Why invest in aging workforce housing when common practice today leans towards razing them to make room for Class A developments? Is managing the challenges of these types of properties worth the risk? The truth is, it may not be right for everyone.With the right partner, however, the returns can be unbelievably rewarding.


What’s the secret recipe for transforming Class B and C properties to benefit the community, its residents – and your bottom line? Entering into each property with a genuine interest and desire to do what is right and what matters- for the residents that call this property home. The age-old philosophy, “by doing good you will do well,” still holds true today.


Yet, navigating some of the more pervasive challenges common with these types of properties is no small feat.Our team at Crown Bay Grouphas exclusively focused on investing in, improving and managing workforce housing properties throughout the Southeast for the benefit of the community – and investors – for more than 15 years. Our goals and our gains are two-fold: residents experience heartfelt gratitude for a higher standard of living, while investors continue to reap healthy returns on their investments.


Market Demand


First, let’s talk about the overwhelming demand for this type of asset. Essentially all new development over the last decade has been Class A luxury – yet the Class A market makes up only 20 percent of the total rental market. New construction of affordable, marketrate units is just not financially feasibletoday. Consequently, no meaningful workforce supply has been added this past decade. In fact, despite the pervasive need for workforce housing, the supply has decreased with older units being demolished to make room for Class A construction.


Government subsidies help fund the development of some types of low-income housing with the assistance of Low Income Housing Tax Credits (LIHTC). Oftentimes, however, essential workers earn too much to qualify to rent those properties – while still not being able to afford Class A property rentals. Market rate workforce housing is critical to ensuring access to housing for some of our most essential workers in construction, healthcare, transportation, government, education, nursingand public safety.


Unlike government-subsidized developments, market rate workforce housing receives no construction subsidies and is not subject to the same qualifying factors for renters. Market rate workforce housing generally includes Class B and C properties that are comprised of mostly older communities with limited amenities and basic interior finishes. These types of properties tendto be located in suburban areas, with low-rise or garden style construction and rentsthat are affordable for lower-middle and middle-income families.


Navigating Challenges: It’s Not Just About Upgrading Units


The critical need for workforce housing deserves to be met by safe, well-managed, well-maintained options. Delinquencies, crime, disrepair and poor management are common hurdles to overcome in creating desirable workforce housing communities.


A well-developed business plan – with an appropriate allocation of funding for property improvements – is imperative to successfully navigating the most commonchallenges of Class B and C properties. An in-house property management team further ensuresthe goals for improving the standard of living for the community are stringently pursued. This dedicated resource ensures the success of the community – and ultimately the investment.


Critical areas for improvement this team enforces often include:


Customer service: A leak, a broken stove or refrigerator, or having your heat stop working in the middle of winter can be a real disaster. Slowrepairservice is often the number one complaint by tenants. By adopting a strict 24-hour response policy, our in-house management team is motivated to ensure repairs are quickly addressed and tenant needs are well managed.


Value: Sometimes it’s the little things that matter most. Updated playgrounds, dedicated BBQ areas, repaired pot holes, and returningswimming pools to service are just a few of the first steps we take to increase community satisfaction – and value – to properties. The net result? A higher standardof living begets a higher standard of behavior. Modest updates contribute to significant improvements in living environment. Tenants feel valued and work harder to pay rent on time, turnover is reduced – and we see an uptick in renter referrals.


Safety first: From car break-ins to gang activity, safety infractions erode goodwill and a sense of security in the community. Improving lighting and ensuring entry gates function properly are helpful remedies, as is taking a zero tolerance approach to problematic tenants. Establishing partnerships with local authorities and hiring off-duty officers to patrol propertiessignificantly curbs or eradicates criminal activity.


Some wonder – how did eviction moratoriums impact the bottom line on such properties during the pandemic? Whereas many Class B and C properties experienced a great deal of delinquency in rent payments, well-maintained properties with management that was committed to its residents experiencedlittle variation with monthly collections consistent with pre-COVID conditions.


In fact, some of our property management teams went the extra mile to assisttenantsin findingnonprofits to provide rent subsidies, completing forms to receive stimulus funds, and identifying ways to stay current on their rent.


Financial Benefit


Investments in these types of properties can earn significantly above average ROI – not only through passive, quarterly distributions, but also through end-of-cycle returns upon the sale of the property.By improving the property and elevating the caliber of renters, and with proper care and efficient management, above averagereturns are possible.


There is an art to making workforce housing a lucrative investment. The secret recipe?A sincere commitment to doing good by these communities, coupled with a well-funded development plan. Together, these can generate tremendous rewards to both the living environment and overall wellbeing of the residents – as well asinvestors’ portfolios.


Steve Firestone is Founder and Principal of Crown Bay Group, a real estate investment company passionate about multifamily workforce housing. Firestone is dedicated to creating a superior environment for residents and above-average returns for investing partners.




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