Why institutional investors hold back on affordable housing projects.
Recently, the demand for affordable housing has been on the rise. While this investment pool is traditionally small, it has garnered attention from institutional capital. That being said, the opportunities for institutional investors to enter the market are limited. Here are some of the reasons why institutional investors hold back on affordable housing projects.
The main reason why institutional investors have been unable to make headway in the affordable housing market is due to the small scale of these projects. Unlike market-rate apartment projects, affordable housing apartments usually contain 1oo-200 units. This limited scope prevents institutional investors from really getting a foot in the door.
So why can’t affordable housing projects be completed on a larger scale? This is largely because housing authorities and developers are less concerned about project scale and more concerned about getting projects approved so they can get paid. Smaller projects are easier to approve as they require less land and start-up capital, so affordable housing builds tend to remain small scale.
While institutional investors can compete with portfolio deals, private buyers still have a leg up. Because they have an easier time making single property purchases, they can build up a portfolio faster and more efficiently than institutional buyers can.
This is why institutional investors hold back on affordable housing projects. Interested in staying up to date with the latest commercial real estate news? If so, then contact the experts at California Commercial Realty Advisors, Inc. Your commercial realty advisors are eager to assist you with all your real estate needs today.