Partnership Spotlight: Align Living Scales Affordable SFR for Institutional Investors; Helping to Ease Affordable Housing Crisis
This is the story of how an astute understanding of the rental market, coupled with big league investor-side asset management experience, is opening up institutional investment participation in an overlooked if not misunderstood asset class: Affordable housing.
When rising interest rates started turning the booming Single-Family Rental (SFR) market upside down, Align Living’s co-founders began to focus their attention on Housing Choice Voucher (HCV, Section 8) Housing. In a classic case of perception vs. reality, they saw opportunity where institutional investors have historically seen significant challenges.
Sizing up the Affordable SFR Opportunity
Let’s set the stage with some stats for quantifying the opportunity that affordable SFR represents. The U.S. Department of Housing and Urban Development (HUD) created the Housing Choice Voucher (HCV) to help very low-income families “to afford decent, safe and sanitary housing in the private market.” The current program budget is $30 billion, disbursed through approximately 2,100 state and local public housing authorities.
About 2.3 million households across the U.S. are enrolled in the HCV program. However, demand far outpaces supply. By a lot. According to the National Low-Income Housing Coalition, low-income families face a shortage of 7.3 million affordable rental homes.
Section 8 Housing: Perception vs. Reality
One big reason for lack of institutional investment in the affordable rental housing sector is the poor reputation of Section 8 Housing. The perception is that it’s rife with deadbeat renters, trashed properties and expensive eviction costs. In reality, 70% of the rent in the HCV program is paid by the government and is therefore guaranteed to arrive on time. Moreover, tenants must pay the remaining 30% on time or lose their voucher. And once it’s lost, it’s lost for good. As for the properties, they must maintain proper upkeep and care or risk eviction.
Align Living built its model based on the belief that by acquiring and upgrading SFR properties you attract a more responsible HCV tenant who appreciates a stable, affordable yet higher quality place to live and raise their family. This should translate into a more reliable renter, and it does. The average tenure of these residents is 10 years. This is key to Align’s successful formula for delivering reliable, predictable and consistent ROI that is not dragged down by tenant churn and property repairs.
Leveling Up for the Institutional Investor
Align Living’s strategy is to quickly build a footprint of tens of thousands of homes in workforce neighborhoods to achieve a scale sizable enough to attract the institutional investor. To do this, they knew they needed a digitally powered asset management solution that could take all the moving parts of HCV housing and create a transparent, valid, and immutable data management solution for systematically analyzing and optimizing yield on a per property basis. Rocktop is rising to the challenge, modeling a bespoke asset optimization and management solution, similar to the one the company first created for equally esoteric asset classes like EBO and Reverse Mortgages.
The solution for Align Living’s SFR asset management optimization is powered by Rocktop’s digital strategy for bleeding-edge data management and process automation. This begins with the granular ingestion, normalization, and validation of data from disparate sources, to create a dataset they can trust. This is foundational to gaining business intelligence on things like property costs that impact investment return — from condition data such as itemizing roof age and systems maintenance (heating, plumbing, etc.) to annual taxes, water and utility bills — all on a per unit basis, become value-added, instead of a headache. In addition, there are complicated regulatory compliance standards that must be monitored and met, including significant documentation processing and management that Rocktop is automating through the delivery of Generative AI-based solutions. Through this digital strategy, Align can generate better insights that enable better decisions, driving more predictable outcomes, ultimately leading to the best execution.
More than an attractive option for institutional investors, Align Living’s SFR provides a great example of how the public and private sector can work together to solve a challenge that is straining the resources of almost every state in the country: lack of affordable housing. Given the right partners and vision, it can be done.
