UBS Asset Management had completed its first investment in the affordable housing sector, sister publication PERE has learned.
The multi-manager business of the Zurich-based bank’s real assets management arm, Real Estate & Private Markets Multi-Managers, acquired the bulk of the assets in Avanath Capital Management’s debut real estate fund, Avanath Affordable Housing I.
The investment was made on behalf of a consortium of investors from Europe, Asia-Pacific and North America.
Avanath I is a 2010-vintage that closed on $120 million, according to PERE data.
UBS bought out all of the fund’s existing investors through a tender offer process while Irvine, California-based Avanath maintained its equity stake. The portfolio, known as the Elevate Portfolio, consisted of 2,085-units across 14 multifamily communities in the US, with 65 percent of the assets located in California and Florida. The gross value of the assets is understood to be about $250 million. Following the tender process, the assets were transferred to a newly formed Avanath/UBS vehicle.
PERE understands that the fund was recapitalised because Avanath needed more time to complete its business plans on the assets. The portfolio, moreover, was not easy to trade, given the local housing authorities in the submarkets where the assets were located each needed to approve the transaction, according to one source familiar with the deal.
“The Elevate Portfolio provides REPM MM rare access to a fully stabilised and diversified portfolio of affordable housing assets, offering our clients strong risk-adjusted returns with highly durable cash flow,” said David Kozlicki, executive director and portfolio manager at REPM.
Impact investing has continued to gain traction among institutional investors in recent years. According to the Global Impact Investing Network’s 2018 Annual Impact Investor Survey, the number of respondents making impact investments grew from 82 to 225 from 2013 to 2017, with the original 82 investors increasing their total investment activity from $6.1 billion in 4,140 deals to $8.1 billion in 5,263 deals over the five-year period.
Avanath raised a total of $120 million for Avanath Affordable Housing I in 2010. Limited partners in the fund included the Teachers Insurance and Annuity Association of America and the State of Michigan Retirement Systems, both of which committed $25 million to the vehicle.
To date, the firm has realised four investments from the fund that have an aggregate gross internal rate of return of 55.2 percent and a 5.2x gross levered multiple, a source told PERE.
Founded in 2007 by Daryl Carter, Avanath acquires and redevelops apartment communities that were developed under the US Low Income Housing Tax Credit program; were developed using tax-exempt bonds; subject to project-based, Section 8 Housing Assistance Program contracts; subject to state or local affordability provisions; and so-called naturally occurring affordable housing, or older Class C properties that were upgraded to serve the needs of lower-income residents.
Accord Capital Partners, the advisory arm of San Francisco-based capital markets, investment management and principal investment firm Accord Group, advised Avanath on the transaction.