Daryl J. Carter founded Avanath Capital Management in 2008; its name a combination of his two children's names, Ava and Nathan. The plan? Acquire older affordable properties with rent restrictions and improve the properties, cash flow, and customer service.
"One of the things that has always been part of my approach is to look at areas that are not being served by capital and try to create an investment strategy around that," he said. There were doubts about the path to success, especially as Avanath launched during the big dot-com bust, but the firm raised its first $120 million and started gaining traction—next, a $250 million fund. Then, a third fund went to $400 million. A fourth went to almost $800 million. Now, Avanath has an open-ended vehicle at $1.4 billion. Today, Avanath’s portfolio totals about $4 billion.
In this exclusive interview with Juniper Square, Carter shares his insights on the potential of affordable housing, how he leverages data to overcome negative stereotypes about its tenants, and why the residents always come first.
Data trumps stereotypes
He noted that negative stereotypes about those who might need affordable housing, including the inability to pay their rent on time, a propensity to engage in criminal activity, and not caring for the units, have meant most large institutions have historically shied away from affordable housing. But Carter is adamant that Avanath’s tenants are pursuing their version of the American dream regardless of their current economic status and situation.
He offered a key statistic: 95% of Avanath's residents work. And while many Avanath tenants also qualify for Section Eight vouchers, the firm’s default rate on its Section Eight portfolio is less than ten basis points.
When facing opposition to a new housing construction project, typically from residents who will live near the new affordable property, he asks the opponents one question:
"Your kids who have $100,000 in student loans and work at Starbucks—where will they live if they don't live in our apartments?"
Carter and his team found affordable housing didn’t carry the same stigma for international investors. “Other countries have approached housing affordability much differently than the U.S., and there's a lot that we can learn,” he concluded. “If you describe the Section Eight program to a German investor, they'll say, oh, that's good. We have something like that. If you get some level of a housing subsidy, they don't view that as a negative.”
Today, 60% of Avanath’s investors and about half of its capital come from outside the U.S.
The importance of responsiveness
Carter has long focused on customer service as a key part of Avanath’s mission. “I was always disappointed about the quality of the upkeep and the customer service,” he said. For example, he noticed that many affordable housing developments declined after about 15 years. “There are no mechanisms for reinvesting in the properties after they're built,” he noted.
“When there is a problem in an apartment—whether you're in a $5,000-a-month apartment or a thousand-dollar-a-month apartment—people care. This is someone's home. I tell our team that if we take care of our residents and are responsive to their needs, everything else will work.”
The future of affordable housing
In recent years, institutions like Blackstone and Starwood have made considerable investments in the space, which Carter believes “has only helped us because it's given affordable housing credibility, legitimacy that says it's okay to put institutional capital in this.” Yet, when looking at capital deployment to date, he argues it’s the tip of the iceberg of what’s needed to produce and preserve affordable housing.
One need Avanath hopes to address with its projects is multi-generational living. He recounted how his parents moved the family from Mississippi to Detroit when he was young, with his grandparents also moving in. “They were the childcare when my parents were working, and later that translated to elder care for them.”
He noted, “Since 2000, only 8% of the apartments built in America are bigger than two bedrooms. The growth of the single-family rental business is due to a demand for larger bedroom counts.” When renovating, Carter and his team avoid studios, instead focusing on creating two-, three-, or even four-bedroom units.
As more people choose to age in place, Carter also hopes to build affordable properties that consider a resident’s mobility, avoiding carpeting, for instance, because “hard surfaces are better for people with mobility challenges.”
“Housing affordability is at a crisis level in the U.S.,” Carter said. “I don't think there's ever been a product need in our country, in my lifetime, that is as great as the need for affordable housing.” Carter is adamant that public-private partnerships are vital in addressing the crisis. “As we got into this business, I thought it was important to sit down with the people in the public sector and listen to them. One of my early mentors was the head of compliance for the state of California.” Today, Avanath has relationships with over 60 housing authorities and state housing finance agencies nationwide, including HUD.
Those relationships go a long way. In 2022, Avanath approached the housing authority in LA, asking if the city would grant a tax abatement if Avanath bought 700 apartments in a community called Baldwin Village. The community was concerned about a company buying the property and doubling the rents, but the city approved the transaction, and now “70% of that property is rent-restricted at the 60 and 80% levels. The tax abatement is the equivalent of a 35-40% rent increase. We're putting in $40 to $50 million of renovations, so it's a win-win.”
Leadership built on patience and encouraging different perspectives
For Carter, the key to being a good leader is being patient and committing to deep listening. “Most ambitious people, that's the last thing they want,” he admitted, “patience. But you must have a steady temperament and patience to create calm within the organization.”
He offered an example: Someone walks into his office and says, ‘We have a problem.’ Rather than ramp and worry, he simply asks, “Did anyone die?”
Of course, the answer is no. But it signals that they can handle everything else together. “It's a very people-intensive business,” Carter said. And people make mistakes. Panic doesn’t solve those mistakes, nor does expecting everyone to act the exact same way. Everybody is different, and you want that. You don't want people to be clones.”
The key to leveraging the power of those differences lies in listening deeply to what his people have to say and allowing them to use their skills in new situations. “A large German investor said, ‘You know what I like about your company? That anybody felt at any time that they could raise their hand,’” Carter remembered. “Most people don't do that, particularly to correct a senior person in public. But we encourage that.”
Avanath also moves employees between teams, allowing them to apply their unique understanding of the business to different problems. He told a story about a talented, young property manager in Sacramento who took on a challenging property and got the building to 100% occupancy and max rent. Eventually, he asked if she would like to move to Avanath’s investment team. Having someone with her property management experience come to the investment side meant “that when people run numbers on a pro forma and say, We need this many maintenance people, she'll call BS. It's made our investment team better because we have people who have different perspectives.”
Want to get the entire conversation? Watch it on-demand now.
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