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SHOW NOTES FOR EPISODE 203: INVESTING IN AFFORDABLE HOUSING WITH EDDIE LORIN
Having successfully purchased and transformed more than $3 billion in multifamily real estate, including approximately 40,000 units nationwide, real estate entrepreneur Eddie Lorin now directs his efforts to the nation’s housing crisis through Impact Housing. In this episode, Eddie shares how Impact Housing is providing quality, affordable housing, along with free health-related education, fitness, gardening and nutrition programs for residents and families living in his unique low income apartment communities.
What You Will Learn
- What Impact Investing is
- What’s in it for investors who opt to do Impact Investing?
- How to invest in doing well by doing good without sacrificing sufficient financial returns
- What are practical things real estate investors can do to help solve the housing crisis in this US?
- What is Naturally Occurring Affordable Housing (NOAH)?
- How to cost-effectively transform neglected properties into safe, attractive, affordable places for low- and middle-income Americans to live
- Tips for inexpensively adding value to distressed property for maximum profit
- Understanding what the “Art of Real Estate Investing” is
About Our Guest
Eddie Loren
During his 30-year career, Eddie Lorin has been responsible for the acquisition of more than $3.7 billion in office, industrial and apartment community assets nationwide. Since 2001, he has successfully purchased and transformed more than $3 billion worth of multifamily real estate (acting as either Principal or Advisor) amounting to more than 180 thriving communities with approximately 40,000 apartment units nationwide. Eddie Lorin also co-founded the HAPI (Healthy Apartment Property Initiative) Foundation, a 501(c)(3) organization that brings education and sustainable health, nutrition, and fitness programs directly to the doorsteps of children and families living in low income multifamily apartment communities. Eddie’s newest venture, Impact Housing REIT, seeks to deliver good financial, social and environmental returns to investors, while providing more affordable, better quality housing, as well as HAPI-sponsored free health-related education, fitness, gardening, and nutrition programs to residents and families living in apartment communities. The fund is currently raising funds to purchase the first “naturally occurring affordable housing” (NOAH) apartment community in its portfolio – a high rise in Silver Spring, Maryland.
More About Eddie
- While in college at UCLA, Eddie looked at going into a profession that would meet peoples basic needs – food, clothing and shelter – but the only area that really caught his interest was “shelter” — providing people with a roof over their head.
- After college, he got involved with different aspects of real estate – commercial, industrial, property management, retail — but he gravitated to multifamily
- Over the years, he found it difficult to be an institutional player because it requires huge capital improvement budget.
- So he focused more on apartments which are simpler and much easier to control with one-year leases versus 5-10 year leases in other commercial properties. It is easier to implement strategies.
- Over the years, he did a lot of workforce housing which is basically “A” amenities delivered to “B” and “C” class residents. He focused more on “C” class communities.
- He transformed neglected communities, mostly “C” properties, into thriving ones
- Thus, this is how he started to get involved with Impact Investing
- Impact Investing basically means doing well by doing good without sacrificing financial returns– profit with purpose.
- Millennials want “profit with purpose” – not just purpose
Eddie Becomes an Impact Real Estate Investor
- He asked himself the question, “What is the best way to impact the housing crisis in this country?”
- You can try to build your way out of it by building more but the numbers seldom work
- Or, you can get investors who are more philanthropic and, with more collaborative efforts, buy smart and transform existing housing into what he calls NOAH (naturally occurring affordable housing)
- NOAH is a non-profit foundation that is currently raising funds to purchase their first NOAH apartment community – a high rise in Silver Spring, Maryland.
- A concept that Eddie Lorin came up with while working with the city of Los Angeles and other governments and districts across the country
- You can build for new at $500 a door or buy for $150 to $200 a door and deem it affordable.
- As you move people on the high end up, that will make way for more affordable housing
- Everyone needs a good, clean, safe and affordable place to live and where they will to be treated with respect and dignity
- Eddie Lorin’s motto – “they stay, they pay and they refer their friends.”
- NOAH can be applied anywhere (urban, sub-urban, rural) and go on the lower end and create this affordable housing
- NOAH’s typical tenant
- The working class that makes ends meets to feed their family. They usually make $11-$12 an hour who can afford $550 rent a month. A government voucher (Section 8) is available to bridge gap if rent is $1000 – $1100 per month.
- In Los Angeles there are non-profit groups to the homeless through social work, job training and other transformative services and activities that will help put people back on their feet
- Housing the underclass is Eddie Lorin’s passion and pet project, which is philanthropic in nature, but not the core of his model
- His typical target building for Impact Housing is the property they are seeking in Maryland:
- 140 units
- 12 stories
- 48 town homes, individually owned
- Is a totally neglected by “institutional seller”
- Phenomenal investment – triple bottom-line – social, environmental and financial
- Remarkable savings or economic return in transforming it e.g. new paint, upgrade living quarters, change common area incandescent bulbs to LED, restructuring water and toilet configuration to lower water expenses.
- Typical suburban value-add apartment upgrade
- $5-6K per door
- $2,000 for exterior paint
- $3-4K for interiors
- Resurface cabinets, counter tops, new knobs
- New hardware
- new appliances
- new flooring (higher end – vinyl plank. Lower end – hard wood looking vinyl sheet)
- Impact Investing is doing well by doing good – you don’t have to sacrifice returns for doing the right thing – creating value while changing lives
- Surveying residents first to identify their needs
- Provide social, health and wellness programs based on the demographics of the resident’s needs and wants
- Typical amenities:
- state-of-the-art fitness center
- dog park
- walking clubs
- health screening
- community garden
- community rooms
Biggest Mistake
- Using of institutional capital
- Not aligned with his vision and values mission
- Their focus is only profits
- His solution: move away from institutional investors to individual investors and formed Impact Housing REIT (Real Estate Investment Trust) is the newest venture of Eddie Lorin.
Forming the Impact Housing REIT
- Mission is to deliver not only financial returns to investors but it also provide social and environmental returns
- An investment vehicle for anyone, regardless of income level or wealth, to invest institutionally
- Impact Housing REIT focuses on providing more affordable better quality housing as well as HAPI sponsored free health related education, fitness, gardening and nutrition program to residents and families living in the apartment communities. The foundation is currently raising funds to purchase the first naturally occurring affordable housing (NOAH)
- Target is 20% IRR over 5 years.
- Exit strategy – 5 year hold with two one-year options to extend
- It is a close-end fund and should sell within 5 – 7 years
- Hopes that the new buyers will continue to maintain as low income housing
- Not restricting Maryland units to get good returns – not like he is doing in Los Angeles
- It’s the push and pull between market rate returns and housing the working class
The Art and Science of Real Estate Investing
- He wants the potential tenant to drive by one of his buildings, see the sign out front, think “I wish I could afford to live there,” and then find out they can
- Then, when they come into the community, they see the great “chemistry,” vision, smell, amenities and are greeted by someone who treats them with respect – the intangible that creates happy people and converts into rent and people who stay — that is the “art” of the business
- Many people see and understand the science
- Not too many understand and focus on the art
- He likes to focus on the art
- Provides triple returns on investment – financial, social, and environmental returns
Biggest Success
- Deal in Dallas which he considers a total home run
- Bought $50K a door and sold it for a $120K a door
- Completely transformed it from old 60’s building into a combination of a Viceroy and Mondorent style of architecture while maintaining its affordability
- Attractive
- Maximized value
- Affordable
Where He Sees His Business in the Future
- Eddie believes that people deserve a home; it is a right not a privilege. Because of this, Eddie will take as much NOAH and deem it affordable before it becomes unaffordable.
- San Francisco should have done what Eddie is doing but they didn’t. There are still plenty of tired and neglected properties that could be deemed affordable with certain programs from the city e.g. property tax abatements
- He wants to help house the transitional homeless who are trying to make their lives better
- Also wants to help housing hard working people who can’t currently find affordable housing
- He’d like to see everyone band together and creatively solves ways in which we can house all of our brethren
Rap-It-Up
- Favorite book: How to Stop Worrying and Start Living by Dale Carnegie
- Favorite business book: Trump: The Art of the Deal by Donald J. Trump
- Most valuable web site for success (other than your own): Urban Affordable Housing Blogs and Resources and other up to the minute information
- Favorite app: TripIt
- Favorite quote: “There’s never a good time to do a bad deal and bad time to do a good deal” – Stanley Black
- If you had to start all over, knowing what you know, and you only had $1,000 cash, what would you do to launch your real estate investing business? Crowdfunding is a good place to go.
How to Reach Eddie
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