Alternative investments in community development: A case study of pension fund investments in multifamily housing.

The demand for affordable housing far exceeds the supply. The New York Fed’s Regional Development Team is studying institutional investment in affordable apartments to understand how private capital investment affects rents. Our latest publication on the topic “Alternative Investments in Community Development: A Case Study of Pension Fund Investments in Multifamily Housing” examines pension fund investments in affordable rentals.

This case study is based on a non-representative sample of seven pension funds. In total, the funds surveyed have committed more than $2.7 billion to invest in affordable apartments over a five-and-a-half year period ending in June 2023.

The case study found that 91% of the money respondents invested in affordable apartments went into closed-end investment funds rather than open-end funds. Unlike open-end funds, which have no end date and remain under the same ownership, closed-end funds have a defined period of time, usually 10 years, before the properties in the portfolio are sold again. This means that the type of investment fund used will affect the future affordability of the property, as affordability may change under new investors.

“As the demand for affordable apartments exceeds the current supply, we are researching private investments in affordable housing, including investments by pension funds,” said Jonathan Kivell, Director of Community Investments at the New York Fed. “There is,” he said. “The number of affordable apartments is increasing and could be at risk of rising rents once affordability restrictions expire. Affordable housing developers, owners and investors Public subsidies are being used creatively to help keep rent affordable for low- and moderate-income individuals and families.”

The case study also found:

• From January 2018 to June 2023, respondents spent an average of approximately $388 million on affordable housing investments.
• Respondents expect to spend an average of $178 million on affordable housing investments over the two years ending in June 2025.
• Respondents said affordable apartments account for an average of about 4.4% of their real estate portfolio. Respondents expect that percentage to remain about the same over the next two years.

This case study is based on survey responses collected from July to December 2023 and is the second in a series focused on investing in affordable housing. The first, “Alternative Investments in Community Development: A Case Study of Multifamily Affordable Housing Managers,” focuses on how investment managers finance and place affordable apartments. I guessed. This case study found that more than two-thirds of the equity capital raised by the investment management firm respondent came from non-bank institutional investors, including pension funds.

“There is a lack of data on private capital investment in affordable housing,” Kibel said. “Our goal is to start closing that gap.”