Leading affordable housing firms Avanath Capital Management and BRIDGE Housing recently joined forces to create a property management company to serve affordable and workforce developments nationwide.
With a portfolio totaling approximately 30,000 units, Brighthaven Communities is immediately among the top management firms in the field.
Avanath, No. 24 on the AHF 50 owners list, and BRIDGE, No. 26 on the list, are equal partners in Brighthaven.
Both experienced business leaders and former Division I basketball players, Avanath founder, chairman, and CEO Daryl J. Carter and BRIDGE president and CEO Ken Lombard bring a team mindset to the new company.
They discuss their goals for the partnership and how the industry is evolving.
Where did the idea for teaming to create Brighthaven Communities originate?
Carter: About five or six years ago, BRIDGE board member Doug Abbey recruited me to join the BRIDGE board. At that time, there was a CEO transition, so I was tasked to join the search committee for a new CEO. We received extraordinary candidates in the national search, including Ken Lombard. It was quite competitive, but, by far, Ken was our candidate. Once he was selected, he started delving into different areas, including development costs and property management.
Our chief financial officers and teams began talking about what they were doing. That dialogue was the start of Brighthaven. Increasingly, scale is important for attracting people and creating opportunities. It was an idea that grew from mutual collaboration, and the light came on that this may be a good idea.
It’s complicated taking two portfolios that are about 15,000 and 16,000 units and putting them together. That said, we have transitioned about 40% of our portfolio so far and feel that the process has gone very, very well.
BRIDGE has strong relationships with housing authorities and a tradition of providing resident services that are the best in the industry. We have been involved in resident services at our properties, but BRIDGE has a model and set the bar high. We are excited to take their approach to resident services to our communities. The hope in these things is that one plus one equals more than two.
Lombard: As a board member, Daryl has been instrumental in setting our direction and providing us with support. We’ve been trying to figure out projects that we can work on together. On the BRIDGE side, we were taking a look at what we were doing as we managed our properties internally. I felt it was the right time to rethink our approach to property management, which has traditionally been a fragmented industry that doesn’t benefit from economies of scale. We discussed the idea with the board to make sure everyone was comfortable with it. To a person, everyone thought it was a great idea. The timing was right. Avanath was the right partner for us. These things always have challenges, but the mutual respect between the companies is so high, we knew we could sit down and work out any challenges we may run up against in the future.
Why is Brighthaven a good move for Avanath?
Carter: It’s an incredible opportunity for Avanath to align with a company that has 40-plus years of bringing best practices to affordable housing. We like that association. We’re taking the best of both companies. Today, particularly in property management, economies of scale are important. When you look at reporting and data management, for example, we’ve doubled the portfolio and the data, which helps us in different ways. It can help with insurance and other areas.
Why is Brighthaven a good move for BRIDGE Housing?
Lombard: We get to team with a world-class firm in Avanath. On the technology side, they are ahead of us. They really bring a lot of efficiencies from a leadership perspective. What we gain is a partner who shares our high level of commitment to a quality experience for the tenants in our communities. We were both looking beyond our own portfolios, acknowledging there’s a huge need for a property management company in the affordable housing industry that is truly committed to providing a quality experience. We looked at it as a tremendous business opportunity for both of us.
Where do you see Brighthaven in a year, five years, or even 10 years?
Lombard: In the first 24 months, our focus is going to be on the transition of both of our portfolios into Brighthaven. The successful management of those portfolios is key. We think we can get that done within the first 12 months. We’re already getting calls from others that want us to bring our services to them and are scrutinizing those opportunities. In the first few years, I think we will be looking to have 40,000 to 50,000 units under management. The opportunity is there.
Carter: Looking further ahead, we believe we can reach 100,000 units in about five years. It’s an ambitious goal, but we think the need for quality property management in the affordable housing space is very high.
BRIDGE is a nonprofit, and Avanath is a for-profit company. Does that make this partnership unusual and create differences?
Lombard: As we have accelerated our portfolio growth, we find ourselves partnering with for-profit firms for capital raising and other services, so it’s not as unusual as it might have been years ago. For us, we happen to have a great relationship and respect for each other. We don’t look at them as a competitor. It lays the groundwork for more opportunities, potentially even beyond Brighthaven, that we may consider partnering on.
As an owner of a large portfolio, what is your biggest challenge, and is that changing?
Carter: A focus on sustainable operating cash flow is important, which means we’ve got to be efficient in the many things that we do on the operating expense side. Another is certainly renovation costs as our model has been primarily acquisition and rehab versus new development.
I believe there is a more favorable atmosphere about regulatory compliance among our public-entity partners. While there may be some cutbacks in Washington, a lot of cities and states are trying to innovate in the affordable housing world with tools like tax abatements and TIFs [tax increment financing] and PILOTs [payment in lieu of taxes]. Every day, many cities are looking to do more. We need a significant level of private capital in the affordable housing space. There are a lot of new entrants. The more capital that comes into the space, the better for all of us.
Lombard: As we look at our growth strategy, a challenge is continuing to position BRIDGE to have alternative means of equity. In the same breath, we, like everyone else, have headwinds on doing ground-up deals. The ability to shift to include acquisitions is part of that growth strategy, and we’re looking for opportunities there. We’ve closed on our $175 million bond offering, which was oversubscribed in investments. We’ve just closed on the initial closing on our new BRIDGE Impact Fund at $92 million, on the way to a target of $350 million, which will unlock $1 billion in investment potential. We’ll continue to bring on equity investors there. We want to make sure that we’ve got the power needed to really execute and continue with our plan of adding 5,100 units over the next three years.
What is your strategy for expanding your portfolio this year?
Lombard: We’re being extremely selective about the ground-up projects we do. We’re not an advocate of going after these projects that have unit costs of upward of $900,000 to $1 million. Those are problematic in the long run, but there are opportunities that we can find and have found that are ground-up deals that are significantly less than that. I’ll add that we’ve ramped up our acquisition strategy. That’s going to be a big part of what we do. Right now, we’re anticipating probably 60/40 in terms of acquisitions to ground-up activity.
Where do you see the biggest opportunity for affordable housing owners and developers?
Carter: The mixed-income model has proven to be very successful. In places where they’ve been encouraged—Florida is one, and New York is another—the properties have been very successful. We have two or three properties where we have people that make 50% of market rent and 200% of market rent. You wonder, “What brings people together?” And it’s never income. At one of our communities, there was a group of residents that liked to walk, so they had a walking group that walked in the morning. There was also a group that liked to play music, so we had a place to play music at the property. Some people think mixed-income doesn’t work. I think it works very well. That’s an area that I’m bullish on.
Another is the use of more local incentives. We are partners with a company called Vessel Technologies that builds a number of properties using a proprietary modular system, a panelized system. It’s enabled us to get buildings built for under $250,000 a door. We can lease to people based on the cost at 60% to 80% of the area median income and still qualify for local incentives without going through the complexity of housing tax credits. I think the action in affordable housing will be less around national programs but more about city and state programs where there are local incentives that will attract more efficient construction and the like. We can’t continue to build at $700,000 to $1 million a door. That’s not sustainable.