Union South Bay Apartments. Source: Standard Communities

Standard Communities, a Los Angeles-based affordable and workforce housing developer, is seeing a significant increase in the availability and types of financing in the space.

The shift is coming as Standard Communities is working to significantly expand its portfolio of about 12,000 units to more than 20,000 over the next 18 months, Scott Alter, co-founder and principal, told Real Estate Capital USA.

“We are seeing insatiable demand from lenders for the affordable housing properties we are acquiring and we already own. This finacning is allowing us to grow,” Alter said. “We have been able to be pretty creative in how we have been able to work with conventional lenders and also use the municipal and tax-exempt bond markets as we’ve expanded our portfolio.”

Lenders are responding to a growing number of private equity firms and other investors targeting the sector as well as the supply-demand fundamentals. “The stability of the rent roll is appealing and at this point lenders can go back 35 years in the sector,” Alter said. “That, coupled with knowledge that renter demand is strong and there is a waitlist at the properties makes the default of a loan much lower than in almost every asset class.”

The company is on track to complete more than $1 billion of investment activity this year. This increase in activity stems partly from Standard Communities’ decision to target a wider swath of the affordable housing market, Alter said. This includes middle-income housing that converts to market-rate apartments, properties geared for residents who make 80 percent of the area median income and homeless shelters.

Scott Alter

“We have an extreme affordable housing crisis across the country. Even in lower-cost markets, you are seeing a crisis on the renter side because properties are almost fully leased. We see no risk around rental demand,” Alter said. “The 2020 census stated that the number of new housing units grew at half of the rate of the previous decade. Couple that with rising income inequality in this country and you’re left with an accelerating affordable housing crisis.”

In the first half of 2021, the firm acquired 10 communities in seven states, expanding its portfolio by more than 5,000 new residents.

“We have added more markets in the past 12 months, including South Carolina, Georgia, Idaho, New Jersey and Massachusetts,” Alter said. “Expanding our definition of affordability has allowed us to buy more properties. Once you own in one market and get to know the housing authority and the different players, it’s easier to respond to the market’s needs and the residents’ needs.”

Bridging the gap

One area where Alter has seen significant change is the availability of bridge financing from conventional lenders, citing the example of the company’s acquisition of a South Carolina apartment community.

Bridgeview Apartments is the largest privately owned affordable housing community in Charleston. Around the time of the acquisition, a loan was coming due.

“The sellers needed to close quickly but the property is going to go through a major renovation,” Alter said. “Our plan was to work with the state on a tax-exempt bond deal, but because those deals take some time to put together, we were able to work with Citibank to procure a bridge loan. This is a great example of the kind of financing that was not available in affordable housing many years ago. Lenders now better understand that business and by providing us with a bridge loan, they allowed us to get our ducks in a row, renovate the property and preserve it as affordable housing.”

The Bridgeview Village deal, with a capitalization of $97 million, was a complex public-private partnership that included low-income housing tax credit equity via SC Housing as well as the Citibank bridge loan. The property’s 300 units are also covered by a Section 8 Housing Assisted Payment Contract.

“As we have grown, it has become clear to state and local officials that we are fulfilling the mission the government wants to see, helping them to preserve and renovate housing,” Alter said. “I would expect Standard to continue on the pace of growth we are seeing or even exponentially grow over the next few years.”