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Nuveen, the investment management arm of the Teachers Insurance and Annuity Association of America, is buying a mega portfolio of affordable housing units from Omni Holding, an affordable housing developer and owner co-founded by retired professional baseball player Mo Vaughn.
The purchase would rank as the largest U.S. apartment deal by number of units sold in at least 10 years, according to CoStar data.
A Nuveen spokesperson told CoStar News the transaction involves more than 12,000 affordable housing units. Nuveen, which manages $1.1 trillion in total TIAA assets, said the purchase will increase the value of its affordable housing under management to $6.4 billion, made up of 161 total housing investments with about 32,000 units across 24 states.
Nuveen expects the acquisition to position it as one of the largest U.S. institutional managers of affordable housing. The United States has a total of 47,283 buildings with more than 3.5 million units with affordable rent, CoStar data shows.
The deal comes after Goldman Sachs’ urban investment fund joined with two other organizations to buy $1.2 billion of more than 10,000-unit affordable housing around the country in a deal announced in April.
Founded in 2004, Omni has bought, “rehabilitated” or built 94 projects in the country with more than 19,000 affordable housing units. Its portfolio is largely concentrated in the New York metro area, with more than 10,000 units located in the Bronx, Brooklyn, Queens, Manhattan, Long Island and Newark, New Jersey, Nuveen said in a statement this week.
The company spokesperson declined to specify the terms of the transaction.
According to Omni’s website, its portfolio includes federal or state government subsidized housing such as Maria Lopez Plaza, a 216-unit complex that receives Section 8 federal rent subsidy in the Melrose section of the Bronx. It also owns Garden Spires and Spruce Spires, two affordable housing complexes in Newark, New Jersey, of which Omni completed a $172 million revamp in 2020.
There are no market-rate units in the Omni portfolio, where the range of public-sector support varies by building and often by unit, and may even be provided directly to the resident in the form of a voucher, the company spokesperson told CoStar News, adding many properties also operate with property tax exemptions and tax credits.
Nearly all of Nuveen’s “impact housing” portfolio serves low-income residents earning 60% of area median income or less, Nuveen said.
Nuveen, whose investment in U.S. affordable housing dates back to 1992, said the transaction comes “amid a shortage of quality affordable housing” and builds on its “long history of responsible investing and stewardship in pursuit of attractive long-term returns for investors.”
Nearly half of U.S. renters are “rent-burdened,” which means they are paying more than 30% of their income toward rent, Nuveen said, adding one in four renters within this demographic are “severely rent-burdened,” which means they pay more than 50% of their income toward rent.
“Our goal is to meaningfully invest in the preservation and expansion of high-quality affordable housing to support the well-being of rent-burdened residents within local communities,” Pamela West, senior portfolio manager of impact investing at Nuveen, said in the statement, adding the Omni deal will allow it to develop and manage properties across the country. “Demand for more affordable housing is intensifying nationwide, and investors increasingly are attuned to emerging opportunities to invest in housing that benefits society and also produces long-term positive and predictable performance.”
Omni also has affordable housing in other states including Wyoming and Maryland, according to its website.
Affordable housing investments have “provided a favorable yield for investors throughout the economic cycle,” Nuveen said in a study in October that showcases what it described as “resiliency of affordable housing investments.” The report said these types of investment yields have been higher relative to that of 10-year Treasuries over the past two decades and compared to traditional real estate sectors for the majority of the past 20 years. It said the spread of affordable housing yields to 10-year Treasuries has averaged 3.84 percentage points since 2001.
“For commercial real estate investors targeting higher-yielding investments, affordable housing investments present an attractive alternative to most commercial real estate sectors, including market-rate apartments,” Nuveen said in the report.
That’s because a large portion of the housing market targeting a lower area median income demographic is backed by the government subsidies such as Section 8 vouchers, which means “risks are largely mitigated” as the government makes direct payments to the property owner, Nuveen said, adding that can “provide stability in rent collections” that’s a “key advantage differentiating this segment of the rental market from conventional market-rate apartments.”
In a recession, affordable housing rents are not typically adjusted downwards like market-rate apartments, which illustrates “this sector’s durable cash flow compared with other housing,” Nuveen said.
Meanwhile, “given the lack of supply and outsized demand, properties restricted to lower-income renters have boasted higher occupancy and less volatility than traditional apartments,” Nuveen said.
Nuveen said it plans to launch its U.S. Impact Housing Fund later this quarter that will focus on investments in rent-subsidized and income-restricted properties, and so-called naturally occurring affordable housing that operates without government subsidies.
JLL advised Nuveen on the acquisition. Omni was advised by CBRE. Paul Hastings and Nixon Peabody acted as transaction and regulatory counsel to Nuveen, respectively.