Nuveen strives to preserve and enhance affordability through impact investing

Last May, Nuveen Real Estate announced the formation of their new impact investing sector targeting affordable housing, to also include supportive services for residents. While the firm announced a goal of $15 billion AUM for the sector by 2026, Nuveen Real Estate has been supercharged in its implementation that it is already outpacing this goal. Partner Insights spoke to Nuveen's Nadir Settles, Global Head of Impact Investing, and Pamela West, the Impact Sector's portfolio manager, about investing in affordable housing and the positive effect it's having for not only the residents but both the community and investors.

Share a brief overview of Nuveen's Impact sector.
Nadir Settles: We invest in multifamily buildings with Section 8 contracts on them as well as Low Income Housing Tax Credit and naturally occurring affordable housing, which we self-restrict usage to create additional affordable housing.

Pamela West: The strategy is two-pronged: we want to preserve existing housing stock and create new supply. About 650,000 affordable housing units will exit their restrictions by 2030.¹ We're acquiring and preserving affordable housing that is still under those restrictions and extending them so residents who earn 60% or less of Area Median Income (AMI) can continue to live in those units. We are also looking at developing and adding to the stock of affordable housing units via mixed-income, mixed-use assets. We're building communities in holistic ways by also including services such as education, health and wellness, financial empowerment, and transportation.

Why did Nuveen Real Estate decide to focus on the Impact sector?
Nadir Settles: Responsible investing has been a part of Nuveen's ethos. We've been in the affordable housing business for many years. Within the sector, we're commercializing the opportunity for the double bottom line. The investments have resilient attributes which can be counter-cyclical, especially in today's market. Affordable housing investments can provide a lot of downside protection, but equally, the investments can make a positive impact in communities.

Why is now a good time for investors to allocate to affordable housing?
Pamela West: Right now, we're seeing volatility across many sectors due to rising interest rates and the general down cycle. Affordable housing is resilient because rents are supported with some sort of government subsidy, backed by a resident base that must prioritize rent because of the U.S. housing instability. So, the income from those properties is mostly stable and durable, and government contracts allow for some inflationary hedging in a down cycle. These are great assets to have in any real estate or impact portfolio because they have generally performed consistently through market cycles.

What investment markets are you focused on?
Pamela West: The housing crisis is a national crisis, but we look at markets where there are huge imbalances of supply and demand. We have an asset in our portfolio in New York that had 70,000 applications for just under 400 units of affordable housing. We are looking at markets where there is not only an imbalance, but also, where there are barriers to entry; good liquidity, in that affordable housing investors are entering the market; support from government entities; and where affordable housing programs are preserving housing long-term.

What is your process for creating and maintaining relationships with local businesses and the community at large?
Nadir Settles: We become as local as local gets. We reach out to key personnel at the housing- agencies. State, County, and Citv public leadership and the local non-profit community. If all those stakeholders buy-in as you enter the market, then you'll have advocacy throughout the public-private partnership engagement. Maintaining those relationships is a matter of living by what you say. If you say you're going to do something, you do it. That maintains and strengthens relationships long-term.

With the purchase of Omni Holdings affordable housing portfolio, Nuveen enhanced its capabilities in ways that are different from what we normally see in the institutional investment sector. Talk about the thinking behind your approach and how it will affect the Impact investment strategy's ability to attract and deploy capital. 

Pamela West: Vertical integration is important to the execution of what we do in affordable housing, including property and construction management. When we acquire these assets, we're acquiring them from private holders - families or smaller operators - and sometimes they don't have the scale to operate these properties efficiently. Controlling property management gives us an opportunity to create significant operational efficiencies, and construction management allows us to make any needed improvements as well as green retrofits. Between all this and our development capability, we can act on immediate opportunities. And, because we're
working with housing agencies, commissioners, mayors, governors, etc., they're also identifying those opportunities for us. It's a true public-private partnership that gives us great execution.

Nadir Settles: When you control the ecosystem, vertical integration enhances execution. This helps us to make good investments at risk-adjusted returns, and to invest in our residents to ensure that we're providing them with a better community. When you're managing the properties, you can really understand your residents. You can understand, for example, that there may be several single mothers as residents. Therefore, incorporating daycare within our ancillary space could be a consideration. We want to incorporate supportive services that really benefit residents, making them proud of where they reside, but also, when you get that kind of efficiency operating the properties, it equates to investment lower turnover and performance. Having this vertical operation also makes us unique among global asset managers - we are one of the few global asset managers that's vertically integrated in the Impact Housing space. Most operators that are vertically integrated are much smaller than us and don't have the depth, reach, relationships, or scale that we have.

What is Nuveen's vision for this sector over the next five-10 years?
Nadir Settles: By January 2024, we anticipate to have already more than doubled our size from when we started in May 2022, from $3 billion to close to $7 billion in AUM. Our goal is to grow to $15 billion in about five years across debt and equity. We've
talked about the equity side, but on the debt side, there's a big opportunity to provide access to capital to black and brown developers and investment managers that have the experience and are passionate about the communities they invest in, often hailing from those same communities, but haven't had access to that capital. We want to fill that gap. Our credit division is called Impact Credit. When we think about our five year plan, we hope to have 10%-15% of our platform assets allocated to impact credit.