Over the past decade, affordable housing has become increasingly harder to find. The Joint Center for Housing Studies of Harvard noted in their 2011 report that 8.7 percent of low-cost rental space was “upgraded to higher rents on a net basis” during the last decade, according to The Wall Street Journal.
The report also noted that the shortfall of affordable units has doubled since 2001, to 5.1 million units. Amidst these concerns, some of the nation’s largest housing-related nonprofit organizations have teamed up to protect affordable housing.
The WSJ reported this past Monday, April 29, that nonprofit organizations such as Mercy Housing Inc., LINC Housing Corp. and Nevada HAND Inc. have teamed up with for-profit businesses that are not owned or operated by the government or private-sector investors, such as Citigroup Inc., Morgan Stanley and Prudential Financial Inc., to create a private real-estate investment trust, also known as a REIT. They have created the REIT with the focus of protecting affordable housing.
A REIT is a security that sells like a stock, and invests in real estate directly, according to investopedia.com. REITs are attractive to investors due to the typically high yields on investment, and because they are a highly liquid way to invest in real estate. Liquidity is the ability to convert an asset to cash quickly, or ease to get money out of the investment. REITs also are exempt from most corporate taxes, as long as they pay 90 percent of their taxable income as distributions to shareholders, also known as dividends.
The REIT that the mentioned nonprofit organizations have formed is called the Housing Partnership Equity Trust. It will aim to protect affordable housing by acting as an Equity REIT, which invest in and own properties. These types of REITs are thus responsible for the equity or value of the properties they take over. This means that the Housing Partnership Equity Trust is able to acquire and redevelop existing multifamily properties in order to establish them as affordable rentals.
The Housing Partnership Equity Trust plans on acquiring apartment buildings across the U.S. where rising real-estate values have prompted landlords to turn low-income housing into housing for the middle and upper class, according to the WSJ. The WSJ also reported that the Housing Partnership Equity Trust is one of a kind, since it is the nation’s only real-estate company owned and operated by nonprofit organizations.
The REIT closed its first acquisition Friday, April 26, by acquiring a 128-unit apartment building in Aurora, Ill. for $5.2 million. With more than $100 million raised currently, and an aim to raise $500 million from socially conscious investors, the Housing Partnership Equity Trust has access to the financial means necessary to compete with the deep-pocketed investors who are looking to fix up old buildings and charge higher rent.
Information from The Wall Street Journal was used in this report.