Socially responsible investing can mean many things to different people. But what does it mean in the context of multifamily investing? Social responsibility in this space reaches well beyond simply creating affordable multifamily housing.
Christopher Senegal is a longtime friend of mine who believes in the concept of socially conscious investing. His goal is not to maximize profits for himself but to invest in neighborhoods with rich histories that are facing decline. Some of these neighborhoods were thriving middle-class minority communities a few decades ago. However, due to government redlining policies and detrimental highway construction, the communities began to decline.
Oftentimes those left behind in these communities are economically and socially vulnerable, clinging to their rentals and hoping that they will not be forced to move. Developers eye these properties as basement bargains that could be torn down and redeveloped as higher-end properties. These new single-family, multifamily, office, and retail properties are then used to maximize profits regardless of the cost to the current residents of the community.
My friend Chris takes a different approach: Why not crowdfund projects that are based on the common good of the community? Why not build up rather than tear down? I wish more developers would think along these lines when they propose the redevelopment of existing communities. While the American way has always been to make money, doing so on the backs of the downtrodden should not be the norm. Chris sets an example of how we can have a thriving business that still prioritizes people over profits.
One of Chris’s projects involved purchasing rental property from retiring landlords in a certain neighborhood. This neighborhood was in decline and residents were a mix of seniors and single adults that would eventually have to relocate as the gentrification of the community gained momentum. The property was well maintained by these retiring landlords, who were glad to sell to Chris’s group. The group’s core mission was to retain the heritage of the community that current and previous residents had built over the years.
With some minor upgrades, tenants could continue living at the rental property while the community around them was revitalized. The plan was to secure a restaurant and an internet café, which would be ideal for attracting people to the neighborhood. This entire project was crowdfunded. People were able to donate as little as $250, which earned them a handsome return — far more profitable than keeping it in a bank savings account.
Chris’s group is also taking over a five-acre church campus in the downtown Houston area. In partnership with Houston Housing Authority, they are creating a 290-unit workforce housing development. The original church is incorporated in an aesthetically pleasing way into the multifamily section, and rents are offered at a discount based on the median income of the area. Projects like this cater to the segment of society that would often otherwise be driven to substandard housing due to high rents.
Multifamily investors who expect handsome returns will probably not be attracted to these types of projects because they can achieve higher returns elsewhere in the multifamily space. However, for crowdfunding participants who are accustomed to minuscule interest offered by banks, investing in socially conscious multifamily projects offers the potential for a far greater return — along with the pride that comes with building strong communities.
The SEC defines accredited investors as those with a net worth of more than $1M, or who have an annual income of over $200K ($300K jointly if married). Crowdfunding participants rarely meet those criteria. These types of projects offer them an avenue to invest in real estate despite their lower financial standing. They are building wealth while also lifting up communities.
Maybe it is time for accredited investors to help by participating in the crowdfunding effort. By doing so, you are standing up and being counted as a person who believes that “a rising tide lifts all boats.” You may realize smaller returns, but the benefit to our society more than makes up for the difference.
Socially conscious multifamily investing is indeed possible, and we have people like Chris Senegal to thank for being a visionary in this effort.
About the Author:
Veena Jetti is the founding partner of Vive Funds, a unique commercial real estate firm that specializes in curating conservative opportunities for investors.