Episode 24: AJ Rounds pt 2
Episode Summary
The next big problem to solve is affordable housing. Before COVID, we were about 5 million units short. The market demand was not keeping up with the affordable housing needs. This problem has been exacerbated by factors like interest rates creeping up, developers moving on to co
1. What is the next big problem to solve in the real estate industry?
The next big problem to solve is affordable housing. Before COVID, we were about 5 million units short. The market demand was not keeping up with the affordable housing needs. This problem has been exacerbated by factors like interest rates creeping up, developers moving on to commercial or high-end residential spaces, and a lack of attention to affordable housing.
2. How do you define affordable housing in this context?
Affordable housing in this context is not Section 8 housing or government subsidized housing. It’s attainable housing. It’s homes that are 1800 to 2000 square feet, three bed, two and a half bath, two car garage, on a 0.15 to 0.18 acre lot. The problem is that this kind of housing just does not exist in sufficient quantities.
3. What are the three components needed to make attainable housing a reality?
First, you need to make it appealing for investors. If they can’t put money in and get a nice return, then you’re not going to get any funding. Second, you have to have developers on board that are mission driven and committed to that asset class. Third, you have to have the municipalities on board. The problem we see is that cities will say they want affordable housing, but then when you go to have the city meetings, they resist the idea of it being in their neighborhood.
4. What is the return on investment that Arlen Capital is offering?
Most real estate funds produce an 11 to 13% return, or IRR they call it in real estate. We’re near 20 at Arlen Capital, so we’re super excited about that piece.
5. Why is there a shortage of affordable housing?
There’s a shortage of affordable housing because many times when developers get into the business, they’ll start with affordable housing but then they move on to commercial or high end residential or flex space industrial because there’s more profit. As a result, they abandon affordable housing very quickly. It’s the asset class that’s the least built just because it’s not paid attention to as much as it probably should be.
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