Partnerships Between Institutional Investors and Nonprofits Could Boost Affordable Housing Supply

Institutional ownership of single family rentals has increased and matured over the past decade. These owners can bring economies of scale to do renovations, including fast evaluations of needed upgrades and the ability to purchase paint, carpet, and appliances in bulk. The combination of their purchasing and rehabilitation strategy often results in housing portfolios with comparatively higher median values and slightly newer units than noninstitutionally owned similar regional rentals.

But in the past few years, the growth rate of institutional single-family rental owners has slowed, as some have sold properties that don’t fit their portfolio goals or to pocket home appreciation. When selling properties, institutional investors may face standard frictions, such as engaging a realtor, preparing the home for sale, experiencing inspection issues, and facing delays based on buyer qualifications.

At the same time, many nonprofit housing providers have struggled to promote affordable housing and homeownership because of declines in inventory since the foreclosure crisis and the rising cost of rehabilitation. Many of these organizations acquire homes and make them available to homebuyers with lower incomes, often paired with homeowner coaching or down payment assistance. But they have struggled to source homes in an increasingly tight rental market.

This provides an opportunity for institutional investors and nonprofit housing providers to partner in mutually beneficial ways. We highlight the partnership between Pretium and the Atlanta Neighborhood Development Partnership (ANDP) to demonstrate how they partnered for a “first-look” pilot that gives nonprofits an opportunity to purchase institutional investors’ properties to increase access to high-quality, affordable housing.

A successful first-look pilot

Pretium Partners owns and operates about 97,000 single-family rental properties throughout the US but especially in markets in the Southeast and Southwest. They own about 16,000 homes in Atlanta.

ANDP is a nonprofit organization that develops, finances, and advocates for affordable housing to promote racial equity and access to homeownership. Through the ANDP Loan Fund, the organization provides financing for the development and redevelopment of affordable properties for both purchase and rent. ANDP focuses on acquisition and rehabilitation because new construction is costly and can take a long time to develop. ANDP acquires homes and works with local, primarily underfinanced, largely Black contractors to renovate properties, using internally revolving capital. ANDP then sells the affordable home to a household with a qualifying income who have completed housing counseling with a US Department of Housing and Urban Development–approved organization. Most, but not all, buyers receive down payment assistance.

ANDP incentivizes high-quality, low-cost renovation by providing developers with a fee inclusive of incentives for high mission performance, such as an extra fee for sales to households below 80 percent of the area median income, and share in the profit and loss on the home. They’ve rehabilitated and sold more than 695 single-family homes since the start of a foreclosure crisis. This model has successfully increased homeownership opportunities among households with lower incomes and households of color. Since 2008, ANDP buyers found an average price appreciation of $135,000 for those who had been in homes for five years or longer.

Pretium has established a first-look option generally and launched a pilot with ANDP on the properties they are selling that align with ANDP’s organizational objectives. This partnership didn’t happen overnight. Pretium and ANDP spent time building a relationship and understanding each other’s needs and constraints. As a result, ANDP provides Pretium explicit parameters on the neighborhoods and price ranges of the homes they wish to buy. Pretium runs its for-sale properties in Atlanta through this list and offers ANDP a first look on the properties within ANDP’s purchase parameters. When ANDP receives the first-look list, they contact their rehab partners to obtain the cost for renovating each unit. They then evaluate where they can sell the unit and whether the purchase price plus the rehab cost pencils out for eventual sale to a lower-income family and selects the units where it does.

The first-look period replicates similar programs ANDP had access to when there were more available foreclosed homes. It provides ANDP and similar organizations the ability to compete in an increasingly tight housing market. ANDP has time to view and appraise properties and ensure the property will be cost-effective for their model. ANDP also receives a discount on the property compared with what it would list on the multiple listing service.

ANDP has purchased 10 properties to date from Pretium and this first look provides the opportunity to increase the number of acquisition and rehabs for immediate sale back up to 40 or 50 per year.

Institutional investors and nonprofits can partner to encourage affordable housing beyond first look too

Beyond first look, institutional investors and nonprofits can work together on the following activities to bring their own competitive advantages to the marketplace to support affordable housing.

• Supporting renters transitioning to purchase: As institutional owners sell properties, one natural buyer of these properties is the current renter, the majority of whom are usually first-time home buyers (PDF) and may need more support to understand the homebuying process and improve their homebuyer readiness. To maximize the likelihood of sales to current renters, the institutional rental operator could partner with nonprofits to provide renters who express interest in purchasing with housing counseling, credit counseling, and guidance on where the first-time homebuyer can access down payment assistance programs and reduce the trust gap that often exists between first-time buyers and financial institutions. Many nonprofits already have established courses and curricula that improve individuals’ home readiness and homeownership outcomes.
• Providing renovation support and capacity to nonprofits: The current affordability crisis is driven largely by a lack of supply. Though new construction is one pathway to addressing affordability, there is also a real need for rehabilitation and repair of the nation’s vacant and uninhabitable homes. Nonprofit organizations without their own repair network can consider partnering with institutional investors to bring these uninhabitable units back online. Institutional investors may well be able to leverage economies of scale and effective repair partners to support nonprofits encouraging rehabilitation and affordable homeownership. Institutional owners can partner with nonprofits as they build their capacity and support repairs at cost, and they could pass along the cost savings. Plus, the partnership could allow institutional investors to both keep their repair pipeline full as well as support social responsibility goals.

In short, the changing housing landscape presents new and unique opportunities for these partnerships between institutional single-family rental owners and nonprofit housing providers. As these relationships develop, it will be critical for organizations to assess their comparative advantages and identify where the other partner can help support their business goals and advance their mission.