@Amit M.
Great questions, thanks for your thinking here.
I understand your reaction to what I am delineating in the last couple of posts. Your reaction is warranted as there has not existed what we are building in this exact format until recently.
These specific projects are privately financed moderate income urban family rental housing.
We call this specific type of rental housing UTH which stand for Urban Town House. This is a new housing innovation created by our company that had not been produced at any scale, and hence the reason that you are reacting to the narrative. It hasn't existed in main stream real estate business conversations until now. It is an uncommon offer, and we are enthusiastic about that fact. As you say, "Most CA builder only build higher end, ...otherwise..won't pencil out"
We are grounded in our statement that newly constructed moderate income housing for families can and does pencil out. Our initial set of projects is coming to completion and being sold, and we are producing returns on equity of over 20% IRR, with COC in the mid-teens, based on investment periods for equity around 1 year. This is the innovation that we are pairing private capital with a family oriented housing product delivered at:
1. Naturally occurring affordable moderate rent levels (CA TCAC 2017 rents for LA County, 100% MAI 5 bedroom, $2883).
or
2. True moderate income affordable housing. Generally, this 2nd type of project is rent restricted under a long term covenant, with rent levels at 120% of area median income.
Here moderate income means 80-120% of area median income for Los Angeles county (State of CA definition of "moderate").
What this means is that we have two paths to build moderate income family housing which increases the velocity of our offers (more ways to finance, build, sell or hold). This will also allow us to scale both on project volume (number of projects) and project size.
A few details for UTH:
- 3-story rental townhouse product for large, dual, and multi-generational families.
- Multiple bedroom slab on grade construction with ground floor 2-car direct access garages
- These units are rented to families, then depending on the finance structures, sold upon completion, or some are held long term (LT hold projects have different equity returns than those sold, but LT hold will be case-by-case, depending on project, see Impact Fund below)
- The projects use private capital, meaning they do not use any public sources of money such at LIHTC, HUD, or local sources of soft money typically used for affordable housing at or below 60% of median income.
Note: We can rent to S8 tenants as appropriate. This is the beauty of this design, it's a true crossover between market rate and moderate affordable. UTH serves the missing middle in three ways: in design (town house, 25 du/a), income (middle income families 80-120% MAI), and housing type (between true apartments and SFR).
- Projects are located in low and middle income neighborhoods on purpose, in fact, we prefer it. To your point these might be in up and coming neighborhoods, but normally are not our first choice to keep land costs down.
Two final points:
A. We are continuously raising new capital and are building networks of new HNW and Family Office private equity, which are attracted by the UTH concept and 20% IRR returns. We are constituting our offer in the crowdfunding space, with a specific purpose of raising social impact crowdfund capital attracted to the double bottom line narrative of our UTH projects. And, we are forming two equity funds specifically to finance additional UTH projects. First, a UTH "market rate" equity fund for UTH with no long term rent restrictions. Second, a UTH Housing Impact Fund, to fund true moderate income projects with long term covenants, and that will be held long term.
B. To reiterate, this is workforce housing, designed and built simply and cost effectively on already zoned sites, using only private capital to deliver needed moderate income housing for families to a market STARVED for new housing for families in low income neighborhoods. This is an uncommon offer, and one that CA needs huge amounts more.
Thanks!!
Scott