PAHPP Fund Exceeds Expectations
An Interview with
MATT EDLEN, Co-founder
Can you expand upon the significance of the fund’s performance over the past eighteen months?
Despite an unprecedented set of circumstances over the past 18 months, the performance of the PAHPP portfolio has demonstrated incredible resilience. Since acquiring our first asset in March 2020, due to a number of key drivers, the fund has managed to achieve its targeted business plan within the first 18 months of ownership – well in advance of the 24-36 month projection we had assumed going in.
While the fund is based upon a highly tempered, mission-based capital structure with targeted returns of a cumulative 4% IRR - these results highlight the stability, resilience, and low risk profile of this type of investment. We are proud to report that as of Q2 2021, the fund has achieved four consecutive quarters of our targeted investor returns. The significance is that we are successfully demonstrating our intention to develop a new model of real estate investment that is more definable as community impact driven versus profit driven, with a focus on social equity while still establishing a steady rate of risk adjusted return growth for our investors.
What are the contributing factors?
It’s been a combination of factors. Occupancy has been a major factor. Where typical projected occupancy targets are around 95%, the fund has steadily maintained between 98-100% occupancy and any vacancy that arises is quickly absorbed, turned over, and occupied within a short timeframe. To that end, adopting an institutional grade management approach across the portfolio has brought increased day to day management, better service to our customers, and a more effective and efficient response to the needs of our customers. Through that management team, we have been able to achieve strong collection rates despite COVID-19 averaging approximately 96% since March 2020. Beyond property performance, agency debt providers such as Fannie Mae and Freddie Mac provide additional incentives to lend on assets that reflect a social mission or focus on affordability which has enhanced the financial performance of the fund. Through the fund’s mission we were able to secure permanent long-term financing at stronger and more compressed rates than our original assumptions. This enables us to deliver a consistent return to our investors, which defines our tempered approach to the fund.
Is this tempered approach, what you might define as social impact investing?
Yes. There is an expected return to the investment proportionate to the risk – and especially to this type of asset where you have a substantial population base that needs housing, a diminishing product type, and a rising cost of living. The difference however with social impact investing, as compared to a standard market rate investment, is that while the return is lower, it includes a community impact driven outcome. Also, our original positioning of this investment was in replacement of – or, an augmentation to an investor’s bond portfolio. With a 4% yield the fund is significantly outperforming bond yields, which for a ten-year term T-Bill is at roughly 1.33% versus 4% for the fund. The value is still created, but the equity finds its way to the people we are trying to serve.
What is next?
We continue to manage and build the strength of these properties for long-term success, while continuing to look for additional assets to add to the portfolio, such as the most recent property, Morgan Place Apartments in Northeast Portland. We believe PAHPP represents an entirely unique model for real estate investment – one that we have demonstrated to reflect a level of resilience and strength even during major global health and economic crises. While there are a lot of different approaches to addressing the vast housing needs within our country today, PAHPP’s approach - bringing together a committed, mission driven private equity solution to address livability, affordability, gentrification, income diversity, ethnic diversity, vitality, and resilience through the preservation of affordable housing – is not only an investment vehicle providing immense social good but has provided our investors stable, risk adjusted returns. As we continue to expand the portfolio, the impact that we can deliver extends and challenges the ways in which we address affordability in our cities.
I say this often – I am very proud of the investors in this fund and across our entire platform who have in many ways committed to the mission and ideology of Edlen & Company and engage with us to make a difference in our commitment to affordability and social equity.