We often hear calls for creative financing tools to build and maintain levels of affordability in high-pressure housing markets. Indeed, determining how to finance the “missing middle” has become a familiar challenge in not just the Bay Area, but also in many competitive housing markets. In the latest interview in our ongoing Meet the Speakers Series, ULI SF sits down with former ULI Austin Executive Director David Steinwedell, whose career working in private equity and passion to give back prepared him for his latest challenge: creating and managing the cutting-edge affordable housing investment fund the Austin Housing Conservancy and its non-profit sponsor Affordable Central Texas.
Can you speak about the origination and mission of Affordable Central Texas (ACT)?
As executive director of a ULI district council, you get the chance to become involved with a lot of issues. The ULI Austin district council did three Technical Assistance Panels (TAPs) on various aspects of housing affordability. One TAP focused on missing middle financing and we also worked with a local school system to see if we could utilize their land to make affordable housing available to teachers and students. What came out of this work was a desire to develop a fund to support workforce housing in Austin, which became the fund that we have today, the Austin Housing Conservancy.
Affordable Central Texas was formed to be the non-profit sponsor and investment manager of the Fund whose mission is to acquire existing multifamily properties in greater Austin, specifically class B and C, that are affordable to the area’s workforce (60 – 120% AMI) and look to tie rental rate growth with wage growth. Our goal is to maintain properties that are affordable to Austin’s workforce families and individuals and maintain affordability consistent with wage growth.
What kinds of projects does the fund work with and what key traits characterize a project fit?
The majority of properties that we invest in fall into a bracket of having been built in the late 1970s to early 2000s – usually suburban or exurban, 2-3 story, 150 – 300 unit properties. They were class A when originally built, but have moved into a position where the rents are now naturally affordable for a middle-income range. These properties are at the greatest risk of upgrade or tear down, either will remove them from workforce affordability.
Some may have been upgraded in the last five to ten years, though this is not always the case. Our ideal property has proximity to job centers, healthy food options, public transit, and quality schools so that the residents can move in and not face pressures to move out if they start a family or change jobs.
Can you describe your ideal philanthropic partner? What are some lessons learned from bridging philanthropy and affordable housing/financing?
The fund itself is structured like a typical private equity fund and is designed to be a core fund, so we won’t use that much debt. There is a concentration on the preservation of principal and providing the vast majority of return from cash flow. What is different is that the sponsor of the fund (ACT) is a 501c3.
Our nonprofit status opens a few interesting opportunities for the fund. We received support to launch the fund from Wells Fargo, ULI and the Michael and Susan Dell Foundation and have received investments from other people locally.
On a go-forward basis, a philanthropic partner could provide grants directed to be invested in the Fund. They could also invest from their corpus into the fund. Any distributions could then be provided to others as grants. This allows them to support the investment, but also get a return, which then allows them to use this return to make grants to other foundations.
How does the fund generally interact with public sector partners? What makes a good partner and why is it important for funds like yours to work with municipalities and/or other nonprofits?
We’re a completely private fund, we don’t have public money. That doesn’t mean that we don’t want to work with public entities. We can help leverage what we do to help them meet their goals. We might be able to work with a municipality and utilize their land for development. In essence, to allow us to purchase their land for free and provide affordable housing on top of it.
In Texas, real estate taxes are a huge portion of our expenses. If you work with a municipality or school district, you can get an abatement of real estate taxes, which can be a powerful tool to be able to provide affordable units.
This interview has been edited for length and clarity