ESG Investing: When Residents Are the Real Asset
- Aug 04, 2021
Affordable and workforce housing are among the real estate sectors where demand is greater than supply in practically every market across the nation, Antonio Marquez, managing partner at Comunidad Partners, told Multi-Housing News. With that in mind, it comes as no surprise that investors are bullish on these asset classes.
With a core focus on the Sun Belt, Comunidad is on a mission to bring institutional capital to underserved markets in the region. The investment firm stands out in the industry thanks to its ESG practices, social programs, as well as its housing-provided health-care platform.
In the interview below, Marquez talks in-depth about the strategic significance and economic motivation social impact can have on investment, and also explains why residents are the real asset of a multifamily company.
Comunidad Partners’ ESG practices play a vital role in the company’s investment activities. Please tell us more about these principles and how they impact your investments across Sun Belt markets.
Marquez: ESG is integral to our “why” as a for-profit, mission-driven investment firm, and is informed by our culture and values. The practices and principles are informed through a combination of institutional best practices, the backgrounds and perspectives of our diverse management team, and the rigor around ensuring they not only drive improved impact but also sustainable business results.
Investing in underserved communities is a core value for us. As ESG investment becomes increasingly relevant to commercial real estate investors, we can more readily transform overlooked and underinvested minority communities with enormous potential, while dialing back a percentage of the systemic historical challenges these communities have faced for decades. This makes for better, stronger cities and more fulfilling lives for the residents of these areas.
What are the main factors Comunidad considers when making an acquisition in a Sun Belt city?
Marquez: We see great promise in emerging markets across the Sun Belt region. Throughout that region, we target markets that are positioned for long-term growth and demonstrate strong population and income growth. Also, due to affordability and workforce job growth, those markets tend to be increasingly diverse and dynamic.
Within those markets, we invest in culturally diverse neighborhoods where we can add value and improve the lives of residents through an enhanced and more supportive living environment.
By focusing on these markets and neighborhoods, Comunidad is providing greater opportunity for minorities in areas where they are, while positioning our communities to deliver strong returns for our investors.
Please describe the strategic importance and economic incentives social impact can have on investment activities.
Marquez: We believe that there is a symbiotic relationship between social impact and the financial performance of an asset. We have been able to demonstrate empirically that positive social and environmental returns translate into alpha in financial returns.
This results in more credibility for the strategy at scale and encourages new investors to consider placing capital and helping us invest in the communities we serve.
By providing residents with social impact programs and services, we can increase retention and limit turnover at our properties, which leads to greater stability for our residents. It also helps them have more durable jobs and higher incomes, which helps negate affordability concerns at our communities while simultaneously generating attractive risk-adjusted returns.
How does a strong focus on diversity, equity and inclusion interlink with business performance?
Marquez: DEI and business performance are inherently related. DEI has been integral to Comunidad’s strategy since our inception as it has been in our DNA, quite literally, and a natural decision given our firm’s diversity. But even homogenized cultures can benefit if they utilize DEI as a strategic business imperative for their organizations.
For us, it has spurred innovation, diversity of thought, and created fun, vibrant experiences amongst our team that we wouldn’t get otherwise, and that in and of itself creates an energy that doesn’t show up on annual reports but translates into greater value for us as an organization and ultimately drives value for our partners.
What exactly goes into “investing in residents”?
Marquez: We view our residents as the real asset and look to invest in them to improve their equity outcomes through programs that help increase renter incomes and reduce household expenditures. The real estate built environment is the vehicle for providing support, but our source of success stems from how resilient and thriving our resident base is.
Housing stability is important as a foundational building block, but after we create that baseline, we focus on investing in residents through our programs to improve renter NOI, and by extension, property NOI improves.
To improve renter NOI, we provide social programs that do this, along three pillars: economic advancement, health and wellness, and education. Within these areas, we integrate a variety of social programs, such as jobs/vocational skills to provide more durable and higher-paying jobs, virtual health care that provides improved access and reduces health-care costs, and free after-school programs that reduce renters’ childcare costs, along with many other programs that help lower household expenditures and increase resident income and wealth.
These programs help negate the affordability crisis our residents face and lead to reduced turnover, increased retention and greater value for our properties.
What’s the economic and social impact of your housing-provided health-care platform? Do you think telehealth is something other multifamily operators will focus on more?
Marquez: COVID-19 exacerbated the demand for telehealth for everyone, including the minority population. In fact, many minority communities have been disproportionately impacted by the pandemic, and they also tend to be among the most underinsured groups in the country.
As Comunidad has consistently focused on health and wellness as a key pillar in our social impact strategy, it made sense to introduce a virtual health-care program for our residents at this time. During the pandemic, we found it necessary to shift many of our health and wellness programs online, and we invested heavily in those tools and digital infrastructure to support them.
Providing residents free access to virtual health care emerged from this shift. We inherently believe that employment shouldn’t be a prerequisite to having access to health care, and this program was in response to bridging that gap in health equity for our residents.
While employers have traditionally offered health-care services, it’s revolutionary for a property owner to do so on such a large scale, so this initiative has been truly exciting for us. We’d like to believe we are pioneers in this movement and that more affordable housing stakeholders will see the value in providing free telehealth services to their residents as an amenity.
What do you think 2021 holds for affordable and workforce housing in the Sun Belt in terms of challenges and opportunities?
Marquez: Affordable and workforce housing owners and developers in Sun Belt markets will be tasked with finding innovative ways to distinguish themselves from their competitors while delivering strong returns to their investors this year.
While the pandemic caused many real estate sectors to press pause, the affordable and workforce housing sector is not among these as demand for this product remains greater than supply in virtually every U.S. market. As investors consider where to place capital in 2021, they will be looking for sectors where performance has been consistently strong despite the pandemic, and affordable and workforce housing checks that box.