Avanath Gets 26,000-Unit Portfolio with Firm Acquisitions

Avanath Capital Partners and MacFarlane Costa Housing Partners have acquired Simpson Housing Solutions and its portfolio of 273 properties as part of the initial capital deployment for Avanath Capital Partners’ first fund offering in a development arm to be spun off to MacFarlane Costa Housing Partners. The portfolio–which sold for an undisclosed amount–totals 26,000 affordable rental apartments in 33 states, the District of Columbia and Puerto Rico. “We knew this company very well and I had a longstanding relationship with it and I knew it was a very well ran company. The asset quality of the portfolio was very high. The portfolio has an overall occupancy of 94 percent and half of the portfolio is located in California, where there is significant demand and need for affordable housing,” Daryl Carter (pictured), CEO of Avanth Capital Partners, told CPN. “All of those factors played a role in the acquisition.” “Given all that is happening in the housing market and the sub-prime market, we are bullish on rental housing,” Carter added. “We think the need for affordable housing has never been higher. The demand for the underlying product is very high. There have been a lot of disruptions in the capital market, which has impacted affordable housing space. So, this is a great opportunity because of the disruptions both in terms of the tax credit investors dropping out of the market and the fact that it is more challenging to develop more affordable products. We think the disruptions and the underlying demographics for the space made the timing excellent for the acquisition.” Earlier this year, SHS was ranked by Affordable Housing Finance magazine as the fifth-largest owner of affordable housing in the United States. It owned the most units of affordable housing in California. The firm, which was a wholly owned subsidiary of Simpson Housing LLLP, specialized in the development, rehabilitation and management of rental apartment communities that qualify for the federal low-income housing tax credit, an indirect subsidy to facilitate private-sector investment in affordable housing. More than half of its 273 properties are located in California. In the initial phase of what will be a two-phase transaction, ownership of the former SHS portfolio will be jointly held by Avanath Affordable Capital, a wholly owned subsidiary of Avanath Capital Partners and MacFarlane Costa Housing Partners. Avanath is a real estate investment firm focused on affordable housing, urban real estate investment, mortgage services and specialty finance. Headquartered in Irvine, California, Avanath was formed in November by Carter, co-founder and former principal of Capri Capital L.P., who grew its assets under management to $7.4 billion. He later served as CEO of CharterMac Mortgage Capital. MCHP is a newly formed joint venture between Michael Costa, the long-time president of SHS, and MacFarlane Partners Affordable Housing, an affiliate of MacFarlane Partners, a real estate investment management firm headquartered in San Francisco that pioneered the urban investment concept among institutional real estate managers. In the transaction’s second phase, which is expected to occur later this year, Avanath will acquire sole ownership of SHS’ general partnership interests in the investment funds or partnerships that own the 26,000-unit portfolio. In completing the transaction, it will be one of the largest owners and managers of affordable housing in the country. To facilitate the acquisition, Avanath is conducting a fund offering for which real estate investment banking firm Presidio Partners is serving as the placement agent. The acquisition of SHS’ general partnership interests in the 273 affordable housing communities will represent an immediate deployment of a portion of the equity to be raised in this fund, and will serve as the initial platform for Avanath’s affordable housing endeavors. Following the second phase of the transaction, MCHP will retain SHS’ property development, finance and corporate accounting functions and continue to develop affordable housing. MCHP will be led by Costa, who founded the firm’s predecessor entity in 1994, and will be fully staffed by former SHS employees. As MCHP, the former SHS development and finance team will focus on developing affordable housing communities in California, Arizona, Nevada, New Mexico and Colorado, according to Costa, who has supervised the development and financing of more than 37,000 units of affordable and market-rate multi-family housing during his career. Currently, the team is developing eight properties, all of which are located in California. Costa expects that MCHP will develop 1,000 to 1,500 apartment units each year. Properties will consist entirely of affordable housing financed through the use of the LIHTC or will feature a mix of market-rate apartments and affordable units that qualify for the LIHTC and/or are financed with proceeds from the sale of tax-exempt bonds issued by government agencies.