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A Look into Running an Investment Firm Focused on Workforce Housing

Earlier this month, Freddie Mac selected Comunidad Partners as the inaugural Impact Sponsor of the Year for 2021. The newly created award recognizes Freddie Mac multifamily borrowers that are working to preserve or create affordable rental housing with unique initiatives to advance tenants’ interests.

Founded in 2007 by Antonio Marquez, Comunidad is a minority- and women-owned real estate investment firm specializing in workforce and affordable housing communities in culturally diverse neighborhoods. Since its inception, the Austin, Texas-based firm has acquired more than 13,000 apartment units totaling roughly $2 billion.

Marquez, who serves as principal and managing director, is the son of Mexican immigrants who moved to the U.S. from abject poverty. His father was a farm worker who started his own small business importing Hispanic grocery products and selling them to mom-and-pop stores. (The process of “importing” involved driving a van to Mexico and stocking up on popular food brands to resell in the United States).

For several years, Marquez lived in apartment complexes similar to those in which Comunidad invests—at least as far as the residents they housed. During that time, he observed many of the same structural demand elements in workforce housing that his father saw in the grocery industry.

By launching Comunidad, Marquez proved the apple doesn’t fall far from the tree. The investment firm is built on similar principles that he learned from his parents, notably a focus on impact investing and DEI (diversity, equality, and inclusion).

Today, Comunidad’s portfolio consists of 6,000 units spread across 12 Sunbelt markets with a assets under management (AUM) of more than $1 billion. Under Marquez’s leadership as principal and managing partner, the vertically integrated firm has grown to 130 employees who handle everything from property management to construction.

Freddie Mac honored Comunidad with the Impact Sponsor of the Year award after the company secured a $300 million financing commitment through Bellwether Enterprise and Freddie Mac to support the creation or preservation of affordable workforce housing throughout the United States.

The unique initiative was backed by Freddie Mac’s Tenant Advancement Commitment, which offers competitive financing to operators who agree to maintain or enhance affordability and provide supportive resident services for the duration of the loan purchased by Freddie Mac.

With Bellwether and Freddie Mac’s financing commitment, Comunidad acquired two properties: Oaks at Holcomb Bridge, a 304-unit garden-style apartment complex in suburban Atlanta, and Metro 7000, a 206-unit garden-style apartment in Fort Worth, Texas.

The firm has instituted self-imposed affordability restrictions for both properties and will invest more than $2.4 million in capital improvements. It will also offer social programs, including telehealth, concierge resource referral, resident council meetings, youth education services, health and wellness education, and economic advancement education/opportunities.

We spoke to Marquez about Comunidad’s strategy and plans for the future.

This Q&A has been edited for length, style and clarity.

WMRE: What is Comunidad’s investment strategy?

Antonio Marquez: We’re exclusively focused on workforce and affordable housing with an impact strategy. We are trying to provide differentiated living environments in Sunbelt markets, such as Albuquerque, Atlanta, Austin, Dallas-Fort Worth and Houston.

We are highly focused on resident retention and durable cash flows. We have a value-add strategy, but our definition of value-add differs from other investors. We’re not investing $30,000 a door to get rent premiums. Our definition of value-add means offering a great value to our residents by providing a clean, secur, and comfortable living environment with great amenities and social programs.  

WMRE: What sparked the idea for Comunidad?

Antonio Marquez: It was two things: data (economic and demographic) and the realization that there wasn’t anything else like it in the market.

Just by looking at demographic data, I could see where population growth was occurring—Hispanics are one of the fastest growing demographics. And when you look at the mortgage market, there’s a barrier to homeownership for minority communities. Hispanics, in particular, have a propensity to rent because there’s no other option for them.

When we saw that, we realized that we could provide a better living experience and better value to those residents. In doing so, there’s a great opportunity for investors.

WMRE: What was Comunidad’s original vision? How has it evolved since it first launched?

Antonio Marquez: We aspire to be the most impactful real estate investment firm. To us, impactful means that we want to add the best value for all stakeholders in the value chain. It’s not neglecting one stakeholder over another. It’s as simple as that. We’re not trying to be the biggest. We’re not trying to get accolades. We’re not trying to generate the most revenue, though of course, we focus on profitability. But we’re trying to do that responsibly. We think that when you approach it that way, it’s going to generate better results over time than a myopically focused, profit-driven, quarter-over-quarter approach, which is where the industry has been historically and continues to be.

WMRE: How does Comunidad raise equity and attract new investors?

Antonio Marquez: There isn’t one route. When we started in 2007, it was very tough sledding. We just went out and started building equity relationships any way we could—mostly through conferences and cold calls. I would look at websites for organizations that looked like they were doing real estate equity, and I’d cold call them. It was tough because I didn’t have a track record, and though I had a novel strategy, it wasn’t the sexiest. People weren’t exactly clamoring to get into the space.

Now that we’ve been able to prove our concept, investors are coming to us. Other investors and RIAs are referring their networks to us. We’re in a fortunate position of having quality LPs that are good fit for what we’re doing.

WMRE: Speaking of investors, what type of investors does Comunidad target? Do you anticipate your investor base will change in the near future?

Antonio Marquez: When we started, because we didn’t have much of a track record, we had had to be innovative and adapt to the market. Our first acquisitions were syndications where we raised capital from accredited individual investors through direct relationships.

As we grew and required larger equity commitments, we moved into joint ventures with family offices and RIAs for one-off transactions. We had to build up our track record to go the institutional route, but eventually, we attracted pensions, endowments, and foundations.

WMRE: One of Comunidad’s institutional partners is Nuveen. How did that partnership come about?

Antonio Marquez: We were introduced to Nuveen through another institutional LP that wasn’t quite as far along in their impact investing as Nuveen, which shares our belief that diversity in the management team drives value.

Over a couple of years, we built a relationship with Nuveen. We did some property tours together and found a great off-market opportunity in Atlanta called Village at the Creek. It’s a 603-unit affordable and workforce housing community located in a submarket dubbed “the most diverse square mile in America.” It’s a melting pot of immigrants, migrants and refugees, and our investment demonstrates our humanity and our support of people through housing.

Village at the Creek is Comunidad’s fifth acquisition in the Atlanta market. We now have close to 1,600 units there.

WMRE: Comunidad recently launched its first fund. Can you tell us more about it?

Antonio Marquez: It’s a discretionary, commingled institutional fund. All investors are domestic. Institutional and large multi-billion family offices account for 86 percent of the investors. The remainder are high-net worth investors and RIAs.

Given how competitive the acquisition market is today, discretion is important. You don’t want to have to rely on a third party to make investment decisions. We knew that we had to be more agile and be able to act quickly with our internal investment committee. To do that, we needed to have a fund.

When we were first starting out, it made all the sense of the world to raise equity for individual deals. But now that we’re building scale, we’re trying to be more efficient in the way we raise equity, and it makes sense to do it through one vehicle.

Plus, in the past when deals were oversubscribed, investors were disappointed. With the fund, there’s ample room for everyone to participate.

WMRE: What is Comunidad’s average hold period?

Antonio Marquez: Five to seven years. We structured the fund so we can recapitalize deals for a longer hold, which ties into our impact strategy. When properties trade hands, it creates displacement, and our goal is to keep residents in their homes for as long as they want to live there.

WMRE: What is the range of returns that you expect on Comunidad investments?

Antonio Marquez: Historically, IRRs have ranged from mid-to-high 20s. Moving forward, I think we’ll see more compressed returns, somewhere in the mid-teens.

WMRE: What role does technology play at Comunidad?

Antonio Marquez: Proptech plays a huge role. Because of our impact strategy, and because workforce housing is so specialized, we had to build our own platform. We just couldn’t find one that could give us the information we need.

First, we built a data lake, and then we created a platform that leverages data to tell the story of each community. Through the platform, we have real-time status of our properties that can be explored through several dashboards with 120 different metrics/KPIs.

We also designed the first of its kind ESG data framework for multifamily that maps to United Nations Sustainable Development Goals (SDGs), among others. We’re tackling 12 of the 17 SDGs that are specifically tailored to the needs of workforce housing residents and address impact outcomes concerning equity/economic empowerment, health and wellness, education, food security and housing stability/affordability.

Our ESG data analytics platform highlights 52 ESG KPIs that are weighted and part of an impact scorecard to create objective benchmarking. The platform demonstrates our ESG impact and how it translates into better economic performance.

WMRE: Speaking of ESG, it’s a core value for Comunidad. Can you tell us more about how it influences your strategic decisions?

Antonio Marquez: Strategically, for us as an organization, the S is the most important. It’s the lowest hanging fruit, yet the hardest to execute, and the most misunderstood. We’re working to create a new council to establish standards around this. We’re really trying to legitimize this on an industry level. From a values perspective, the G is the most important. It’s the foundation for DEI, fair and equal pay, and demonstrates to our team how much we value them. The E is probably the most mature and easiest to execute. Our data analytics helps us understand where the waste is and helps us reduce it.

WMRE: What is your plan for Comunidad looking forward?

Antonio Marquez: We will continue to focus on impact investing through workforce housing and affordable housing. We also expect to launch additional funds.

WMRE: What differentiates Comunidad from other investment firms?

Antonio Marquez: There aren’t a lot of minority fund managers, and even fewer that are Latino—that’s a very basic differentiator.

Another differentiator is that I personally know these types of communities and residents. When you live in one of these communities like I did, you see the challenges and the opportunities. It’s a special thing when you can marry your background and expertise and ultimately apply it through a business that really makes an impact.

Additionally, we differentiate ourselves by viewing our residents as the real assets. We invest in them through the integration of social programs such as ESL classes, job fairs, health and wellness programs and after-school programs. The programs are curated to fit the needs of a particular community. We think this investment helps our residents thrive by making them more resilient and providing the opportunity to build wealth.

Another differentiator is at the property level—we have a proprietary screening model for our residents. Many residents at our communities don’t have credit scores—it’s a very cash-based resident base. There’s an aversion to financial institutions because in their native countries—Mexico, for example—financial institutions have failed so many times and currency exchanges have been so volatile.

In our industry, there’s a preconceived notion that residents without a credit score are riskier than others. But we don’t think that’s necessarily the case. Just because they don’t have a credit score doesn’t mean they aren’t creditworthy.

At Comunidad, we go the extra mile to know who our residents are, where they work, where they’ve lived and what they do in their free time. When we get that picture, we have a better gauge of that person. We’ve found anecdotally that these residents are so loyal because we gave them a shot, and they’re lower delinquency risk because they’re not going to screw up their chance to live in a nice community. They live in the property for a longer period of time, and they’re even more involved in the community than other residents.

We’ve been able to demonstrate, at least anecdotally, that residents without a credit score are not riskier. The reverse is true—they’re actually very high-quality residents.

WMRE: What is the biggest success that the company has experienced? What is the biggest failure?

Antonio Marquez: The biggest success is our team. I am so proud of them and their commitment and alignment to the company.

As for failures, there are so many. I think about it this way: if you don’t have any failures, you’re either lying to yourself or you’re not trying hard enough.

One of our biggest failures was that we did not invest as much as we should have in infrastructure early on. We should have invested more in people, technology, systems and processes in those early years. Fortunately, all those elements are in place now.

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