Giving City: Innovative real estate fund posts returns to investors

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This article was featured in the Austin American-Statesman. A link to the full article can be found here.

A private equity fund to purchase and conserve affordable housing rather than redevelop it recently saw some success when it delivered a modest return to its investors. This unique fund, a kind of philanthropic solution that also generates a financial return, is managed by the Affordable Central Texas.

David Steinwedell, president and CEO of the nonprofit, said the fund attracts accredited investors who appreciate that it is low-risk with a modest return while also contributing to the betterment of the community. “The fund is doing something good for the community, and that can either be the icing on the cake for an investor or the main reason they’re investing. In essence, what we’ve come up with is a fund nobody has ever done before.”

In May, the fund returned 3% to its initial investors, holding some of its capital back for reserves. “It’s good practice for an investment fund to maintain a level of reserves,” said Steinwedell, “because you never know what’s going to happen in the marketplace.”

The fund, called the Austin Housing Conservancy fund, launched in 2017 and has attracted about 25 investors who have contributed enough capital to acquire three apartment complexes in North Austin and Wells Branch, with others in the pipeline. So far, these properties include 792 units that house about 1,200 people.

The typical developer would purchase these properties, renovate them, then increase rents to maximize the return to investors. Steinwedell says properties purchased by the fund may require some improvements, but even then rents are raised only as they align with income. Right now, rental costs are far outpacing wages in Austin. According to the Austin Housing Conservancy, wages increased at a rate of 15 percent between 2011 and 2018, while rents increased at a rate of 69 percent.

The fund targets residents earning between 60% to 120% median income as defined by the U.S. Department of Housing and Urban Development, which comes to $34,200 to $68,400 for an individual. Affordable rents for those residents fall between $750 and $900 a month, said Steinwedell.

With a goal of preserving 5,000 affordable housing units in five years for Austin’s working class, Steinwedell it will have to attract bigger investors such as banks, corporations and foundations.

In April, the Austin Community Foundation contributed a $250,000 revolving line of credit to the fund. Other philanthropic dollars to Affordable Central Texas help fund operations, such as a $250,000 operating grant from St. David’s Foundation announced in March.

Frances Ferguson, an Affordable Central Texas board member and the founding executive director of Austin’s Foundation Communities said, “No one investor type will solve this puzzle.”