“Workforce” Apartments Gaining Investors’ Interest

High-end apartments have attracted most investment dollars during the almost 10-year bull run that began at the end of the Great Recession, but now more affordable units are getting attention from investors. From the Wall Street Journal:

A venture led by Prudential Financial Inc. is spending nearly $600 million for 4,000 housing units aimed at lower-income workers, the latest sign that investors see bigger gains in lower-rent apartments than in the upscale ones that have led the recovery.

These so-called workforce housing units usually are in older buildings that cater to price-conscious renters, paying about $1,000 a month for a one-bedroom unit. Around 6.3 million units, or about 41% of all the rental apartments in the U.S., fall into the workforce category, according to CoStar Group Inc., which tracks buildings that are five units and greater…

Workforce housing rents are increasing at a faster rate than upscale units because of high demand and the dearth of new supply. Meanwhile, most of the 100,000 units that become obsolete annually fall into the workforce and affordable category, according to a report set to be released by commercial real-estate-services firm CBRE Group Inc. later this week.

Mr. Munk, of PGIM, pointed out that investing in relatively small improvements to workforce housing units —like a new carpet or a washer and dryer—can produce a big payoff in a higher rent. “If we can spend $10,000 to improve a particular unit, that could potentially bring in $200 a month more in rent,” he said.

The Case for Amenities in Workforce Housing

Today’s Wall Street Journal (4/15/15) has an interesting article about “luxury workforce housing” being built in Mount Vernon, NY:

…when completed early next year, 203 Gramatan Avenue, in Mount Vernon, N.Y., will include a host of amenities often found in luxury buildings, even though it will house families and individuals who qualify for affordable housing, which in this case is defined as households with incomes no more than 60% of the area’s median income.

Apartments in the $60 million, 159-unit development will have large floor plans, wraparound picture windows, oak floors, stone kitchen countertops and washers and dryers—features often missing from affordable housing. Shared amenities will include a gym, cinema room, children’s playroom and rooftop terrace…

There is a business reason for adding luxury amenities to workforce housing, Mr. Fine said. He said his firm owns an affordable apartment building in upper Westchester that has never had a vacancy in the 2 ½ years that it has been open because demand runs so high.

Still, the city had to provide incentives to Atlantic and Kenwood to consider the “luxury affordable” model. The inducements included a $3 million subsidized loan to pay for upgraded streetscapes and public improvements. The development also was awarded funds from state and federal low-income tax credits.

Workforce Housing Defined

Multifamily Executive asked three executives to define workforce housing. Here’s a part of what American Land Ventures’ Jason Robertson had to say:

As developers, we must attend to the needs of the essential workers in the community and develop ways to provide housing that is affordable to the people that are gainfully employed, making from 60 percent to 120 percent of Area Median Income (AMI), generally categorized as teachers, policeman and fireman. Unfortunately, most of the federal subsidies and tax credits come from serving residents below that income threshold, therefore it is incumbent on the local planning departments to incentivize development to respond to this critical need. If cities create the right programs, such as density bonuses, up-zoning and impact-fee waivers, market forces will respond and fill the void by creating housing that is affordable to this essential segment of our population.

You can read the rest here.