New York manager tracks institutional investor shift toward affordable housing

The firm saw its roster of institutional investors spike in its second affordable housing fund.

Hudson Valley Property Group, a New York-based manager, saw a steep rise in its institutional investment base from its first to second real estate private equity fund.

The shift comes as affordable housing moves into the mainstream of more institutions, which see the sector as a part of a broader ESG-focused investment strategy.

“There are a lot of major institutions coming into the affordable space,” said Jason Bordainick, co-founder and managing partner. “Before, it was a little bit more of an under-the-radar asset class, but now it’s moving mainstream with major institutional organizations, such as endowments, foundations, and really high-quality investors investing with us because you get great risk-adjusted returns and you’re also able to make an impact and meet ESG requirements.”

In Hudson Valley’s first fund, HVPG I, the firm had a 44 percent concentration of institutional investors, with the remainder comprised of high-net-worth individuals and family offices. But in HVPF Fund II, about 80 percent of the investors are institutions that includes banks, colleges and endowments, foundations, insurance companies, museums, and healthcare companies. Most of the firm’s investors are US-based.

“There are a lot of investors who are looking to make an impact in a way where they’re not compromising returns. Our investors are able to generate impact without being paid below market returns – the best of both worlds from an investment [standpoint]. It meets their mandate and is a key part of our strategy.”

Investment strategy

HVPG invests in affordable housing through Fannie May and Freddie Mac programs as well as through its investment vehicles.

“Our expertise is on the financing side, bringing in the right debt and equity to do these projects. We’re one of the largest borrowers with Fannie Mae and also work with Freddie Mac and [the Federal Housing Authority]. We also develop some our own proprietary debt products,” Bordainick added.

There are additional factors driving investors to the space, added Bordainick, including a high barrier to entry that continues to limit competition. Additionally, there is a severe supply-demand imbalance in the region.

“The [sector] is proven to perform well in all market environments, during the pandemic [for example] as well as inflation protection and good cash yields. [What we do] is not just long-term preservation of the affordable housing, it’s also long-term capital preservation [providing] compounding returns for investors,” he said.

HVPG is currently undergoing 15 projects, including its first Philadelphia acquisition, 801 Residence, which will cost $120 million and closed in Q4 2021. The firm also completed $190 million in New York transactions, including the acquisition of Keith Plaza & Kelly Towers in the Bronx and Los Tres Unidos Apartments in East Harlem.

Growth mode

The firm aims to add up to $1 billion of affordable housing properties to its $2 billion portfolio by the end of the year through its latest real estate fund.

“We’re in growth mode, we’ve been expanding, and we’re probably one of the fastest growing in our space,” said Bordainick. “We’re really scaling up our investment with our growth trajectory and all the different projects that we’re working towards closing this year. We’ll probably preserve close to 3,000 units this year.”

With more institutional investors investing with HVPG via its funds, the firm aims to complete larger acquisitions and diversify its portfolio by geography for its investors.

“We’re building a nationwide platform, we’re going to be in a lot of the larger urban areas and urban markets, including the East and West Coasts plus Texas and select markets in the Midwest including Chicago, Illinois.”