Kressen 19:39
I'm so curious as to the why of that, because what is it? 16 percent you said?

Jonathan Kivell 19:43
Yeah.

Nathaniel Kressen 19:44
That's a significant amount.

Jonathan Kivell 19:45
And remember, that's just the groups that we talked to, right? Think about all the groups that are out there that, we never reached out to them, we reached out to them and they didn't respond to the survey, or they never heard of us. There's a lot more. Or probably that's out there that we don't know about. We've done some other research on this, but we haven't been able to pinpoint exact data, and then trying to get to the why, that's a really interesting question. So there, you can see there's so many different components to this that in the end of the day, relate to families and households that are just trying to pay their rent and go about their day and do the best that they can, that are happening at such a macro level. And these things are very interesting, because, again, they relate to these big institutional dollars, you know, big, big investors, Wall Street investors, but then they also come back to these neighborhoods and families and low-income communities, and that's kind of what we hope to do here, is just provide information to people who are in the space. We're not advocating, we're not telling people what investments to make. We're not recommending anything. We're just providing information about what we see as happening through the survey and other channels, and hopefully that's helpful to people as they're having these conversations, and they're part of these conversations about whether or not this is a investment that they want to make, or whether or not they're going to raise a fund or buy a property or what have you.

Nathaniel Kressen 21:16
At the end of the day, information is helpful.

Jonathan Kivell 21:19
Yeah, yeah. And the last thing I'll say is this part of the market, of the affordable housing market, is just very different in what we've seen from other parts of multifamily affordable. So, I mentioned the Low-Income Housing Tax Credit Program earlier, and in that program, there's more transparency around the investors, the dollar prices that the investors are paying for, the tax credits that they're receiving. You know, there's more transparency around what's in their portfolios. You know where the portfolios are located, because there are subsidies involved. There's a federal tax credit. There's other subsidies involved that make those properties sort of more easily understood in terms of what they look like, who owns them, and all of this other components. And in this part of the market, this multifamily affordable outside of the tax credit space, there's just less clear data. And so, I think what we're trying to do is just trying to shed some light on what these assets look like, what these properties look like, and they're not all properties that were formerly financed with low-income housing tax credits. Some are naturally occurring affordable housing, some are project-based, Section Eight properties. But in the end of the day, who are these managers who are acquiring them or financing them, and where are they sourcing the equity that they receive? Because it is a variety of institutions now, and that's just very interesting, so we want to be able to investigate that further.

Nathaniel Kressen 22:59
Why is this the lane that you guys have?

Carmi Recto 23:03
So, I think we are uniquely positioned to be able to use our research capabilities and our convening capabilities to shed light on this particular topic, where, as Jonathan had mentioned earlier, there's not a lot of publicly accessible information about it. And if we put that side-by-side with literature on affordable housing units that are supported by public programs like the Low-Income Housing Tax Credits, this is less understandable compared to that because of the lack of data. So providing, I think, providing that data, we hope, will help the field get a more fulsome view of the affordable housing sector as a whole.

Jonathan Kivell 23:58
I think there are a lot of trends happening in community development finance, broadly, we've seen it through our CDFI research and outreach trends around financing, providing financing for low-income home buyers. You know, some creative things happening in the home mortgage space and the secondary market, obviously, but this is a lane where it just feels like this is a trend, this institutional capital coming into this space, and we want to know about it. We want to be helpful to people who are active in this space and understand what they're doing, because it does affect low-income communities, and it does involve big dollars.

Nathaniel Kressen 24:38
So what happens when this becomes an asset class? Do more—you're talking about both repurposing as well as new buildings, it sounds like—does, does larger investment in this sector translate to more affordable housing being available for prospective tenants? Is there an, is it all upside?

Jonathan Kivell 24:57
It's a complicated question. Can I take two seconds back to the last question and just highlight three other themes that I noted as I was reading the transcript? The other themes that I think are worth highlighting are just, why is affordable housing interesting as an, as an investment to these groups? What is it about multifamily rental properties that serve low- and moderate-income people is interesting to these institutional investors? And I think the things that we heard were really things that we echoed in the paper and in prior things that we've heard and written about, which is, you know, the demand for affordable rental units is really insatiable. There just is not enough affordable housing, simply. And then, as an asset class, it's stable, you know, it doesn't have these massive upswings, but it also doesn't have these downturns in the way that other real estate asset classes, you know, can experience. And so I think for investors, they've looked at it as a way to sort of round out their portfolio and include something that's a little more stable in various times. So, that's one theme that I think is worth highlighting.

Another is just, what are the return expectations for these investors? How are they thinking about putting dollars to work and what they plan to do once they invest in these properties? Is their goal to maintain the affordability during the life cycle of their ownership, or for longer? How do they sort of think about that question? And I think that's very helpful for us, and part of the reason why we're convening on top of writing a report, because there are certain things that we just don't hear about through written responses to a survey, and to have an event where people are able to speak and talk about their experience as owners and what their expectations are around exits when they are no longer the owner of a property. That's, that's very valuable for us, just in terms of, you know, informing our future work, and hearing about the experience of what they're doing as owners and what that means for tenants.

And then the last theme I just want to highlight is the tenant experience. What's it like to live in a property that's owned by one of the managers who's receiving institutional capital, who's looking to, you know, big institutional investors for the equity that they're going to deploy? What's it like to live in that building? What does it mean for them? Does it make a difference? And I think what we've heard from the managers that we've talked to is services for tenants is very important. If it's after-school programming, if it's providing a bus service to any kind of public resource, like a library, those kinds of things are important to managers who want to make sure that they have that tenant experience that makes the tenant feel like they're valued, that the manager, the owner-operator, has this sort of tenant well being that's top of mind.

Nathaniel Kressen 28:16
Yeah, that actually speaks to an interesting thing that ties back, and I'm going to go back to the upside question.

Jonathan Kivell 28:20
Yes, yes, yes.

Nathaniel Kressen 28:22
But the tenant experience is interesting, because obviously a big focus of our community development group is the Making Missing Markets initiative, which looks at the overlapping solution creation, dealing with overlapping problems. And mapping it to, kind of, affordable housing. It's not a one-to-one, but we're talking about housing here. We're talking about keeping housing affordable for tenants, but you're talking about bus service, you're talking about services like daycare. You're talking about the whole person, the whole person's experience, supporting people on multiple levels. So, kind of piggybacking on the idea of, does more money in this sector equate to better outcomes for those people? I'll also bring in, how common is that mentality—helping the whole person—figures into affordable housing? Is it unique to these managers who favor this? Is it an ongoing thing, and I'm just hearing about it from you right now? Curious to hear.

Jonathan Kivell 29:19
We had a conference two years ago where one of the panelists and—Carmi and I have worked together enough, I believe she actually knows what I'm going to say next—one of the panelists was Bob Simpson, who runs a trade group called The Multifamily Impact Council, and they've put out this framework for how managers should own and operate properties. I'm going to come back to the question in a second, I promise. But what he talked about was the importance of the financial health of the tenant. That the financial health of a building really comes back to the financial health of a renter of a household, and what that looks like, and making sure that they're, that they are kept in mind by the owner-operator manager, as a priority, that's important, and because that dictates what the building looks like when the final P&L for the building is reviewed before a property is, you know, approved, sold, refinanced, acquired, renovated, what have you. So, I think that's just something that's sort of top of mind, is making sure that it's not just another apartment unit. There's a family living there, or a person, or a senior citizen, or somebody who's disabled, or any number of populations that are served by those units. And they're each have a different story, but they all fit into the financial health of the overall building.

Carmi Recto 30:44
So just jumping on that same point, there is also, there was also a speaker from this event on the investment manager panel, Pam West, who talked about how offering an after-school tutoring program not only helps the student academically, which is sort of the thesis behind offering that service, but, by the way, it also helps their primary caretaker be able to stay at their jobs for one or two more hours, and earns that income that helps with their household expenses, including housing. So just tying back to the original point of helping with the financial health of the household, sort of can tie back to the financial health of the building.

Jonathan Kivell 31:33
Your original question, or your earlier question was around, what are these managers doing? Are they, you know, how does the raising of capital relate to keeping a property affordable or not? The short answer is, we don't know, right? We don't know the overall size of the pool of capital that's being deployed in any given year in this space. We don't know, and I think we are doing our best to survey the industry, but you know, 22 managers, we don't know. And we've asked people, "How many managers are out there?" We don't know the answer to that. But I do think this sort of institutionalization of affordable, multifamily affordable as an asset class, it has given rise to a greater emphasis being placed on things like tenant services at the property level, things like making sure that properties stay affordable for a longer period of time. And there may be groups that look at expiration of affordability restrictions as a way to raise rents, and those groups may be able to raise capital, but that's not necessarily the whole universe. You know, as our events have shown, there are a lot of groups out there that intentionally enter this asset class to maintain the affordability of the units at least while they're in the ownership position, and then for some throughout the period of life for the asset after they're the owner. So it's, it's a spectrum. It's, it's a broad, there are a lot of different strategies that managers can deploy. What's harmful to tenants, obviously, is if somebody shows up, allows rents to go as high as they can possibly go. Units are no longer affordable, and tenants aren't able to stay there, and then they have to move, they move themselves, they move their family, and it's very disruptive. That's something that's known as, you know, as a possibility. I think the groups that we've talked to are able to tell us how they try to actively avoid that scenario for tenants and for families and maybe it's possible all the time. Maybe it's not possible. Does that mean that they're leaving money on the table when it comes to what rents could be? That's sort of a level of detail into operating a property that we haven't gone into with our analysis and with the papers. But generally, when we talk about income restrictions, you know, we can see the percentage, and we talk about it in the paper, the percentage of properties and the percentage of units that have affordability restrictions, as in, those owners are keeping these properties affordable, at least through their own ownership.

Carmi Recto 34:35
At the event, there was also a point about the inherent tension between institutionalization of affordable housing as an asset class and sort of the strategy for smaller managers that are trying to be more creative and really targeted that might not meet, sort of, institutional standards in terms of, you know, governance in general. You'll find that at the event. But in sort of the subsequent panel, there is also an articulation of a spectrum of institutional investors that can help address that as well. And so I think it just might be helpful to sort of surface that point and on a hopeful note.

Jonathan Kivell 35:31
Let me just jump in for one second. I mean, one thing that you know, we've kind of asked ourselves within our team is, what difference does it make if a property that is rented out to low- or moderate-income families, people earning up to 50 percent or 60 percent of area median income, what difference does it make if they're owned by an owner-operator investment manager who raises capital from big, you know, pension funds and institutional investors. Does it make a difference if that property is owned by that manager, or some, you know, mom-and-pop real estate owner? And one thing that we have heard, and we talk a little bit about it in the report, is it makes a difference in terms of tenant services. At least one manager we talked to, and we mentioned this in the report, said that they treat tenant services as an above-the-line expense, meaning those after-school programs, bus service, job training programs, things that they're providing onsite for tenants that's included in their budgeting for a property when they're going to own and operate it. It's not optional that they make sure that they include those services, and those ultimately are borne by that operator, by that owner-operator. Those are expenses at the property level that they take into account when they're making their pro forma. And so I think that may happen in the mom-and-pop situation, where a mom-and-pop owner owns a building, but we know that. We've heard it from these, you know, managers and how they look at these assets.

Nathaniel Kressen 37:13
I think the "too long didn't read" version is, there's a lot of nuance in this space. Scope introduces a bit of complexity in terms of what's possible, you know. Which projects get funded. That's something that we haven't touched on here, but I know came up in the panels is that, I think one panelist mentioned that the smallest check they write is $200 million. And so not every, not every project, single project, is going to get up to that threshold. And so, that project might not get any, you know, funding from from investors who likewise, have a similar floor that they need to get to in order to justify the operating of generating these loans, or what's the right terminology, they're generating these investments, loans and investments, those investments. So, so even complexity, in terms of where the funds are, how it's structured. There's probably philanthropy in this space. There's, you know, all sorts of different things that are adding to these kind of this growth in this sector. Is there anything else that you guys wanted to cover in order to tee up these listeners for the panels that they're going to hear this season?

Carmi Recto 38:19
You have this question here about what was unique about the conversation this year, and I just wanted to point it out that to me, it feels like each year that we've done it and we've done it three years in a row after a case study is released, it feels like it's unique every time, because when we publish the case studies, we're always very conscious that those are just a particular snapshot in time. And from the time that we ask these managers, to the time that, about their approaches and their business model, to the time that the case study is released, to the time that we have the event, many things can change. The world can change. The environment can change. And so we really hope to host these convenings to be able to gather and really articulate the points that these practitioners really see on the ground, to tie it back to sort of the research, and really be able to probe a lot more into the context of the data that we release.

Jonathan Kivell 39:33
Yeah, I think in community development, this is an interesting topic, because it relates to low-income communities, low-income families. It relates to people who are earning 50 percent of AMI, 30 percent of AMI. Where do they live? How are they able to afford where they live, and what is that asset that they live in, that home, as defined by somebody who does own it, if they're a renter, what does that look like for that investor? How do they look at it versus anybody else who might acquire it, and the role of capital providers in keeping those properties affordable? This relates to institutional capital, the big dollars that are out there, the groups that are writing big checks and smaller checks to invest in these things, and it relates to low-income families. To me, in community development, this is exactly what we want to be working on.

Nathaniel Kressen 40:29
So I'd imagine, on the New York Fed's public website, there's a way for folks to engage. If they want to give you more data and more anecdotal stories about what's going on in this space, there's a way they can reach out to you and get involved, right?

Jonathan Kivell 40:41
Yes, if people want more information, we provide our reports all available on our website for free, and all of the event recordings are available on our website. And please reach out to us if you'd like to have a conversation about things that you're seeing in the affordable housing space, or if you have any questions about our research.

Nathaniel Kressen 40:56
Rock on. Carmi, Jonathan, thanks as always, for your time.

Jonathan Kivell 41:00
Thank you.

Carmi Recto 41:01
Thank you.

Nathaniel Kressen 41:04
For more information, visit the Bank Notes show page at nyfed.org/podcast, to find research and resources for this season.

Nathaniel Kressen 00:06
Welcome to Bank Notes, the podcast from the Federal Reserve Bank of New York. I'm your host, Nathaniel Kressen, and this season, we're focusing on private capital's role in multifamily affordable housing, which is separate from the government's role in developing affordable housing and making subsidized housing available. The Community Development team here at the New York Fed published a report and hosted their third annual conference on the subject, highlighting recent trends in institutional investments in this sector. This episode, we revisit a conversation with investment managers from that September 2025 conference. The panelists will introduce themselves. The views expressed here do not necessarily represent those of the New York Fed or the Federal Reserve System.

Carmi Recto 00:54
I am happy to call on stage our first panel of investment managers, moderated by John R. Williams from Avanath Capital Management. Ladies and gentlemen, thank you.

John R. Williams 01:11
Well, thank you, Carmi, and thank you all for attending. Really appreciate it. I'm John R. Williams. I'm probably a little, you may be a little disappointed. You may be expecting another John Williams that actually works in this building. I think he's a little busy this week. With that, I'll just give you a little background about ourselves at Avanath. I'm the President, Chief Operating Officer of a Avanath Capital Management. We're based in California, although we have an office here in New York, Florida, Denver and Chicago. We own about 110 assets. Eighty-five percent of those would have some, either they'd be either rent-restricted, income-restricted, or have some local rent restriction on them. And we're developing some assets up in Connecticut right now. We're about $4 billion AUM, assets under management, about 15, a little over 15,000 units. And kind of did, we'll probably relate ourselves a little bit back to the case study. But we're vertically integrated, so we manage all our own properties, and we're, we employ over about 600 people across the country. And with that, we'll move, we'll just, Nina, you want to just move it down? Thank you.

Nina Tschinkel 02:28
Hi everyone. My name is Nina Tschinkel, and I'm a director at Catalyst Opportunity Funds. Catalyst is an impact-oriented real estate investment firm with about $350 million under management, so a little smaller than John's firm, and we provide equity capital to developers building affordable and workforce housing. We specifically focus on housing for the "missing middle." So, we define that as households earning, really, between 50 percent and 80 percent of the area median income. These are households who, you know, earn too much to qualify for federally subsidized housing, but who are increasingly, kind of, being squeezed by housing costs in high growth markets. So these are the nurses, the teachers, the firefighters, the bank tellers, really the backbone of the American workforce that's increasingly being priced out of the communities that they work in or live in or grew up in. We invest nationally in secondary and tertiary markets, and within those markets, focus on transitioning, often low- to moderate-income sub markets that need a little bit of catalytic capital to start to revitalize. And we are not vertically integrated, so we partner with developers who are local to these communities. Many of them raise their families in their, in these communities, and those developers really help to ensure that our work is being done in collaboration with the community, instead of to it by an outside private equity shop or developer group. And just one last note, you know, most of our projects are in urban neighborhoods, which means that we have multifamily housing on, let's say, floors two through six, but then we have ground floor space that is commercially zoned, and so we're able to take a really thoughtful approach to matching organizations, matching tenants in those ground floor commercial spaces that meet the needs of the local community. So that looks like bringing food co-ops into food deserts or bringing financial services providers into banking deserts. So it's really a housing model, but also a housing-plus model.

Alicia Glen 04:38
Alicia Glen, I'm the CEO or founder of MSquared. We are an investment, a real estate investment and development company. We focus almost exclusively on the development of new mixed-income, mixed-use projects. Hence, MSquared and are less focused on targeting the missing middle, which I guess we can discuss whether 50 percent to 80 percent is the missing middle or that's actually sort of where most of the subsidy is targeted, but really thinking about trying to break the traditional model, where there's a kind of affordable housing model of development that relies fairly heavily on a subsidized form of finance and the more traditional market rate model that is just building to the market. And that, both as a investment thesis and as a matter of impact and really thinking through what are sustainable, long-term models of community development and building cities that look differently, really having done this for 30 years or so, really thinking about true mixed-income buildings, where investors can have the appreciation of strong market growth, also some of the downside protections or cushion, if you will, of affordable housing. But also really trying to break the model and really think about economic desegregation as the impact that we strive for, like you and like everybody. Everybody wants to have fabulous community development partners in their buildings. And so we do healthcare, we do daycare, you know, all the good things, all the things. But also we're building in high cost markets where we're also trying, also trying to figure out, like many people are, how to populate your retail in a way that makes sense, in terms of adding sort of amenities that the building and the community can like, but also the harsh realities of what it's like to really do mixed-use and mixed-income housing. So and we have about $400 million of AUM, and just starting our fifth year figuring it out.

Pamela West 06:48
All right, thanks. Hi everyone. Thanks for coming in on a Monday, a busy, busy Monday afternoon and attending this session. I am Pamela West. I head U.S. affordable housing for Nuveen Real Estate. Nuveen Real Estate is owned by TIAA, so a lot of the investing that we do in affordable housing is for our parent, but we also have third-party investors. Our portfolio is about 30,000 units. It's just under $7 billion in AUM. We have 160 plus assets across the U.S., which is where we're focused. A lot of you know, and affordable housing is very broadly defined. I bet all of us have a different definition of what it is. For us, we look at residents who are earning 80 percent of AMI and below. We do have a heavy focus on the 60 percent of area median income resident, and that leads you to many different types of housing. And so we do what's called capital "A" affordable housing, some housing that does receive subsidies. We focus on income-restricted housing, as well as converting market rate housing into affordable housing. One of the issues that we want to address across the U.S. is this idea of preservation. And so a lot of the assets that we, that we have or acquire are already in existence, but because they're deteriorating, we're buying them, and we're preserving them. We're putting capital into them, we're bringing up the age of those properties, the quality of those properties, and then we're adding impact through social services as well as environmental impact. And we believe all of that together drives returns for our investors, and so that's, that's a big focus of ours. We also are vertically integrated, and that we do everything from property management, construction management, we have a development team as well, and we also believe that we should be creating new affordable units across the U.S., and so we're being very tactical in where we do that, in working with different states, everything is a public-private partnership. Whether you have a subsidy or not in affordable housing, it becomes a public-private partnership. And so we're working with those cities who want to work with us, and, you know, are really progressive in how they're looking in affordable housing, looking at affordable housing, I had the same view as Alicia does, which is, you know, we should be developing and thinking about a more mixed-income, mixed-use format. We think that's a better way for society to live, and it's, it's really easy to do here in the Northeast because there's not a lot of space. It's sometimes more difficult to implement outside, outside of places like the north, northeast. But we are, we are doing it. We're focused on it, and it's really about the ecosystem that Alicia just mentioned, right? It's not helpful just to plop housing in the middle of a suburb somewhere without access to healthcare, access to education, and so we try to think about that format as well.

Sydne Garchik 10:16
Okay, so I'm Sydne Garchik, I am the president and founder of MRK partners. We are the only nonfund on the, on the panel here. So this should be fun. We have developed about 6,000 units across the country. We are primarily on the coasts, and I echo much of what the other panelists have said in terms of creating community within a broader community, and the importance of that we serve primarily 60 percent of AMI and below, although we do serve up to 80 percent and we really believe in kind of that cycle of housing, and we also believe in services in order to help our residents thrive and really take advantage of that continuing cycle of housing and moving up the income bands. We do scholarships and financial literacy and a whole host of services that I know all of the panelists do, but we really believe in that. We also really believe in looking at affordable housing, not with kind of a negative connotation, but taking it and kind of applying different demographics. For example, we're doing a new construction deal up in San Francisco, and we're going to target a very young professional demographic, because if you live in San Francisco and you make up to basically $95,000 you can live in in this community. So so really, again, taking a broader approach, and not looking at it so much as affordable housing, but as housing that's needed for the people that serve that community. And I think to what everyone else was saying, we have done a lot of market to affordable conversions, because we are essentially just preserving housing for the residents that live there, and then investing capital and then holding for the long term. Great.

John R. Williams 11:47
Great, Sydne.

John R. Williams 12:13
Great. Thanks. Thanks all. Thanks panelists. So, the I think the goal here too, is we're going to make this very interactive, and so that's a polite way of saying, we may interrupt each other, but, but we're going to probably give, try to give some real-life examples to some of the statistics that Carmi, Talor, and Jonathan wrote about in their report. So we'll, we'll take that. So first off and foremost, let's talk about institutional investing in affordable housing and the flows of capital into that space over the last 24 months, it's been rather difficult. I'd say, I think it's picked up a little bit. And then also I can answer a question, and maybe we'll let this solicit among our panelists here. Interesting for us. We run all our investments through right now, through an open-ended fund. That's $1.5 billion. So when Carmi pointed out open-ended funds, we're part of that category, there. About 50 percent of our investors are offshore, either European, Canadian, Australian, or Japanese. And we can get into that a little bit. What that, why that's an interesting investment thesis for them, but I'll throw it out. So, how have you guys seen the flow of capital over the last 24 months? And then we're also, where have you seen the flow of capital come in? And Nina, I'll just throw it to you real quick.

Nina Tschinkel 13:36
Yeah. So, similar to you, John, it's been a kind of a challenging environment. I think institutional capital flows into multifamily affordable housing, kind of constrained, constricted in 2022 kind of early 2023, I think largely in response to kind of interest rate shock, as well as banking sector distress, and if you remember that. And I think also at that time, we saw many institutional kind of investors pulling back from real estate allocations due to kind of the denominator effect. And during that time, there also was a lot of new deliveries. There was a huge amount of supply coming online in 2022, 2023, and I think that started to really impact rent growth. Certainly, there are more concessions I think that many properties had to make as a result of that. And I think that was really felt across the sector, and I think it caused many institutional investors to really think about whether they wanted to allocate additional capital to that, that kind of sector, I'd say. Despite kind of the volatility there, we saw steady kind of flows of capital from investors who have mandates to affordable housing, whether that's regulatory mandates, through banks, and I know the case study talked a bit about that through the Community Reinvestment Act. Or other groups that have mandates to affordable housing through kind of just internal CSR programs, for example, you know, healthcare institutions that have mandates to invest in their communities through the social determinants of health. So, really investing upstream and things like housing as a way of, kind of having downstream health impacts. So, steady capital flows there. And I think also at that time, what was interesting is, I think the affordable housing crisis was also getting a lot of ink, like, in a much bigger way than I think I'd ever seen before, kind of in local newspapers nationally, just a lot of ink. And I think that that did put affordable housing on the radar of a lot of institutional groups that you know prior maybe hadn't really thought about that as a core pillar of their strategy. And so I think we saw a lot of groups, specifically foundations, really taking a hard look and doing kind of landscape analyses of the affordable and workforce housing space at that time. In terms of Go Forward. I don't know if we want to go, go there yet, or?

John R. Williams 16:05
Yeah, it's a great, that's a great point. Why don't you jump on that?

Nina Tschinkel 16:07
Yeah, I mean, I think, you know, this is something that we talk a lot about internally at Catalyst. And I think, you know, as a result of challenging market conditions, again, higher interest rate environment, a lot of supply that's come online in the last couple of years, coupled with really high growth in OpEx, like exorbitant kind of growth in OpEx that has really, I think, impacted profitability for new development, for developers, but also investors. And as a result of that, we saw new construction starts really start to kind of come down and really plummet in the past couple of quarters, and really this kind of over correction, I think, of all the building that happened in 2022. And so now, I think what we're looking at is we're kind of coming into, and I think will be a supply-constrained environment. And while that's, I think, scary from a housing affordability, kind of housing affordability crisis that we're living through right now, it does benefit owners and operators and investors. And so I think, you know, this asset class is going to become kind of attractive again, in a much bigger way moving forward, so we feel kind of optimistic about the next couple of quarters.

John R. Williams 17:24
That's an excellent point. And then, yeah, I was going to direct to you, Pam, because I hear a rumor sometimes that Nuveen and Avanath compete for capital once in a while, strictly on a friendly basis. But where are you seeing large-scale investors?

Pamela West 17:39
You know, I think it's so interesting this evolution, right, of investors coming into the space. Because, you know, 15 years ago, and John, we were looking at, you know, sort of the early stages of TIAA's investing with managers like you all who were in the space. And, you know, there were, there were no pension funds, there was no institutional capital at the table. It was all very small, you know, high-net-worth investors, maybe family offices, banks needed their CRA credits, and so they were all at the table. And then you fast forward to the last, you know, I would say I'll give it 10 years ago, although that's probably giving it a lot of grace. We've seen so much capital, different capital, flow into affordable housing. And I think, you know, it's really, I don't even think I've seen it. It's really because in a downturn, and this happens in almost every downturn, especially when you're looking at a bit lower AMI in that and the housing that, that resident lives in, the imbalance of the economics are always, always there. The imbalance of supply and demand is there. Financing is always there, because Fannie and Freddie and HUD have provided financing to a lot of these properties. There are active trades in the market. And so in a downturn, when everything else seems to be suffering, whether it's office, whether it's retail and sometimes even values in traditional multifamily, when that suffering the capital has gone into affordable housing. And you can, you can watch that cycle over and over again. What has happened in the past is that capital has cycled out of affordable housing. When the market comes back right, because it goes back into office, it goes back into retail. You look at this last down cycle, it didn't not, it didn't have office or retail, right? It wasn't sitting there for that capital to cycle through. And a lot of people and investors got really comfortable with how affordable housing works, and they started really becoming educated, thanks to John and I sitting in front of a bunch of people and others as well, but they became very educated on affordable housing, and what does it mean, and how does it work? And the fundamentals are just really good. There's always an imbalance of supply and demand. Your properties are fully occupied. Those renters, they, you know, I think there's a myth out there that renters in affordable housing don't pay their rent. They do. They actually pay their rent. They actually pay their rent on time. And so you know, when you look at that and the return that you can get within affordable housing, which looks like a Core Plus return, it's very attractive. And so we're seeing those institutional investors come into the market and look at this investment like they did. I mean, if we're, if you know people who have been in real estate long time. Well, no, multifamily was not always a darling investment. That's really kind of, you know, in the last 20 years or so, and so I think affordable housing is following that same trajectory. It's becoming very comfortable for a lot of investors, especially when they can find trusted groups like the ones here on this panel to invest alongside, and so it makes sense as part of their housing portfolio, and they see it as a great defensive play against the other type of housing that they're investing in.

John R. Williams 21:13
Yeah, and I'd add to what Pam says, the comments we get are affordable housing, particularly from the Europeans. Turnover is low, it's durable, it's stable and less volatility, so it's more consistent returns than maybe trying to lease up a luxury tower. And full disclosure, Pam and TIAA were one of, really our first institutional investor in our, in our first fund. So you could connect the dots and figure out that we taught her everything about affordable housing. Go from there, Sydne, maybe you can chat more about since nonfund investors and how that capital flow is coming in?

Sydne Garchik 21:51
Yeah. So, I mean, I think we have a little bit of a different experience. I mean, these groups are very large groups, and I think we're on the opposite side of trying to take in institutional capital, and thus far, it really hasn't made as much sense for us, just due to kind of returns, I would say it's hard to get to a Core Plus return if you're really serving that 80 percent of AMI or below, and also have a robust service platform. And we really haven't seen as much investors in smaller sizes, coming in to kind of deals from our perspective. So we've kind of looked to other pieces of the capital markets to see if we could kind of tap those. So we've, we've worked with larger institutional investors, but not through kind of the typical institutional investor or private equity we've done kind of large bond securitizations, but I think something that's really interesting is that we were able to do a bond securitization that was large enough to go actually, go out to the capital markets. But I think there's a lot of really interesting smaller developers that are having a hard time accessing this capital, and are doing amazing things and and so I think really the question is, yes, there's all this interest in our space, but how do we kind of divvy up this capital better so that we can get to some of these smaller, more localized developers that really are making a difference, but might not be able to get to that same return profile, or don't have access to some of the bigger investors that have that lower cost of capital.

John R. Williams 23:31
Sydne, just for the benefit of the audience, real quick, how, what would you categorize Core Plus returns at? What level?

Sydne Garchik 23:38
Like, mid-teens?

John R. Williams 23:40
Yeah, yeah, we're a little bit lower.

Pamela West 23:42
We're lower, yeah.

John R. Williams 23:45
Yeah. I mean, we're 10 to 11 net, just for everyone's benefit.

Alicia Glen 23:49
Can I just?

John R. Williams 23:49
Yeah, please, Alicia, please.

Alicia Glen 23:51
I think that one of the, when multifamily housing, or affordable housing, became an asset class at large-scale investors, pension funds and folks start to invest in, you know, there's sort of the irony of that, or the downside of that, right? Is that people are putting more capital to work and need to do bigger deals. And so smaller, more creative, more innovative, whether it's the developer, it's the product, it's the politics, become very niche, very bespoke, everybody's favorite or least favorite word in the world. And so what I think has happened, and it's, it's not a criticism of anybody, it's more, I think, and you see this in the data that you all supplied, is that as this becomes basically like any other asset class, especially when people got real smart about figuring out how to just, you know, leverage off of government credit and then play, you know, all the interest rate bingo and cap rate bingo and began to really provide really outsized returns for what should be an infrastructure type return. People got crazy. They all decided to go into multifamily and affordable housing. And it got big. It got very big. And so I think that there is some challenges, particularly on the supply side, where it is more generally, as you saw from the data, focused on preservation, focused on these sort of large-scale, vertically integrated companies. And if you're trying to do something funky or different, or you're like a woman or a black person, or somebody trying to say, we need to disrupt this whole thing, because this thing is not really serving the housing markets that we want to be in. I think ironically, the more money that goes into the space, the harder it is for the really cool people to try to figure out how to make it work. And I think that that is sort of the next wave of how to do things differently. Scale, but not to the point where it does become a little bit of a widget business, just like buying and selling offices or buying. Doesn't mean anybody's a bad person. But in my 30 years of doing this, and I see it, at a lot of these funds when I, you know, as a Goldman, it has become very much a competitive business, and a lot of people bidding on the same thing, whereas 20 years ago, nobody in their right mind would have done any of this. And so I think there is a real challenge to think about as a housing policy matter. And if you think there is such a thing as impact capital, impactful capital should probably be driven towards more bespoke, crazy, weird strategies, and more of the institutional capital should be going into more of the really important bread and butter preservation work. And I think that's really one of the places that we're at right now.

John R. Williams 26:21
You're absolutely correct. We just went to bid on it, on a affordable housing, 60 percent AMI product in Orlando, existing.

Alicia Glen 26:29
Even that you're bidding on it is a joke, like that never happened.

John R. Williams 26:31
There were 10, there were 10 bidders, and they did three rounds of bids. Yeah, and you're just driving. You're just driving. Technically, we won. I shouldn't say, who's in that fund? No, you guys are. Yeah, we got it, yeah, but that's it. So on this next question, I'm going to move on, and then, by the way, we're going to open this up a little bit for questions. I know we're going to be probably tight for time.

Pamela West 26:57
I want to add, since we're talking about investors, I think this is an important note, and this, this is to, kind of to Alicia's point, which is also the evolution of the the investor has changed, right? There were, because there was, there was, there was a sort of a miseducation of how affordable housing works, and there was this drive to just achieve return. You did have a lot of investors who were just looking for that Core Plus return, right? And it's not as high as, so I'm sorry if I'm misleading, but that's like a low, low single digit to, I mean, I'm sorry, high single digit to a low double digit return, right? So we're not talking about 15 percent, but there were investors who were just driven for financial return. What we're seeing in the affordable space, and this is where John, you know, will talk about the fact that there's a lot of attraction outside of the U.S., is people are looking for impact. They are looking for, they're looking for, you know, the ESG, and I know some that's a dirty word in some states, and they don't want to talk about it, but there are investors who want both, right? They don't just want the return only, they want to see that they're investing with a group who does care about affordable housing, right? And I think that's one of the, you know, not to toot my own horn, but that's one of the attractions for having TIAA as our parent, is that we are, we are driven to the responsible investment side of the business, just as much as we are the return. And so you do have this bifurcation in the market of people who are investing only in affordable housing, like Alicia says, using right financial jiu jitsu right to get to the return. And then you have another group of people who are investing in affordable housing, right to actually do the work, to do the good work, and get the financial return at the same time. And we're seeing more of those investors.

John R. Williams 29:00
And that's a great point. Just to frame it for the audience here, this one example of this. At Avanath, we have 85 LPs that stretch over all our funds, and I'd say a third invest with us through some allocation, whether it's a diversity allocation, that's not, that's on me, that's on my business partner, Daryl Carter, who's, we're one of the larger majority African-owned investment firms in the United States, or has a social impact bent. So about a third. About a third, use us to check, check the box, meaning foundation, endowment, pension fund. A trustee comes in and says, "Are we doing anything we should be proud of?" They say, "Oh, yeah. Oh, by the way, we invested in affordable housing." And so they check the box there. And then a third, quite honestly, could care less. They look at and say, "Hey, here's a business that has unlimited demand, limited supply, consistent cash flow, durable, stable, defensive. I could care less whether you guys are making widgets or whatever that, we're just, we just think it's a good investment." So that's, that's, you know, that's how our money flows, in that way. But let's move on, unless anyone has any other comments about capital flows, but we can chat. I think this is a very important question too, and might be to our audience here, and I'm just going to throw this out. How does your firm think about exits both in terms of investment timelines and preserving long-term affordability of a property? Does anyone grab that?

Pamela West 30:29
Yeah, I just ended my last comment with responsible investing. And you know, our company completely believes in what we do on the responsible investing side. So, part of what our metric and our KPI is, is what we call a responsible exit. And so we, you know, every time we acquire a deal or develop a deal, it's written into our Investment Committee memo how we're going to exit that deal. And it's typically, you know, looking for another affordable housing investor, right, or through some sort of low-income housing tax credit resyndication, where we can preserve that long term. And so we really make an attempt, and we have done very well in this part of just extending affordability during our ownership, so that the next buyer has to maintain affordability going forward. And so far, all of our exits to date have been responsible exits. But it's really important to us. We get audited on it. We get, you know, judged on it internally. And so it's very important.

Alicia Glen 31:36
I think that's also back to the data, which I think was interesting, clearly for those of us who run closed-end funds, that is always going to be a challenge. You know, like you say, of course, we're going to find the greatest person below all that, but at the end of the day, you're running a closed-end fund, and there are fiduciary obligations, and it can get complex, but how you actually do that? And you can have affordability during your hold period, but that doesn't necessarily, unless it's a regulatory matter, carry forward. So, I think that what's really interesting about the data, and anybody who's really serious about this, so I think we're all very serious about this, is, you know, the open-ended vehicle. It's like the darling of everything now, right? Everybody wants to have an open-ended vehicle. And I sort of was making fun of it for a while, and then I thought, I actually think that, you know, having and maybe there's some interesting broader ideas about hybrid models that people should have, because, especially when you're a development fund like we are, by the time we get to the place, we've gone through all the craziness to build the building, you know, we're already trying to figure that out. So, I think it was interesting to see the data, because I hadn't had it until it makes total intuitive sense, right? That more and more of these vehicles, what the right return is for that is an interesting discussion, and we'll definitely I have more of a core investor, I would hope, in terms of not starving the tenants or doing all the bad things that do happen often in stock. So, I think that the evolution of that, and I suspect that all these big guys are going to start putting continuation funds or, you know, open-ended funds on their platforms, so that you can guarantee that, right? I think that's the natural place where this is gonna get.

John R. Williams 33:07
Yeah. So, for the benefit of the audience, we invest through an open-ended fund, and basically that, sometimes we throw out all these vernaculars and nobody, some people go like, what did you mean by that? So that, that fund never, doesn't have a term. It just stays. It lasts forever. So kind of to Alicia's point, we can do development in that fund. We don't have to worry about bumping up an expiration date. And we've also actually extended out regulatory agreements when they expire with, with getting compensated by preserving the real estate tax abatement. So that's become very valuable to us, to even extend by preserving the real estate tax abatement. Does anyone else anything to add on to exit strategy?

Sydne Garchik 33:50
We don't have investors so we can do whatever we want. We put long restrictions and we usually don't exit.

John R. Williams 33:55
That's an enviable position.

Nina Tschinkel 33:57
I guess, I mean, I would just echo, I think, pretty much exactly what you said, Alicia, we have long-dated funds. Our funds are 12 to 15 years. That kind of term is because when we hold our assets, we're able to, we're in full control of them. We set the rents, and so we're able to be really disciplined about affordability in those properties. So, we like to hold them as long as we can. And also, I think, you know, we're investing in low- to moderate-income. Moderate-income communities, communities that really need capital to revitalize. And when you're doing this the right way, when you're doing this in partnership with local developers and partnership with local community groups, that doesn't happen overnight, right? And so, it takes time for the kind of value creation to happen that we need in order to offer a market rate return to our investors. And a lot of that value creation happens kind of on a J curve, so in the kind of outer years of our fund term. And you know, as for exits, we don't, not much of our portfolio has deed restrictions. I think there's tension between returns and affordability. We, as it relates to exits, as you know, my fellow panelists have talked about, I think, as impact-oriented people, we would love to enshrine all of our units in deed restrictions that would ensure that they remain affordable in perpetuity, even after kind of the sale of the asset. But we also are fiduciaries, and we have an obligation to maximize returns. And so, you know, enshrining our units indeed, would then impact exit valuations, which then does impact returns. So it's a, it's a tricky thing. But I think, you know, impact investing, I think we're all pretty used to just being, I think, dissatisfied with the current menu of what's out there, and wanting to kind of build a new path. And I think it's still, kind of, to come exactly how you, how you garner a market rate return and also preserve affordability long term. But I think this open-ended fund structure is interesting as well.

John R. Williams 35:50
Just for everyone's benefit, a normal closed-end multifamily fund would be 10 years with two-year / one-year extensions. So having something that's 15 years is actually very, is very rare in a closed-fund environment. Well, this sort of flows right into this. And I think we probably go, can go around once more here, given that what you just explained, how do investors view the contrast between realizing returns and achieving impact on the asset level and the tenant level, and you might weave into just some of the services you provide on site, and really how you guys think about those, because we do get investors that come in and say to us, "Who's paying for that classroom? Who's, you know, who's paying for all this stuff?" And when you tell them that it's them, depending on what side of the fence they're on, they, they're gonna raise an eyebrow, but I'll throw it out to the audience, to the crowd in here, and anyone to jump on that? Pam?

Pamela West 36:49
Yeah, we, I mean, we underwrite services for every single asset that we acquire, and we have someone on our team who surveys all the residents, so we're not just providing services that don't matter to the residents, and we're required to make sure that we're having good outcomes as well for residents. That's part of our measurement. And sometimes those are services that we pay for a lot of times, actually, and then sometimes, you know, we will get some sort of grant or a service may be provided through the staff, and so there are different ways of approaching it, but we do think that the impact does help drive the return. It helps to provide a better quality of life for our residents who live there. And you know, I'll give you an example. You know, we provide all sorts of services. But I think this one is interesting because it's, it's complicated. So you would think an after-school tutoring service is something simple that you might provide for a student or a resident, you know, who needs, maybe supplemental help or whatever. And so, you know, after-school tutoring services are great, and they do tend to help students. We can't ask for report cards, unfortunately, right and say, "Hey, how did you do in that class right before you started? And how are you doing now?" But we can sort of measure by their attendance, right? By what they're learning. And sometimes, and these are sometimes run by teachers who live at our properties. But you think about the student, it's also impacting the caregiver. Right? That caregiver knows that their child is in a place, is in a safe place, right, for another one or two hours. And by the way, that caregiver also gets to work another one or two hours to earn additional pay, right? Maybe where they would have had to run home or, you know, and not have that two hours. And so that's the other thing that's really hard to measure, is, I can't go to the caregiver, to the parent say, "Wow, what'd you earn in that two hours?" You know? Or, "Is this really helping?" But we know it is right? Because we know they're not having to leave that child with someone else. We know that they are able to, you know, work that extra one or two hours and it matters. It makes a difference for the entire family, although it looks like on the outside, we're just serving the student.

John R. Williams 39:17
It also released tension at home, because they're, the mom, dad, whoever, isn't chasing a child around to do homework at eight o'clock at night, right? They can read a book, watch a movie, have a nice meal. So, I think we're almost at time, and we do want to open it up to questions, unless someone else has one quick thing to add, but we can hopefully maybe get a question about this. Does anyone have any particular questions? We could take three minutes of questions. I think. I got allocated to 13. Oh, okay, see, I told you I couldn't see that.

Speaker 1 39:53
Hey there, folks, first of all, maybe we'll great conversation. Thank you. The question I have is, have you done any of these, sort of, old office to multifamily conversions? And does it make sense financially for what you're doing?

John R. Williams 40:09
We own one. We did one in San Jose. There was an old medical building and that had small floor plates with big windows like this. So that led to it, and it does pretty well. It's in a, you know, you can imagine San Jose's very high cost and it's very difficult to build. Did anybody else?

Sydne Garchik 40:26 We're doing one in San Diego right now, which similar with the floor plates, very high cost area, a lot of history on the building. But it's, it's going to have daycare on the first floor, kind of a food co-op and kind of reinvigorate this, this part of San Diego, so but they're pretty difficult to do.

Nina Tschinkel 40:47
We haven't done any office to multifamily conversion, but we do have a kind of portion of our portfolio that's adaptive reuse. So many of the low- to moderate-income communities that we invest in are old, kind of, warehouse districts that often are abandoned, and we're able to get kind of these old, often really beautiful brick, historic buildings and transition them from kind of industrial buildings into multifamily housing.

Alicia Glen 41:11
I think one of the challenges with the whole office to residential debate, shall we say, is twofold. One, generally, the math is pretty tough to be supporting a true mixed-income or an affordable execution, depending on what the basis is, the building and what kind of a lender you're dealing with, where there are distress. I think there's also very few jurisdictions, although New York did pass as part of their conversion statute, a tax package that would provide affordable housing. But you also have to marry that with, you know, a lot of these buildings are in office districts, right? And who are you building housing for, right? And so my personal feeling about this, having, you know, whatever been in politics for many years was, you know, the rush to convert office and sort of see that as part of the housing solution is maybe a little overblown. I think it's, it serves a particular subset of people, usually singles, relatively high earners, people in financial services, et cetera, and that there's just a huge amount of sort of energy being focused on this, as opposed to, again, you want to serve families in a place where there are parks, where there are schools, and, you know, again, depending on the density of the environment, it can be very different. I mean, we're doing one in Alexandria, which is a little bit of a different sort of vibe in terms of density. But I do think that as an affordable housing solution, it's getting a little too much air time. Is my personal feeling on this topic.

John R. Williams 41:12
And only about 15 percent of the office stock United States could even qualify. And if you think about the cost, as you said, Alicia, you got it every you know, office buildings have one bathroom per floor. That means you go to add eight bathrooms and eight kitchens on that floor if you're going to do it. And I'm sorry, we have question here.

Speaker 2 42:37
All right. Thank you very much. Just quick question for you guys. So how does institutional capital start to care about, as has been mentioned, like sort of the cool, differentiated projects, right? So if you have emerging developers who are doing, say, a 20-, 30-, 40-unit, mixed-income project that's both living, working, where you can own and rent, et cetera, that's not on the radar of anyone who's looking for the 300-, 600-unit, something that's near a train station, but there are plenty of developers in communities that need to build these, but the capital isn't there. So, how do we get institutions to actually care? Is maybe not the right word, but care. But they also think that it's these are projects that the person who's building it may also be the long-term owner and occupier and not wanting to just sort of have an exit.

John R. Williams 43:42
Alicia, you probably have an example of that, correct? I mean, smaller project that's mixed-income that you brought?

Alicia Glen 43:48
Well, I think the question is, how do you get third -party money to do these projects? Yeah, that's the question. I think the answer is, I think the answer is, it is really, really hard. And don't let anybody tell you anything different. It is really hard to get people to pick up the phone and talk to you when you need $2 or $3 million to do your deal. And so there's a couple of answers the question. One, you do have to find very small, bespoke, crazy fund managers, whether it's like us or a couple of other people we hang out with, who do do these small deals, because you're trying to invest in the growth of that company, right? And you're seeing it not necessarily as a platform investment, although that's a whole other topic, but people who are really willing to do the hard work and roll up their sleeves, or you have really sort of interesting mission-driven CDFIs. I'm looking at Sadie from CPC, who are realizing that, in addition to their lending mandates of supporting, you know, more sort of "emerging," whatever we're allowed to say now, God help us, also realize that there's an equity play and a supporting neighborhood-based entrepreneurs in their neighborhoods, and figuring out what is the right sort of capital very hard, because it's, as she'll say, you work just as hard on a $10 million deal as you do on a $400 million deal, and so it's just really hard, and nobody should pretend otherwise. There are some people you just have to, you have to make 100 phone calls, as opposed to two phone calls, I think, is the answer.

Sydne Garchik 45:03
And potentially partnering with some developers, like our bigger but like, we have the bandwidth to potentially help, like emerging developers add a balance sheet, help bring in capital, but, but it is, yeah. Really agree with everything. Yeah.

Pamela West 45:22
I mean, like, for an institution, and because I used to do this, and Alicia and I have talked about deals together is, you know, to put out $2 million I can't even breathe without getting approval, right? And to do that, I need to pull in 50 people across my organization to make that investment work. And I can't do that for $2 million because we just spent, right, a million on legal fees and trying to understand it. But when Alicia says, I have 10 projects that are 40 units, and it's $200 million and you know, it's a pipeline, and so you won't do it today, then I can take her pipeline to my investment committee and say, "We're going to start with the $2 million deal, but she already has, right, all of these other deals lined up." And that, that's a way for me to invest, and it's more of investing in her pipeline than it is in that single deal.

John R. Williams 45:40
Yeah, to be fair, it's hard to raise money regardless of what you're doing period. It's just, it's just hard. Maybe we got one more? Sneak one more in?

Speaker 3 46:27
Yeah, just curious. What are your policies or adopted goals on sustainability, resiliency, decarbonization? What are you, what are you doing in that sector as you develop new projects?

John R. Williams 46:51
I can just answer for us real quick. Since we have European investors, we're under really strict requirements of that. So, we're highly rated in GREs, which is the real estate sustainability board and a rating that you get in Europe. We're also article eight, which is another rating you get in Europe. So we in Europe, you just can't put yourself in a box and say, "Hey, you're ESG, you're environmental, you're social impact." They basically get audited on that investment whether they can put it in that box. So we're under really rigorous reporting. I think, Pam, you guys would be too? Yeah, the absolute and so we do everything. We have to question. We have to do everything.

Pamela West 47:27
Yes, yeah.

John R. Williams 47:28
Anyone else comment about that?

Alicia Glen 47:31
I mean, I'll just say one thing. One is where you build it, how you build it, and how you operate it, right? So, again, we would never do a project that's a greenfield development, right? Because of the vehicular, you know, we're trying to deal with the sort of broader environmental issues you want to build with as sustainable materials as possible. But again, there's always a conflict, right? Everything can't be a Christmas tree. You have to be a little bit real about what are the technologies that you can build with that are still cost effective. And then it's really about how you run the building and the systems, and the technology is changing so rapidly that, again, it's, you know, there I've found out about you guys. We don't have a particular standard that we are obligated or even pretend to meet on every project. It's a little bit very different regionally and where you are. And so I think smart investors and smart should trust the in the managers who are serious about this work, but not get too prescriptive, because again, then you fall into that trap of trying to have every project solve every problem. And that's really hard to do. I think, any sort of work with the people you know who are staying in the field and really care about this that ultimately behooves the communities, the tenants, and the asset in terms of its exit value.

John R. Williams 48:38
So, with that unfortunately, we're gonna have to unfortunately, but some of the panelists will be available afterwards at the reception, and so we'll answer any questions you may have there, too. So, thank you everybody. Thanks for our panelists.

Nathaniel Kressen 49:03
For more information, visit the Bank Notes show page at nyfed.org/podcast, to find research and resources for this season.

Nathaniel Kressen 00:06
Welcome to Bank Notes, the podcast from the Federal Reserve Bank of New York. I'm your host, Nathaniel Kressen, and this season, we're focusing on private capital's role in multifamily affordable housing, which is separate from the government's role in developing affordable housing and making subsidized housing available. The Community Development team here at the New York Fed published a report and hosted their third annual conference on the subject, highlighting recent trends in institutional investments in this sector. This episode, we revisit a conversation among institutional investors from that September 2025 conference. The panelists will introduce themselves. One quick note during the Q&A at the end of this session, there's a term thrown out there called NIMBYism. This refers to, "not in my backyard," i.e., opposition from local residents to the development of additional housing in a certain area. The views expressed here do not necessarily represent those of the New York Fed or the Federal Reserve System.

Rachel Diller 01:04
We're going to jump right into it, but first I'll just introduce myself and have the panelists just introduce themselves. My name is Rachel Diller. I am the Co-Head of Multifamily, Bridge Investment Group. We're a $50 billion asset manager. I'm the CIO of our workforce and affordable housing funds. Dan?

Dan Alger 01:25
Thank you. My name is Dan Alger. I'm the Head of the Urban Investment Group at Goldman Sachs. We're an impact investing platform focused on real estate and small business financing. We're going to invest about $2.5 billion this year.

Cynthia Maasry 01:39
Good afternoon. I'm Cynthia Maasry, I'm the Managing Director at Trinity Church, which is a historic church just down the street. Of our endowment, about 40 percent is in direct real estate. The majority we invest as LPs and funds. And then we also have the newest of the sub-portfolios, which is mission, which is mission investing, where we invest in affordable housing.

Filip Pinter 01:59
Nice to meet everyone. My name is Fil Pinter. I'm a Senior Investment Officer with the New York State Retirement Fund, specifically on the real estate side. We're about a $27, $28 billion real estate allocation for an NAV on that side.

Rachel Diller 02:18
Great. Okay, so you know the last panel was about investment managers, and this is really from the investor side. So let's talk about allocations. Can each of you talk a little bit about how you think about allocations in your portfolio for affordable housing investments versus market rate housing? And you know, how do you think about that? Why do you invest in affordable housing? And has your or your institution's view of that changed over the last 10 years? Want to start, Dan?

Dan Alger 02:53
Sure, yeah. So, we have some flexibility in the asset class that we're investing in. We, this year, will probably invest about 85 percent of the $2.5 that we're in going to invest this year in affordable housing. Couple reasons for that, I would say three big reasons. The first is impact, the second is the risk return profile, and the third is the growing opportunity set. And so from an impact perspective, I think you can, I think everyone understands sort of the massive scope of the issue. It's only going in one direction. It's going the wrong way. And so plenty of for a mission-driven shop focused on impact, affordable housing is an easy, easy decision. There, you think about the risk return profile we have, sort of, I would say, like a risk framework for the firm, but we have a ton of flexibility on the type of investments that we're making. And so for us, we see a certain opportunity. We look at it for the project and the opportunity that it is, and then we think about, sort of, the best place for us to play within the capital stack. And it's not always pure equity, it's not debt, it's not always tax credits, but we sort of play within those different opportunities. And third, we think about, sort of the opportunity set that we see, and we are seeing with the increasing institutionalization of affordable housing, we're seeing a growing opportunity set, and seeing a lot more opportunities to deploy capital within this space. There have been opportunities within debt and tax credits, but much more growing so for the JV equity side, as far as like the, so those like the three, sort of the way that we think about housing. That's why we, that's why we're invested in the space. I would say how we feel about, sort of like the transition over time. It's interesting to see the affordable housing space. We've been in this space for 25 years. And when you go back to the early 2000s, we were investing $5 to $15 million per deal, maybe $50 million per year. And that's because that was sort of what the opportunity set was at the time. And we have sort of grown our platform in the same way that the affordable housing space has grown. And a couple years ago, we made our largest investment to date, which is a $450 million equity check in a portfolio of 90 affordable housing affordable housing assets. So and we, what's really allowed us to sort of continue to grow with the space is sort of that increasing institutionalization, broader opportunity set.

Rachel Diller 05:13
Great. And also sorry, just in the, in the overview, hopefully, you know, like we're representatives from bank...

Cynthia Maasry 05:27
A faith-based institution.

Rachel Diller 05:29
Yes, a faith-based institution, and then a pension fund. So, when you think about the survey, and you think about the representatives, right? We've kind of have a swath here.

Cynthia Maasry 05:38
So, yeah, for Trinity Church. It's really both mission and economic. Economic rethink about it as stable returns, downside protection. And on the mission front, it is the intention for mission investing, and why it's a new portfolio, is before we were pretty siloed as an investment team from the rest of the organization, particularly our grant-making initiative, and the intention was, how can we invest proactively in mission areas for the church and in areas where we're already doing a lot of philanthropy? So two of the mission areas for the church, one of them is called housing and homelessness. The other is racial justice, and we find for affordable housing that obviously lends itself very well for the housing and homelessness initiative, but it also helps on the racial equity side. For the church, we focus a lot on education, and as we think about affordable housing, there's a lot of intersectionality. As we think about whether it is educational attainment for children who are housing unstable, or we think about health outcomes or economic mobility, and so investing in affordable housing helps us promote both mission areas of racial equity and affordable housing. On the economic side, we are also very kind of New York-focused as an institution. In mission investing, we do prioritize New York City as a geography, and when we think about just straight supply, demand dynamics, New York is really one of the most supply-constrained segments of the market as we think about both housing crisis and then also affordability, as you go down income bands. And so when you look at New York City as having such high land acquisition costs and pre-development costs and construction costs have really only gone up as we think about labor insurance regulatory requirements. Locally, it is a really supply-constrained area. And at the same time, what we saw in the underlying affordable housing portfolio is demand is very resilient. So, in times of economic volatility, we saw that our occupancy in the portfolios stayed really high. Tenants are sticky. There are very long wait lists. And as an investor in the last couple of years, as a lot of capital was, we were quite focused on inflation and interest rate volatility. And for a group that invests in Section Eight housing, which we do both directly and indirectly, not only is there some inflation protection, as you think about the rent mechanisms and the inflation adjustment on the rental side, but as mentioned on the previous panel with GSEs and HUD, there is stable kind of financing. And so it was a great asset class for us as we were thinking about what are some of the issues and what are some of the concerns from the investment portfolio perspective.

Rachel Diller 08:14
Thank you.

Filip Pinter 08:15
So from our perspective, we look at everything from a fiduciary lens first. Risk, return diversification. I think for affordable versus market rate, that really means for us stability. We look at it as more steady demand, predictable income, especially in downturn scenarios, as opposed to market rate multifamily. And I think for us, being a long-term horizon investor, we tend to look at the durability, the stability, and again, the predictability within affordable housing, as opposed to just growth, which is kind of a balanced approach for us. I'd say, I guess, over the past 10 years the way we viewed it. You know, 10 years ago, maybe even longer for us, just given the scale as as an investor, right? Our minimum check size that we typically like to write in a fund, and we typically do more funds, is probably in the $200 million range. It was a little more niche for us about 10 years ago. I think, it was a little bit harder to scale and it was a little tougher to underwrite back then, especially as an institution of our size. I think now, over the past 10 years, you've seen that really mature, or at least we have from our seat. You've seen stronger performance histories, more open, transparent reporting, and, I guess, more institutional quality operators, which really allows us to kind of step in and underwrite it as the same rigor as we would traditional multifamily or industrial or retail, which is, again, kind of the way we view it, as a portfolio diversifier just given the scale.

Rachel Diller 09:56
Yeah, great. Well, I think you guys already answered this a little bit, and just given my own bias in the last panel, right? There's this tension between, you know, you know, bigger is better, right? But bigger is also maybe more vanilla. You can't, you know, I always call it, you know, make snowflakes, right? That every deal that you do is like a hand-knit sweater, right? And that hand-knit sweater sometimes is the most important piece of clothing that that neighborhood or that particular corner needs, right? I come to the bias that it's both and you need both, right? And you know, I have, I remember a time where it's like, ah, we just wish there was more scale and more capital coming in. But, you know, my view is, and I'm curious your guys' views, because I know there's different views on the panel, which is, you know, which is better, right? And, and, and what do we need in order to bring? I think more capital is good, right? There's a certain amount of capital that can and, or must take, you know, lower returns in order to fit a mission, right? And the more of that capital that can do things that really private capital can't do, the better. And so the more the private capital can do, right? It can use that precious sometimes, you know, dwindling public dollars or concessionary capital to do the things like homeless shelters. They're not income producing, right, but we need them, right? And so how do you think about what will you know, what's happened in the industry overall, and what you need to see in order to kind of do more investing. And you know, how do you think about scale? I mean, Cynthia, do you want to start?

Cynthia Maasry 11:30
Yeah, happy to and I agree with you. I think you need both. And ideally, the more capital and the more that can be encouraged, the better. I think, for Trinity's experience, we've pivoted a little bit, in trying to navigate where is the best use of our dollars as being a little bit of a different institution than, let's say, what New York Common is. And when we started out investing in affordable housing, it was about seven years ago, and we started by just investing in a national fund, more established, good reporting, preservation-focused, very similar to kind of that 10 percent to 12 percent net and the idea was we'll invest in a fund, because we already do that in a large portion of the endowment as is. And so it's a very familiar way that we invest institutionally. And let's just educate ourselves on the asset class and think about how we want to build out this portfolio. Today, it's very rare for us to invest in a real estate fund. Partly that is because we own so much real estate directly, that from a diversification standpoint, we tend not to add that many more funds when we have so much of it directly. But if we were to, it's more because we want to invest in, let's say, a group or an individual that is a deeply experienced affordable housing investor, but maybe a first-time fund manager. They have spun out of a larger place and really don't have the organizational or operational capacity to be raising a large fund that a New York Common would be able to invest in at a $200 million check size. That's an entire fund for some of these emerging managers. And so that is something that we are happy to invest in is kind of first-time capital, until they get to a scale and a point where they can have a larger institutional capital base. The other thing that we're spending more time doing now is, rather than go the fund route is, and I love the question that came up from the last panel, is invest directly with an affordable housing manager, with the idea being, maybe they don't have this kind of net worth and liquidity and balance sheet requirements that a traditional lender would want, and they're not able to capitalize their deals in the same way as a larger institution. And that's become even more accentuated, whether it's kind of retrenchment from traditional lenders, from commercial real estate generally. So, how can we think about ourselves on providing a loan directly to that developer that can be flexible and they can use it for these high upfront costs of pre-development land acquisition, or just for the company itself to pay its people to have working capital to get to a point that maybe then a larger institution would be able to invest?

Rachel Diller 14:02
So I think there's a developer in this crew who needs to talk to you. So, so, yeah. I mean, you're talking about an ecosystem, right? And, you know, an ecosystem that, frankly, 10, 15 years ago, we would have only dreamt could have had kind of players in all places. And you know, you were talking in the prep, a little Cynthia, about the fact that, you know, there are, it's kind of a "but for," right? So, are there other, you know, can you bring in other foundations, other similarly minded investors who can say, you know, "but for," like, we can then be incremental, right? We can be catalytic, to do something different. I think, I think that's right. So, yeah, scroll down. So each of you approach is approached with, you know, kind of numerous investment opportunities. So JVs, funds, you know, other transactions. How do you prioritize? I think you've talked a little bit about it, but how do you prioritize things, both in terms of, you know, risk, return, in terms of affordability, right? Because when you think about impact, the question is, "On whom?" Who is, who is the impact for, right? So, how do you think about affordability targeting and and is there a particular structure so, so, Dan, maybe you want to start and just talk about how you balance those things.

Dan Alger 15:11
Yeah, sure. So for us, our, you know, affordability standard is at least 30 percent to 50 percent depending on its geography, affordable at 80 percent AMI or less. So that's the sort of, the the impact criteria. It needs to fit that, that criteria in order for us to consider it. And then from there again, I'll, we'll look at, you know, sort of the risk-return profile. And we're, we don't necessarily have a preferred structure, which I really like. We don't have folks that are equity or debt or tax credits, and they're, you know, they got a hammer and they're running around looking for a nail, like we literally just talk to our partner, think about, you know, where we can be helpful, and then sort of try to craft the, you know, capital solution for that, we get a lot of flexibility in how we do that. For us, it really is about deep relationships with our partners. We're not glossy books folks. We want partners that will come talk to us about sort of what they're thinking. Because we find that the earlier we get involved in a project, the more we can sort of have input into sort of how it comes together. And a lot of these projects, as much as we want them to be efficient, and we talk about scale like that is important. We're going to deploy a lot of capital this year, but we also, you know, we want to make sure that we're, you know, we're really being thoughtful for our partners. And you know, our strategy really is to do some big stuff, and we'll do some $100 million dollar deals, but that frees us up so that we can do some of the smaller stuff as well. So we kind of have that barbell approach.

Rachel Diller 16:48
Great. One of you guys want to take a crack at that one?

Filip Pinter 16:52
Yeah, sure. I think from our perspective, just given the size, we tend to look at it a little bit differently. So, first and foremost, it's fiduciary responsibility for us. Does it provide the right risk adjusted return for our beneficiaries? Think we then, just because of the scale we're typically investing in, an investment manager, right? We look at sponsor quality, reporting, transparency, it's a lot of the governance side of things for us, right, determining where to invest. And then comes, kind of the income, durability and affordability structure. And I think for us, the way we tend to think about structure is a little bit more funds, versus joint ventures, versus different vehicles. Just given our scale, we tend to do a little bit more funds just to put out dollars however we're open to, you know, I guess, kind of all different preferred structures there. I think the key thing for us there, again, comes down to alignment of interest, reporting, transparency, governance, and then economics as well.

Rachel Diller 17:52
And so is it fair to say, though, Filip, that those are the same standards by which you would look at any fund, whether it was a market rate real estate fund or any real estate fund?

Filip Pinter 18:02
Absolutely. Yeah. First and foremost, it's the fiduciary responsibility for our beneficiaries.

Rachel Diller 18:06
Correct. And again, just to give you a sense of scale, right? I mean, maybe $200 million is the lowest, but you can also, you also can't be more than what 20 percent of a fund?

Filip Pinter 18:15
Typically. I mean, when you go above 20 percent, 25 percent, it's just a heightened standard of care, yeah, on that side. So, most managers don't really want that extra reporting and everything above and beyond what we typically require. So, it's difficult to find that scale in this market.

Rachel Diller 18:27
Yeah, and I would just say, because I think on the last panel, right? You know, we talked about like, you know, why is it so hard for institutions to invest in in smaller managers, right? Even if they might want the outcomes of the, you know, whether it's from an impact perspective or just an alpha perspective of a more niche, niche strategy, it's that there is, in order to take in that amount of capital, you have to have a certain amount of infrastructure, right? So, there's just a cost to it, all right? You know, there's a cost at which being a fund, below which being a fund doesn't make sense, right? And so there's, there's a tension there. So, so anyway, super, super helpful. Anything did you want to add something, Cynthia?

Cynthia Maasry 19:12
Sure, for us, any affordable housing investment goes through the same diligence process as any other investment would in the entire endowment. We just have an added overlay of an impact assessment, and that's really driven by my colleagues in the grant-making initiative. And when we think about impact, there clearly is a affordability component to it. And so we wouldn't demand the same return profile if we are investing with a nonprofit developer who's doing a public-private partnership. Let's say, you know, the New York City Housing Authority on one of these RAD deals versus what we would demand from a mixed income developer who is a for-profit. I would say, outside of affordability, there are other components that are important to us, including sustainability. You know, onsite, is there healthy food in a food desert? Is there child care? There, is there workforce development, is there Wi-Fi, broadband, all of that is really kind of holistically taken in. And then I would echo what Dan said. We really care about the partnership, and part of that is just being a very long-term investor and group like Trinity. We want to make sure that we are very well aligned with the developers and operators and how they run their businesses and the underlying assets.

Rachel Diller 20:25
Yeah, having done a lot of public-private partnerships over my career, you know, the whole adage in real estate is it's about three things, "location, location, location." I always say it's about three things, "partner, partner, partner," in that, in that kind of model, right? And I think you heard that here one question. It's a little off script, but we talked a lot about last time, you know, the investment managers, they said, and it was in the data too, right, that there are, you know, some folks who are vertically integrated, right, as partners, and some who are more, you know, kind of just doing one piece of it, or even allocators in the fund management business? Is there a preference that you all have, right? You know, for one, one strategy or another, in terms of, as you pick partners?

Dan Alger 21:17
I mean, for us, there's, you can, you can argue that there either is not or that there is. And we're very deliberate in sort of like we, we want to work with a broad range of partners. There are some partners in certain strategies where we want to have, you know, we want to put out a lot of, you know, significant amount of capital for those partners are going to have a different sort of skill set and infrastructure. And then there are going to be some other deals where you know, it's a little, you know, more innovative, or just a smaller project, and it's okay in those situations to have a different type of partner. There are some, there are also some structures where we recognize that we may not be the best group to finance every partner. The last panel we were talking about, they were talking about some like smaller transactions and smaller dollar amounts. And I mentioned that there are some deals where we can do that are really small and inefficient, but it's worthwhile because of the impact, or just the economics stand on its own. There are certain situations where that just doesn't work, and we need to work through other partners. And so we've worked with different sorts of fund managers and syndicators that help us reach partners that we are not best positioned to reach.

Rachel Diller 22:31
Your capital, even though it's big, can be intermediated to get to some of the smaller partners.

Dan Alger 22:36
Yeah, that's right. And look, it's, it's difficult because we have, we're not, we don't have like a fund management or a fund investor mindset. We have, like a direct investor mindset, and so we're investing in a fund like our diligence and our structures can be a little more, you know, like hands on. But I also think that's not the worst investor, yeah, but I also think it's not the worst thing in the world, quite honestly, for some smaller, emerging developers to sort of get a flavor for what sort of you know, institutional capital is looking for.

Rachel Diller 23:06
So, you make their lives difficult, but you tell them, it's good for them. We used to work together. Full disclosure, I know his playbook. Well, I mean, Filip, how do you think about it? Right? You're an institutional investor. How do you think about a vertical integration, particularly on preservation? We talked a lot about preservation. I agree development is, is, you know, we could talk about development to do just developer, you vertically integrate into construction as well, but just on preservation, for example. How do you think about that?

Filip Pinter 23:35
Yeah, I think the key for us is, again, to your point earlier, having the infrastructure, right? That tends to be someone that has a little bit more scale, a little bit more experience, and especially in affordable, right, where it's very nuanced. I would say someone that really has experience, who's gone through tougher deals, has the backbone of the company to build upon. That think we tend to really, again, look at sponsor quality from that perspective, as well as the infrastructure. Again, right? It's reporting, it's transparency, it's governance. But again, I mean, you know, on that side, it tends to be a little bit more with scale.

Rachel Diller 24:17
Yeah, and it's the nature of the beast, right? I mean, it's, you know, I think Alicia was saying on the last one, you can't be everything to everybody, right? And I think that's something we've suffered from a little bit in the affordable housing world, running to solve all of the issues in one deal. And it, I think, slowed us down from scaling. And I think we're at a place now where there's an opportunity, there's risk for scale, right? Are we still meeting the needs? For whom are we doing this, right? And what are the, what's the mission? But we don't have to solve it all for everybody, right? But Cynthia, how do you think about that?

Cynthia Maasry 24:52
We take probably a little bit of a different approach. We like the smaller, local developer and operator, and partly it's because we are trying to think of, how can we be a little bit differentiated as being not an institutional money manager? We're ultimately a church that has this long-term horizon and balance sheet that's able to invest in affordable housing, and it's a unique and privileged place to be. But because of that, you know, we're, and we have this New York City preference, we're happy to partner with the local operator. And I think part of that is also because one of the attractive things to me about affordable housing as a sector is the fact that it is highly fragmented. It is you need to have these creative financing to make it economically pencil. And so because of that, you need to have the operator that has the relationships with all of the subsidy providers, and they need to understand local zoning and the regulatory environment really well, and that lends itself to some smaller operators who just really know their geography.

Rachel Diller 25:50
Yeah, no, for sure. And you know, I think particularly when you think about, you know, folks who are, you know, like a church or a foundation, you know, people say, "Well, you know, what's your interest in affordable housing?" They say, "Well, I want it in my backyard. I want it here. I care about here. I care about place," right? And so that both makes it difficult for those folks to invest in diversified, broader funds, but it also makes them perfectly situated to do what you're doing. And so, Cynthia, just back to you, and we go to the next question. You know, as you think about in maybe there's some folks in the audience, institutions, you know, investors who want to get into this space, particularly the kind that you are like, when you think about, like, what advice would you give them? Where should they start, right? What are some of the factors they should consider getting into the affordable housing space, you know when they're, when they're first looking at it?

Cynthia Maasry 26:44
Yeah, I think affordable housing can mean so many different things, and there are so many different types of investments that are affordable housing. And so ultimately, especially if you are more of our profile of an endowment or foundation or even high net worth, ultimately we all manage our investment portfolios with our very specific kind of organizationally unique, idiosyncratic objectives. And I think keeping that in mind, you can tailor an affordable housing investment to any role that you're trying to serve. So perhaps it is because you're doing a fund within your real assets portfolio or your larger private equity portfolio, and you're thinking about specific economic levers. Or if you're not, you don't want to do that, or you don't have capacity in that way, you can also think about it as a cash management tool. So we started doing that on, instead of just doing a Treasury ladder, we will invest in taxable municipal bonds, or we will look at, you know, something that is Agency CMBS, because that can also be tailored geographically, short duration, short tenor, highly liquid, it can be a cash product, too. I think affordable housing can just be so many different things, and there's a lot of different levers you could potentially pull.

Rachel Diller 27:51
Great. Filip, how about you? I mean, you know, just, just particularly for other pension funds, for example, how would you advise them to kind of learn about the space, get into the space, and what? What are the considerations that that they should weigh?

Filip Pinter 27:56
Sure, I think again, when you're at our scale, you tend to look at it as a broader portfolio. So for us, it's more what role do you want it to fit in within the portfolio? Do you want diversification? You're looking for stability? Are you looking for an income component? Once you kind of figure out that specific role within your portfolio, it really comes down to who the sponsor is for us, right? Do they have the experience again? Do they have the infrastructure? Have they gone through a little bit rougher times or good times, and all of the above, and then again, governance, reporting, all of the things that we really look at, but also someone that really understands the nuances of affordable housing, because there are a lot of different things that frankly, as a team of 10 that manages about $30 billion, it's tough for us to get into the weeds on everything that's not our model, and then I think from there, it's really just being measured in terms of what allocation size you want, especially if you're getting your feet wet first and you may not necessarily understand all the nuances, or know who the right manager is to speak to, or you want to look at a broad array of managers just to figure out what niche you want to be with an affordable. I think it's just being calculated and measured on that side, obviously, of course, with economic returns.

Rachel Diller 29:18
Yeah. Dan?

Dan Alger 29:22
Yeah, I would, I would say to start, like, lean into, like, what the, what your firm is good at and experienced at. And then the second I would say is, like, really be thoughtful about why you're considering an investment in affordable housing. Is it being driven by impact, or is it being driven by the economics and sort of that risk-return? And if it's impact, then I think you really need to think about, sort of what area? Is it deeply affordable that you're focused on? Is it workforce? And all that is really important, and I think it's a lot easier to go into this space when you, sort of, have done a little bit of this soul searching, because the space is very fragmented, and you can get, I think if you're not familiar with it, I think you can get overwhelmed pretty easily. And so I think it's really beneficial if you can approach it from that mindset, be really thoughtful about it, and then go out and just talk to a ton of folks, and you don't necessarily just have to evaluate the opportunity that's in front of you. I would use that opportunity to sort of think about what else might be out there. Because it's just, it's a broad market, and it is changing on, if not like, a day-to-day basis, certainly a month-to-month basis. And even if you, if you scan the market today, and you can't find the right type of operator, the right type of opportunity, I would say that that doesn't necessarily mean that, like the space is not ripe for investment. It just means that you haven't found it, or that it's not sort of developed in the way that you would like. But I think it's because of the dynamic nature of it. I think it's important that you stay out in front of it, just like you would any other asset class. And you know, we talked about some of the other asset classes, and we are absolutely seeing institutional capital that had previously been heavily allocated to Office, looking for alternative sectors. And as much as we sort of feel strongly about, you know, the smaller deals, those have been around for some time, we need more of those that I feel like that's sort of the affordable housing space that existed for some time. We need to broaden that space, make it more sophisticated, bring in more capital, but there is a whole core affordable housing sector that doesn't have any real capital, and it's almost entirely funded with government capital and tax credits. And when you're thinking about a small developer who is an emerging developer, or any developer, who's building affordable housing, what your exit looks like, who are you going to sell to, really matters, one from an economic perspective, and also from an impact perspective. And if you have, if you don't have core funds that are focused on affordable housing, those exits, those responsible exits, get much more difficult. They also get much more difficult to underwrite.

Rachel Diller 32:00
Okay, so we have just, just one more question I wanted to ask, just to go back. So, we've talked about, and for me, this is really fun, because I never really thought that we would be in a place where people would be like, "Oh, we shouldn't be scaled. There's, you know, lots of downside with it." I'm like, "Yes, we're scaled! This is so great." And there, it's not like there's not a slippery slope, right? But when you think about, because you guys have been, all of you are in the space, when you think about, okay, what is it that we need to see in the industry, right, in order to bring more capital in? If, for a minute, just, you know, you believe, which I do, that more capital is better, right? Because it can go to the places, and it's Dan, what you're saying, which is, you know, maybe it's just the exits, right? What do you think are the things that are the most important in terms of that we need to see to bring more capital in and and what is maybe one thing that you think would really chill the market, right? Like, what should we be worried about? Sorry, I didn't, I didn't give them this as a, we talked a little bit about it, right? But like, for example, like, track record, how is, how important is that? Filip, right? Because when you think about, you don't have to invest in bank CRA need, right? Mission-oriented, local owner of real estate and caring a lot about New York City, right? You care a lot about New York, but you could, you have to, for your fiduciaries, invest across, you know, like, what is it that we that you need to see? In addition to scale, I think we hit that one.

Filip Pinter 33:30
I was going to say scale. No, I mean, aside from scale, I think, right, going back to your point, it's really that strong track record for us, right? Strong, specialized operators are what we really need to see. And again, I mean, it goes back to scale, but do they also understand the affordability nuances, and do they have the infrastructure and the scale to support the reporting, the transparency, the governance that we need to be able to invest in them? I think obviously the economics need to be there for us from a fiduciary standpoint, but really it comes down to, you know, who we're investing in and do we want them as a long-term partner? Because, depending on the structure, I mean, most of the time, we're married to them for 10 years, right? And, and we are involved in a lot of, you know, LPACs and everything else along those lines. But you know, it really comes down to who we're investing in on that side.

Rachel Diller 34:22
Well, and I think it's interesting the track record piece, right? Like we have track record, a great track record in LIHTC. 1986 became permanent in the early 90s, right? You look at all the studies that show very like minimal defaults in LIHTC, right? So you have that history, right? But when you think about an investor, investment class, right? This, the stuff that's bringing in the New York Commons of the world, right? You know, diversifying as your, your data showed, right, not just being foundations and endowments and banks, right, but to get to other institutional quality, you need a track record. We don't have a whole lot of track record in that, right? We're starting to get it. And so to me, that's one of the key pieces, right? Is that we need to have track record. We need to have successful at, you know, exits. You know, we're an owner-operator or fund manager. And, you know, there's times I'll go out of a room, you know, I'll come into a room and realize I was like, "I think that's Pam's perfume. I think she just left here," you know. And, and, and I love it. I love all the capital that's coming into it. Because the more experience we have, right? And the more I would say, private sector, institutional ready products there are, the more capital, right? Because there is capital that will come in. That will come in and say, "Wow, this is really interesting, even if I can simplify it and get away from the alphabet soup of all the affordable acronyms and everything like that, it's just not even worth it for me to get my head around it, because there's not enough scale." So I think scale is a good thing. I worry about, you know, the one bad apple, right? Like, if there's just, you know, bad press around, something that happens with a manager, et cetera, that, that could, really could impact things. But, I mean, Dan, you've seen the bank world change a lot over the time that you've been at Goldman, yeah, where do we need to go?

Dan Alger 36:17
I agree with what's been said already. I think generally, like, the more transaction volume, I think, will create more comparables, creates more of, like, more liquidity in the market, and just creates, like, just a more active market broadly. And I think that's really important. We're seeing a lot more of that now. We're seeing sort of generational change within the affordable housing space. A lot of developers, you know, sort of stood up 30 years ago, and now they're looking for sort of, you know, sort of the next generation step in some, you know, some of the family members want to take over, some don't. And so we're seeing more transaction volume for things that are larger portfolios. I would say that reporting is also really important. Is really important. It's not the most exciting topic, but it's really important, particularly to institutional investors, and I think that is an area that the affordable housing space hasn't done extraordinarily well, and I think you don't gotta count units, yeah, but like, real active, like, financial reporting on how an asset is doing is time consuming, and it takes, like, real infrastructure. And this sort of dovetails with one of my, my concerns is that I firmly believe that if institutional capital gets a taste of like the impact and the returns, it's going to be really difficult for them to sort of go back and sort of say, "I don't want to be exposed to this sector." I think the thing that can sort of change that for them is poor reporting and just poor experiences with affordable housing fund managers broadly.

Rachel Diller 37:44
Great point. Anything to add?

Cynthia Maasry 37:46
To me, it'd be great if we had even more crossover from just impact investing to, you know, it just making sense from a risk-adjusted return perspective. Because, granted, you know, we within mission investing being a local church that cares about homelessness, not that many groups have that profile. So of course, we want to do affordable housing, but when I put my allocator hat on for everything else in the endowment, it's more of thinking as an affordable housing manager or investor, your counterparty, who you're pitching to, they can invest in anything. And so I think the pitch needs to be a little bit more on a relative value standpoint, across not just other real estate sectors, but really across everything that that allocator can be investing in. And being able to hone the pitch to talk about the uncorrelated nature or the downside protection, or for us, what was very powerful was seeing during COVID, particularly when you look at our office portfolio, the total difference in occupancy or, in a year like 2022, if we're a U.S. investor, your major food group is U.S. public equities, S&P is down like 20 percent that year. One of our best investments was an affordable housing manager who had great monetization. And so I think when you have that comparison, that's frankly, much more powerful dollar wise for an endowment than even just okay, it fits within an impact portfolio, which will never be the entire endowment.

Rachel Diller 39:09
Yeah, I love that, and, and I would say, you know, the biggest when we, when we go and we pitch investors, we just say, "Guys, it's really simple. It's just supply and demand." We're somewhere between 4 million and 6 million units of housing short in this country. We do not have enough supply. So if I'm going to buy housing, it's going to be rented, I'm going to have pricing power over time, right? That's the good news from an investment standpoint. The other side of that coin is we have, as a result, an affordability crisis, right? So they kind of come together, right? And I think they're, you know, you can take the affordability crisis and get the mission investor, or you could just say, "Guys, it's supply and demand, right?" How do we fix it? We have to preserve what's there, and we have to create new units, right? And in the meantime, it's going to be a really solid investment, because people need some place to live, and we don't have enough housing. So with that, perhaps oversimplification, we'll turn it to questions and answers.

Speaker 1 40:12
Sorry. Quick question would be, how are federal policies impacting the sector?

Rachel Diller 40:17
Now that's a quick question. Oh, let's get some quick answers. Then let's go. It's a great question. Who wants to? Dan? You want to take a crack?

Dan Alger 40:30
Yeah, this has been a really interesting year, so we've just been primarily trying to stay on top of sort of what the issues could be for our partners and our projects. And I actually think that for a lot of like, the headline news, and as difficult as you know, things still are today, there's actually the one benefit, I think, is the fact that affordable housing seems to be one of like, the only like, bipartisan issues today. It seems we're hearing really strong support for the sector across, you know, both sides of the party, and I do think, or, the parties, and I think there's strong tailwinds with, with good reasons. It used to be that the the case that there were, you know, the certain cities that were focused on affordable housing because of the high cost of living, and then you had certain areas of the country that just were not focused on affordable housing. That just is not the case today. Every state is struggling with affordability. Federal policy has been a bit of a challenge in some areas, and it's been, as it relates to HUD, it's been a tailwind in certain other areas. There's been an expansion of the Low Income Housing Tax Credit. They've made some modifications to those rules that allow for easier deployment of the capital. And so it's been, honestly, it's been a bit of a mixed bag this year from our perspective. Well, it started with a lot of concern. I think we're right now. We're feeling like there's really strong support.

Rachel Diller 42:04
I don't know if anyone else? I would just say for my experience, and I'm actually on a national housing crisis task force that's bipartisan. We have the mayor of Atlanta. It's chaired by the mayor of Atlanta and the governor of Utah. And to Dan's point, you know, for better and for worse, everybody has an affordable housing crisis, right? There's that lack of 4 to 6 million units is spread across the country, and so everybody cares about it today. And two things, I would say. One, the federal, federal was never going to do all of it, right? It you need a lot of local and state tools, because a lot of this is happening at the local level. And historically, one of the great things that's been such a success about the Low Income Housing Tax Credit is, though it's funded by the federal government, it's very decentralized, right? So you have local governments, state, cities, in some cases, who really have the ability to focus on how to allocate this precious federal resource to solve problems that they think are a priority, right? So I think it was always going to be a partnership that said federal, state, and local governments don't have the same tax base that the federal government has. And so I and at the end of the day, back to my oversimplification, we need more supply, and the market can create supply at a certain level. And overall, if you create a lot of Class A housing, eventually you will solve the problem, and you'll get into equilibrium and have supply-demand. But purpose-built affordable housing needs federal funding, and that federal funding is not going to be coming in great demand soon. The LIHTC is is important, and it's going to expand it, I don't think to the level that we need, but I am very encouraged and confident that the local, the state and localities, are becoming much more sophisticated and are very actively trying to solve the problem.

Speaker 2 44:07
Hi everyone. Thank you. As one of the managers who participated in the survey, we operate a preservation strategy. I'm very curious to know how you look at the impact within the investments that you're making. How do you measure those? What type of KPIs do you look for? And maybe, if you're less sort of impact focus, how do you look at just the nature of the affordable that you're investing in? You know, from a reporting standpoint, for instance, just kind of curious. Take a stab at that.

Cynthia Maasry 44:41
Sure, I'm happy to and this really comes from our grant-making team, who will do the impact assessment and think about, you know, what is the alignment with the church's program areas, but for affordable housing, it's funny, because compared to some of our other program areas, you could argue it's simpler, but I don't know if that's necessarily true. But. Because there are specific things, whether it's like number of units and your AMI bands and various kind of you can count it, versus some of the other program areas. And then, as I mentioned earlier, you know, we look at things like, what are the services that are in the building, and how are the tenants being served? We will also look for, especially if it's a investment that aligns well with our racial justice program on looking at who are the operators, what is the organization look like, but also how intentional are they, as they think about their own supply chain and the types of providers that they're working with, and oftentimes we will have managers send us KPIs on that as well.

Dan Alger 45:41 We start with, we start with counting units. How many units are affordable? We think about the services that are on site. Then we think about, you know, the location of the building, is it in an area of opportunity? And then I would say, we're, that's sort of like, that's really like what we're doing, I think, pretty well today. And now we're really starting to focus more on the residents' experiences. What's their turnover? Are they reporting that they are, feel more stable? How has their financial situation changed since they took residency there? And so we're getting more and better information from our partners and from directly from the tenants.

Rachel Diller 46:25
But I think it's really, we have time for one more question, but I'll just make a comment. I think it's just really kind of Cynthia, what you were talking about. We just say, how do we scale this? Right? So, Dan, you talked about, well, we need, as affordable housing providers, do we need to have better financial transparency. We need to be able to hold up to institutional, you know, pension funds, being able to invest and give good information about our financial returns. We also have to do the same on on the impact side, right? So if there are people, like you said, people are going to they're going to say, "Wow, I can have both of these. I'm never turning back." How do you measure it, right? And so it's like anything else. How do we agree on a common language? How do we agree what that metric is? How do you, you know, distinguish between, you know, outcomes and outputs, right? All of that, and you know, so we as a fund manager are spending a lot of time doing that. I think grasp is a good start. It's imperfect. And how do we think about, you know, providing so that, you know, investors will come and say, "If I am looking at, you know, impact as one of the metrics, how do I compare across, right?" You're, you know, usually you have one or two questions about IRR to see how you can compare them. And you know, is it, you know? Is it on a monthly basis, on a 365, basis, and is it, you know? You know, you have a, you know what's, what's the term of your hold, and then, you know what the IRR means. There's two or three questions, if you're asking about impact, there's like, 100 questions, and you still don't know the difference between, you know, A and B. And so, how do we make it an investable asset class? It has to be easy, because everyone else, I mean, we probably lost half the room 20 minutes ago. They're like, I'm out of here, you know? So I think we've made a lot of progress right on that, and I think that that has to continue to be so that, you know, for people who care about they can distinguish and that brings more people into the space. We had one more question.

Speaker 3 48:11
Yeah, hi, thanks. I was wondering a lot of the increase in housing and affordable housing across the country, especially in New York City, has been going on more inside the city than in the surrounding areas. And one word that hasn't come up, at least I don't think it has, is NIMBYism. And I was wondering if any of you had any thoughts on that, if it's changing, or how it's changing, and if it's a major constraint, I guess, to increasing the housing supply. Thank you.

Rachel Diller 48:43
Great question. I think we could all probably say it's, it's, it's alive and, well, you know. Is it, is it better or worse? I don't know. I mean, in your perspective, I think there's, there's the New York piece, and there's, there's other places. Any thoughts?

Dan Alger 49:04
Yeah, no, it's a, it's an issue. What I brought up earlier about, you know, seeking out opportunity, seeking out projects in areas of opportunity, that's difficult one, but from a zoning context, it's also difficult. From a cost perspective, that's real, real challenge. The other thing, this is not directly related to it, but like, local zoning is extraordinarily important. One just from, like, a where can you actually build? But also then, like, how do you build? And like, how do you really, when you're thinking about, how are we going to fill this gap in housing that we have in the country, and you're not going to do it with purely, deeply affordable housing that is subsidized by the federal government. There's just not enough capital to go around, and so it's like all you need to sort of like an all of the above strategy, and part of that is our different sort of building like techniques. The fact that we're still building the way we were 50 years ago is still is you can argue it's not super like appropriate. But, like, it's difficult to build via alternative methods because of the zoning that's in place and the sort of building requirements.

Rachel Diller 50:07
Yeah, no, well, I but I think it's, it's, it's where, kind of local. So, like, you know, in in LA, right, the mayor is trying to do a lot to kind of help, even if it just reduces the cost, right? Like, why can't? Why do we need so much federal subsidy to create purpose-built, affordable housing? Because it's so damn expensive, right? So that's why all in this cycle that's been delivered has been Class A right? Because if you look at all the inputs right, you know local approvals of which are one of them, land, labor, materials, financing, right, have have been so high that the only return on cost that makes any sense is at higher rent. So I think, I think, though, that that is certainly something on the task force I was mentioning earlier, is something that both sides of the aisle really understand is, wow, this is really a constraint. And how do we, how do we equalize that? And ultimately, though it is, it's going to happen at the local level. There's been some ideas said, "Well, is there something the federal government can do to incentivize localities to think more creatively or expansively about their zoning that makes it more difficult to develop?" I haven't seen that come through yet, but I think ultimately it's a very, it's a very local, local issue. I think we're out of time. Thank you so much. Thank you for joining.

Nathaniel Kressen 51:31
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