Ryan Harvey '16, The Ashforth Company
Tyrone Barnes, Taconic Investment Partners
Isaac Henderson, L+M Development Partners
Daniel Parker, Hodges Ward Elliott
By Gillian Dudeck ’19 and J.C. Hay ’19
Workforce housing in New York City offers attractive opportunities to both renters and investors, but bringing new supply to market is challenging given current land costs and questions about future rent-stabilized rents. Ryan Harvey ’16 of The Ashforth Company moderated a panel looking at workforce housing, predominately in New York City, at the 2018 Columbia Business School Real Estate Symposium. Harvey leveraged the expertise of panelists working within the acquisitions, development, and investment sales functions in the multifamily space.
Laying the groundwork for their dialogue, the panel began by providing three perspectives on the definition of workforce/millennial housing, commonly used terms that often has varying definitions. Daniel Parker, covering investment sales at Hodges Ward Elliot, referenced the differentiation between naturally occurring affordable housing or NOaH (relatively inexpensive housing that is available outside of cities or within cities with lower overall housing prices) and subsidized and regulated housing. Isaac Henderson, from L+M Development, expanded upon this definition and discussed the types of projects L+M is involved in the affordable and workforce housing space. Tyrone Barnes, covering workforce housing acquisition with Taconic Investment Partners, elaborated, further stating that he also sees workforce housing catering towards working professionals, such as firemen and nurses, who have stable jobs regardless of economic conditions, making it a stable income investment opportunity.
In New York City, the definition of workforce housing is expanding because of the need for such a product, and the panelists agreed that despite any technical definition, workforce housing is reasonably priced housing that allows the workforce access to job opportunities in their cities. This definition really guided much of the conversation throughout.
Given the tight supply of workforce housing, particularly in New York City, the conversation then transitioned to private sector solutions for the supply crunch. Common throughout each panelist’s comments was that workforce housing requires a public/private relationship and that navigating workforce housing acquisitions and development in New York City is extremely complex.
Leveraging his perspective as a developer, Henderson has observed that capital is fluid and that there is demand to invest in New York City. “If you can build it, they will come,” Henderson stated. However, he identified the high cost of land as an obstacle to building right now.
Parker commented that from 2014–2018, investors have migrated into markets outside of New York in search of lower prices. He cautioned that while markets outside of New York City have higher cap rates, higher vacancy, lower rent growth and less liquidity are some of the reasons that they are priced in such a way.
Barnes emphasized the impact that government policy, particularly as it relates to tax abatements and exemptions, has on private sector solutions. He went on to explain that understanding expected revenue drivers well is paramount in executing workforce housing real estate transactions. In New York City, however, there is currently uncertainty about the future of rent stabilization rent increases, which has resulted in slower sales and purchases within the sector.
Instead, much of the deal volume Barnes is seeing currently transacted pertains to assets that are transitioning to free market. Expanding to offer insight into the multifamily space in general, the panelists opined on the profitability of multifamily as an asset class. Multifamily, as the panelists highlighted in their comments, is a resilient asset class. Isaac Henderson emphasized the long track record of solid fundamentals in the multifamily space in New York City with ~400+ years of rent growth and long-term vacancy around 4-5%, making it appealing for long-term holders.
Parker added that the diversity of cash flow streams makes multifamily an appealing sector. He contrasted the probability and impact of one 60,000 SF office tenant not renewing versus the probability of losing 100+ decision-makers who rent apartments. While office and multifamily can produce the same IRRs, multifamily is a safer investment.
Further, Parker noted that multifamily is the only asset class not hugely threatened by technology because everyone needs a place to sleep. Finally, Barnes outlined the ways in which workforce housing can outperform traditional multifamily. The subsector is resilient during recessions because workforce housing demand doesn’t decrease with a bad economy. This is due to the asset class’s overwhelming demand, limited supply, and tenant base who tend to have jobs that are less economically sensitive (such as teachers, fire fighters, nurses, etc.) which makes it a very stable income investment opportunity.
In addition, the ability to secure financing from community banks often provides attractive 30-year fixed rate financing for workforce assets. Finally, turnover is often lower than in general multifamily assets. While workforce housing offers many benefits, Barnes also commented on the unique challenges associated with pursuing workforce housing deals. Reputational risk is considered heavily when pursuing these deals, especially because acts that place a landlord on the bad landlord’s list makes it particularly difficult to successfully operate an asset because getting city approvals is challenging.
Overall, the panel was a dynamic discussion on the sub-sector which also, at times, even briefly touched on millennial housing (generally operating in a similar price point to what would be considered workforce, often requires a much different product and targets a much different demographic) and the potential of opportunity zones in expanding the workforce housing supply. The audience walked away from the panel with a better understanding of the opportunities and the challenges of investing in affordable housing in the current market environment.
Gillian Dudeck ’19 is a second-year student at Columbia Business School and is a VP of Careers for the Real Estate Association. She is pursuing opportunities in real estate investment following graduation. Gillian spent her summer interning at Invesco Real Estate in San Francisco in their equity underwriting group. Prior to Columbia Business School, she worked at CBRE/New England at the Fan Pier development in Boston, MA. Gillian graduated from Hamilton College in Clinton, NY with a BA in Environmental Studies and was founder and captain of the women’s intercollegiate golf team.
J.C. Hay ’19 is a 2nd year MBA candidate at Columbia Business School focused on real estate investment. He currently serves as the Vice President of Alumni and Mentorship for the Real Estate Association. Prior to CBS, J.C. Hay was a Vice President at JPMorgan’s Private Bank working with High Net Worth Individuals, Families, Endowments and Foundations where he oversaw $650MM in client assets. In his role there, J.C. advised clients on investments, banking, credit, and wealth advisory. While advising his clients on their investments, J.C. became very interested in the real estate investments his clients were making and decided to attend Columbia Business School to transition into real estate investment. J.C. interned this summer at Greystar in Portfolio Management in Charleston, South Carolina. He is a CFA charter holder and a member of the Junior Committee of CaringKind.