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Multifamily Investing in Workforce Housing in the Southeast and Southwest U.S.

Published
May 2, 2024
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In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Ryan Johnson, CEO of Fulham Square Capital, a Los Angeles-based real estate investment firm that invests in workforce housing in the Southeast and Southwest U.S. Ryan shares his outlook for investing in these Class B&C multifamily properties including the greatest opportunities and challenges. He also discusses how he integrates ESG by partnering with non-profits for these homes.


Transcript

Elana Margulies-Snyderman:

Hello and welcome to the EisnerAmper podcast series. I'm your host Elana Margulies-Snyderman and with me today is Ryan Johnson, CEO of Fulham Square Capital, a Los Angeles-based real estate investment firm that invests in workforce housing in the Southeast and Southwest U.S. Today, Ryan will share his outlook for investing in these Class B and C multifamily properties, including the greatest opportunities and challenges. He will also discuss how he integrates ESG by partnering with nonprofits for these homes.

EMS:

Hi Ryan. Thank you so much for being with me today.

Ryan Johnson:

Elana, thank you for having me here today. I am excited to talk about this and I'm excited to get into the topic.

EMS:

Absolutely. So, to kick off the conversation, tell us a little about yourself and how you got to where you are today.

RJ:

I feel like that's the automatic moment, you know you're getting older because you don't know how to shorten your own elevator pitch. So, I accidentally ended up in real estate private equity. I worked for a developer, found an error in an Argus model, and before I knew it, I was in real estate private equity, right through the great financial crisis, one of the few firms buying. So, over a long period of my career, I bounced around to two major institutions. I had a heck of a stop when Curt Schilling blew up the state of Rhode Island, which could be its own podcast. And then, I spent about five years in the impact investing world working for LISC, which was the very old CDFI's impact investing arm, Strategic Investments. And then I ended up working in the world of affordable housing for a startup nonprofit. And then I really started learning the nuts and bolts of affordable and mixed income housing. And I thought to myself, hey, why don't we combine institutional knowledge and kind of ESG investing into one and went onto start Fulham.

EMS:

Great. So that segues nicely, Ryan, into the follow-up question I have for you. I would love to hear your high-level outlook for investing in workforce housing in the Southeast and Southwest U.S.

RJ:

So, I think in the very long run, the Southeast and Southwest of the United States are growing at such a massive clip. For the first time in our last year in my lifetime, the Southeast outpaced the Northeast in growth. Now over the last four years, you had probably an unprecedented run in B and C workforce housing at some levels, cap rates in places like Greenville or Jacksonville, Florida compressed to levels of Los Angeles. So that's created a lot of dislocation. So, I expect there to be a lot of distress in that market, which for us is our specialty. We're going to be able to buy a lot of those assets that were distressed and return them back to workforce housing assets.

EMS:

And Ryan, more specifically, where do you see some of the greatest opportunities in the space looking ahead and why?

RJ:

I see the greatest opportunities in the multifamily segment of it and being able to really come into markets where they have tax abatements. Anywhere that you can grab a tax abatement is generally the best strategy for affordable and attainable housing. And the Southeast is very easy to get them and honestly, it presents a great opportunity for you to come in and do all of this deferred CAPEX and really bring the asset back and keep it affordable for folks.

EMS:

And Ryan, on the other hand, what are some of the greatest challenges you face in your space and why?

RJ:

The greatest challenge is probably that banks and debt funds today don't particularly want to admit they have a lot of bad assets. I was around for the great financial crisis. This is a lot more different. We have inflation going up, people predicted huge amounts of this stuff would come on the market. I think a lot of extend and pretend today. So, it's a lot tougher to negotiate with special servicers who also, when I first started negotiating with them, this is going to date me, 2009, this was a CMBS market that was four years old. Now it's a pretty meld devolved market. So, people are a lot more cautious to market their assets to market today.

EMS:

Ryan with ESG top of mind for the industry, I would love to hear your work about partnering with nonprofits for this affordable housing.

RJ:

Well, it's a big component of it. I mean there's really two giant components of this. On one end, you get the financial component. You are able to abate the taxes. That is what is allowing you to keep people who are between 50% AMI and up to 100% AMI in these units for the long-term. But then step back for a second and think about the other parts that a nonprofit provides: financial literacy, after-school lunch programs, working with the housing authorities, which are a huge portion of our strategy. We want to get people who are currently not allowed to be, landlords are not accepting vouchers, we want to get 'em in. So, the nonprofit really above all things, provides a financial and the impact component where we provide really the real estate expertise.

EMS:

Ryan, we've covered a lot of ground today and wanted to see if you have any final thoughts you'd like to share with us.

RJ:

I think this is going to be a really exciting period for ESG in the housing space. It was originally maybe five years ago. You probably have less than half a million in institutional going after this. Today, there's somewhere in the north neighborhood of $2-3 billion going after this. And more and more importantly, I think governments are recognizing, especially state governments, that the Ligh-TECK program, although as important as it is, isn't going to cure how big of our affordable housing problem we have in this country is. So, governments are much more willing to work with the private sector in solving this problem. So, I think there's just an abundance of opportunity that wasn't there five years ago when I first got into this side of the business.

EMS:

Ryan, I wanted to thank you so much for sharing your perspective with our listeners.

RJ:

Elana, I appreciate you allowing me onto the podcast and anytime I can come back and update you on Fulham and what we're doing with ESG, would love to.

EMS:

Absolutely. And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

Transcribed by Rev.com

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.


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