Why Foreign Capital Leans Into Workforce Housing
Favorable supply-demand fundamentals are just the beginning.
Foreign investors from Canada, Asia, the Middle East, Europe and South Korea are actively targeting U.S. workforce housing assets because they offer the potential to generate defensive cash flow against a market experiencing a long-term structural supply and demand imbalance.
Sovereign wealth and foreign public pension funds invested approximately $130 billion in U.S. real estate in 2025—roughly half of their global total, with sovereign wealth funds accounting for two-thirds of that figure, Jonathan Woods, COO of Excelsa Properties, a multifamily investment and management firm with offices in Maryland and the UAE, told Multi-Housing News. He noted that a meaningful portion of that capital has shifted toward attainable and workforce-oriented housing as investors seek more resilient income-producing assets.
There is a persistent shortage of attainable housing for middle-income renters in many U.S. markets due to limited new project entitlements and increases in construction costs that favor development of higher-end, luxury products. Beyond the lack of supply, Woods explained, foreign investors like attainable housing for its stability, cash flow and long-term high demand outlook.
Foreign investors also view U.S. multifamily assets as a relatively transparent and institutionally mature investment class in a market offering growth potential and relative stability with respect to rules on foreign investment and taxation, Woods added.
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Benefits of U.S. partnerships
These investors are investing directly but more often partner with experienced, best-in-class local multifamily operators to access market expertise and operational execution, particularly those with vertically integrated platforms and in-house operational capabilities. They will provide their U.S. partners equity or use the EB-5 visa program to fill capital gaps in markets with housing shortages, said Noam Franklin, senior vice president of debt & equity at Northmarq.
Foreign investors are hesitant to invest in equity or directly own U.S. property because of the Foreign Investment in Real Property Tax Act withholding rules, along with various additional tax liabilities and complex, costly filing obligations, according to David Israel, co-founder & managing partner at IZO Capital.
“Using debt structures reduces or simplifies these exposures, as interest income is treated more favorably under tax laws,” Israel said. “Additionally, structuring investments through offshore feeder funds can improve efficiency and help investors avoid some of the burdens associated with direct U.S. tax filings.”
Workforce housing also requires more operational expertise than many other types of real estate assets, Israel continued, noting that most foreign investors lack the ability to provide hands-on asset management, supervision of renovations, active engagement with tenants and improve the grounds, he pointed out.
As a result, they partner with local operators through GP/ LP or co-GP structures to mitigate these risks, Israel noted, citing investors collaborating with U.S. workforce housing operators, including Pinnacle Partners with JP Morgan, Cypress Equity with LWK and Sabal, and AION Partners with Goldman Sachs Alternatives and a global institutional investor.
According to S&P Global, foreign institutional investors currently represent 17.3 percent of the total market capitalization of U.S. equity REITs, an increase from 16.5 percent a year ago, according to Israel. Residential REITs alone represent roughly $35 billion in foreign-held investments. According to CBRE’s 2024 global investor survey, 42 percent of investors globally prefer apartment investments over other real estate sectors.
“Since 2025 mortgage payments have exceeded average effective rent by more than 30 percent, driven by years of rising home prices despite the surge in interest rates beginning in 2022,” noted Woods. “This makes renting a more accessible option for a growing share of the population, providing a strong and durable foundation for continued occupancy in workforce housing assets.”
Foreign investors have invested directly then hired U.S. firms to do the day-to-day property management. CapitaLand, a global real estate investment firm based in Singapore, for example, acquired a 16-property workforce-housing portfolio in Denver in 2018. Additionally, U.S,-based Harbor Group International, a global real estate investor with offices and projects worldwide, acquired a portfolio of workforce-housing assets with a total of 2,366 units in the North Carolina’s Research Triangle in 2022.
Foreign investment drivers
The fundamental driver for foreign investment in attainable housing is a large, supply-demand imbalance. Goldman Sachs economists estimated that 3 million to 4 million units are needed to restore price-to-income and rent-to-income ratios back to 1990 levels , and the average monthly cost for housing prior to pre-pandemic levels, which was about 20 percent of income.
Goldman’s economists contend the biggest constraints to housing production overall are lack of land availability, zoning and other land-use restrictions. Since the 1960s, the share of land that is both vacant and available for development has decreased from more than 70 percent to about 40 percent today.
Foreign investors also are targeting U.S. real estate to achieve higher yields than are available in their home markets, particularly older-vintage workforce housing that often trades at meaningfully higher cap rates than newer assets, frequently creating positive leverage from day one, said Franklin.
While U.S. interest rates remain structurally higher than those in Europe and Japan, the U.S. offers the advantages such as scale, a strong legal system and higher relative cash yields.
Workforce housing buoyed by growth and stability
“Rental housing and particularly attainable rental housing is needs-based, not discretionary,” emphasized Stella Pappas executive managing director of investment management at TruAmerica. “And so, that provides a level of insulation and durability that other sectors may not throughout cycles and recessionary pressures.”
Pappas also noted people are renting longer due to a growing gap between the cost of owning and renting that increases the number of new rental households every year.
“Many of these investors are underwriting to an initial 6.5 percent cash-on-cash return, with expectations for continued growth over time,” said Franklin. “As a result, they are increasingly finding attractive opportunities in older-vintage workforce housing assets located in secondary and tertiary markets.”
Cap rate compression in the Sun Bbelt in recent years pushed foreign investors to Midwestern markets to achieve stronger risk-adjusted yields, but that dynamic is shifting now as U.S. institutional capital increasingly targets Midwest markets, driving greater competition and pricing pressure, he noted.
At the same time, oversupply in many smaller Sun Belt markets has led to cap rate expansion, creating more attractive entry points for investors, Franklin added, noting that cap rates in markets like Huntsville, Ala., and Fort Myers, Fla., are coming in at 6-plus percent for older assets.
READ ALSO: Unraveling the Workforce Housing Conundrum
Financing assets
Most workforce housing investments are being financed through traditional multifamily capital structures consisting of senior debt, sponsor equity and institutional LP equity, said Woods, noting that development and value-add projects may also incorporate preferred equity and mezzanine financing depending on market conditions and leverage required. Mezzanine is an increasingly relevant component of the capital stack because it provides sponsors flexible leverage and an enhanced yield position relative to senior debt.
A unique feature of U.S. multifamily financing that foreign investors find particularly attractive is access to agency debt from Freddie Mac and Fannie Mae, government-backed financing mechanisms that provide low-cost, long-term capital with favorable terms. “This structural advantage improves return profiles and reduces refinancing risk,” Woods pointed out.
Asset vintage determines returns
Return expectations vary between debt and equity investment groups, with the core categories, typically providing gross returns of 7 percent to 8 percent before fees and costs, Israel noted. The value-add category, which generates returns in the low- to mid-double-digit range, usually involves older assets that can be purchased at higher cap rates but require capital investment to enhance units and amenities to maximize returns.
Opportunistic strategies typically involve significant redevelopment or ground-up construction, with investors aiming for IRR in the mid-to-high teens and an equity multiple of 1.5 to 2.0x, Israel continued: “These usually are ‘market-timing investments’ that bet, with limited new supply on the horizon, that the market will quickly recover over the life of their investment and create stronger cash flows to sell to the next buyer.”
Certain foreign capital sources, particularly from Canada, Germany, and Japan, are accustomed to underwriting development projects at materially lower yields on cost, noted Franklin. “As a result, a U.S. development opportunity with a 6 percent untrended yield on cost can be highly compelling, particularly when paired with a strong location and experienced local operating partner,” he said.
Additionally, foreign investors see benefit in the stability of U.S. currency and favorable economic environment, Israel said and, lastly, the U.S. political and legal structure provides a higher level of assurance for the preservation of initial capital, which is paramount.
Workforce housing has the highest demand but is the most difficult to develop from a financial standpoint. That’s why value-add is now one of the “major food groups, and it’s because of the resiliency and the durability of this sector, according to Pappas.
TruAmerica, a value-add investor focused on creating workforce housing, is the recipient of foreign, institutional capital and works primarily with core and value-add investors. The firm’s strategy involves forming joint partnerships with institutional investors across Asia and the Gulf States, as well as has a European fund manager.
The company acquires ‘80s and ‘90s vintage and newer assets, Pappas said, and different investors have different priorities. Core and core-plus are preferred by investors when “current return” is top of mind, and they can expect IRR in 9-to-10 percent range from day one, while more conservative, patient investors prefer value-add assets with returns of 15 to 16 percent.
She noted that the current income distribution component for value-add is delayed for the first couple of years due to capital investment in improving assets. These assets require more capital investment for the first couple of years, so that IRR takes longer to realize and requires longer holds.
Investors based in the Middle East are among the patient group, according to Franklin, who noted that recently these investors have remained focused on opportunistic returns in their home markets. Their interest in U.S. real estate has been driven more by stable in-place yield than by maximizing total IRR.
READ ALSO: The Right Zoning Can Solve the Workforce Housing Dilemma. Here’s How.
Shifting renter demographics
Attainable housing developers are focused on high-growth Sun Belt and secondary metropolitan markets, particularly in Texas, Florida, the Carolinas, and Georgia, Woods noted: “Investors are prioritizing markets with strong population growth, employment expansion, business-friendly policies, and housing affordability challenges that support long-term rental demand.”
From an asset perspective, investors typically focus on properties serving middle-income renters in locations with proximity to employment centers, access to transportation, and favorable demographic trends, Woods added. Key underwriting criteria are: rent-to-income ratios, local supply pipelines, school district quality, and long-term economic diversification within the market.
On the demographic side, investors look for growing population with a renter age of 25 to 44, increasing household formation and a workforce composition skewed toward sectors with stable employment, such as healthcare, logistics, government, and education, he continued, Median household income relative to local rents is also a key indicator, as workforce housing performs best where the tenant base is financially stable but priced out of homeownership.
In the past, many of TruAmerica’s investors were only interested in “headline markets,” like New York, Boston, San Francisco, Seattle and Los Angeles, noted Pappas. Now they are looking at micro markets experiencing job and population growth, like the Clearwater/St. Petersburg area, which is the state’s leader in AI and cybersecurity startups.
With the repricing of risk post the interest rate hike, Pappas said, “it now really matters, what micro market you’re in and which block you’re on. And that’s being appropriately reflected in cap rates.” The newer the project and closer to the city center the lower the cap rate.
TruAmerica identifies compelling deals by a market’s structural demand drivers—population growth, economic and employment drivers, limited new supply and barriers to entry—and takes a super micro, block-by-block approach to acquisition criteria.
