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The Simple Reason Why There is No Bid-Ask Spread in Affordable Housing

Posted by: | Posted on: June 26, 2020

The affordable housing asset class was attracting investors of all sizes long before the pandemic struck. Companies such as Blackstone, PGIM and Starwood, for example, have all staked out a position in this category in recent years. 

Now, with the pandemic well underway and showing little signs of easing, investors are even more eager to acquire these properties despite the overarching concerns in commercial real estate about incomes and long-term growth, according to Doug Childers, co-head of JLL Affordable Housing. 

“More people are expected to qualify to live in affordable housing in the future” due to the pandemic’s significant economic effects, he tells GlobeSt.com. 

Could this be the reason why there is no bid-ask spread with affordable housing assets? No, Childers says. “The reason we are not seeing a bid-ask spread with affordable housing is because these rents are backed by the federal or local governments. Also, there is an abundance of capital on the debt side.”

Indeed, the spread of COVID-19 has had a limited economic impact, so far, on the ability of residents to make rent payments in public and affordable housing, according to a new report by MRI Software. “Like tenants of market-rate units, tenants of affordable and public housing units seem to be staying in place while also prioritizing rent over other expenses,” Brian Zrimsek, industry principal for MRI Software said in prepared remarks. 

Pricing has not shifted during the pandemic either, Childers says.

JLL Capital Markets recently closed on a 20-property Project-Based Section 8 portfolio sale totaling 1,763 units for $106 million that went under contract last year. The pricing did not change when the pandemic hit, Childers says. In addition, he believes that if JLL had marketed this same portfolio today, the pricing would have been the same.

JLL marketed the property on behalf of the seller, Ambling. Preservation Partners Development. Infinity Real Estate Advisors and Jonathan Rose Cos. each acquired parts of the portfolio.

Preservation Partners Development purchased 12 communities in Georgia, while Infinity Real Estate Advisors picked up two North Carolina properties and five South Carolina communities. Jonathan Rose Cos. acquired a property in Georgia.

Childers and Michael Fox, co-head of JLL Affordable Housing led the transaction.

It was a complex deal, Childers says, executed across a variety of acquisition strategies and requiring coordination between multiple capital sources, state agencies and HUD.

The deal took a while to close because of the various approvals required from the agencies, Childers says. It is here that the pandemic has had an effect. “The closing took longer than it normally would have because of the shut downs,” he says.

But in general, these deals always take a while to close given their complexity. Investors don’t mind, he says, “because these assets are seen as a hedge against inflation because the rents are subsidized.”

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