On-Demand | Equity & Affordable Housing from Coast to Coast

Paul Odland:Sure. Hi. Paul Odland, with Belveron Partners located in San Francisco and New York. We are a private real estate investment company that invests in affordable housing deals around the country. And we have about 32,000 units in our portfolio currently.

Darren Griffith:Great. Thank you, Paul. Jim, brief introduction. Jim.

Jim Farris:Jim Farris with Mosser Capital. I'm the CEO and founder and we're based in San Francisco. We have been operating and owning as an investor and an operator for over 50 years and on about 3,500 units.

Darren Griffith:Great. Thanks, Jim. Margaret.

Margaret McKnight:Hi, my name is Margaret McKnight. I am a partner in StepStone Real Estate. We are a top adviser to leading institutional investors, with about 100 billion in assets under advisement. We put out about over 13 billion in primary capital last year. And we have about six billion on the active side of our business where we do co-investments and secondaries. We are active across all the property types, the full risk spectrum and globally.

Darren Griffith:Great. Thank you, Margaret. And finally, Randall.

Randall Sakamoto:Thanks, Darren. Hello, everyone. My name is Randall Sakamoto with Rosen Consulting Group. And we're a boutique consulting firm headquartered in Berkeley, California with an office in New York as well. And we primarily provide economic analysis and forecasting as well as real estate investment and strategic advisory services.

Darren Griffith:Great. Thanks, Randall. Thank you all for your introductions. We're so glad to have each of you today and hear your perspective on what you're seeing. Now, let's just see who we have in the audience today. Looks like we have quite a mix here: most are “other,” a bunch of operators, 19% investors, and some consultants as well.

Next, we'll briefly go over, Randall is going to give us a quick overview, about a 10 minute overview of research and policy. Randall is from, as you said before, Rosen Consulting. And Randall, I'll now turn the presentation over to you for a quick research and policy update.

Randall Sakamoto:Great. Thanks so much. I believe the slides are up, if it shows on screen.

Darren Griffith:Yes.

Randall Sakamoto:Okay, great. So I wanted to just give a quick overview. We'll start off with where we are, of course. And we all know that the COVID pandemic has been pretty hard hit on employment, throughout the country. And we just did a little quick comparison between the last couple of recessions and none of us should be surprised at the magnitude of the job loss during the pandemic, but we've actually had a reasonably strong recovery, as businesses have reopened. It may not always feel like it, depending on where we are. But it is a pretty good recovery anyway. So if we remember way back when, a year ago, we were down close to 22 million jobs, overall. And then we've recovered a bunch, but we're still down a little over eight million. So we still got a slog to go back.

And if we look at where a lot of these jobs were, these were driven by the lower income earners. So if you look at job losses by household income, which is the next slide, we can see that really the concentration was in the lower income earners, the service workers. Of course, restaurant, retail, hospitality workers. And of course, these are the ones who we all know have difficulty reopening in this environment. At the other end of the spectrum, of course, are folks, like, perhaps many of us who have the opportunity to work from home, work remotely, and weren't as impacted by the business shut down.

So it really is a job loss for many of these longer term losses at the lower end of the income spectrum. And of course, who are these folks? Well, they're mostly renters, right? So this slide just quickly shows us housing tenure, owners versus renters, by income groups. And of course as one would expect: higher income, larger share of single family home or condo owners; and, lower income, larger share of renters. So what does that mean? Lots of job losses on the lower end of the spectrum. And of course, most of those are renters.

Now of course, we've had a lot of stimulus programs, the eviction moratoriums that have kept many of those people in their homes, but really, these are the folks who are stretched the most who really need some a greater access to affordable housing options. And in the US there's roughly 43 or so million renter households give or take. And so if you look at the two lower income spectrums, the up to 20,000 household income and then 20 to 35,000, that represents about 18 million households. So again, it's a fairly large group of renter households.

And then if we look at, again, what these households are doing, we can see that they're very, what we call cost-burdened by housing. A cost burden is greater than the typical 30% of annual income spent on housing. That's typically the rule of thumb. And then if we look at the severe burden, that's greater than 50%. And so when we look again, at the lower income households, they're spending a very large share of their income, just on housing. So a lot of other things that they are perhaps foregoing because they don't have as much access to affordable housing options as they may otherwise like.

And so one other interesting fact, beyond those who are renting now and who are severely burden is there's also a very large chunk of younger adults who have moved home or into other shared living arrangements with relatives. Typically we've got a big chunk of those people. Typically it's about 20 million or so. But right now, there's about five million more. So that's roughly 24 to 25 million of those folks who are living at home. And of course, many of them don't want to live at home, many of their parents may not want them living at home. I think lots of folks thought that this was temporary, but it's turning into a longer term issue, as you can see. So it started to grow out of the Great Recession, a lot of folks losing jobs then. But it never came back down. And part of the reason why it didn't come back down is, as we've seen, housing costs rose over the last decade. And on top of that, you have lots of student debt, other cost burdens on folks that is keeping them there.

So I wanted to turn briefly to the housing market as well. And this slide is just showing us housing formation versus housing production. So we're on average going from anywhere from 1.1 to 1.5 million households roughly per year. But if we look at production, we've fallen short. And this is only the last 10 years. We frankly have fallen short on housing production for a long time. And this is all housing production, homes and apartments, but also subsidized and market rate. So housing of all types, we're pretty much running a deficit. Over the last decade our estimate is we probably need about 3.3 more million housing units just to keep pace with the pace of housing, sorry, excuse me, with the pace of household formation. And so again, this is keeping a lot of folks, whether it's at home with their parents, whether it's in roommate situations or multiple families under one roof, people are trying to figure out ways to make it work, given where costs are and where availability of housing may be.

Turning briefly to the workforce market, this is generally non-subsidized but somewhat affordable rental apartments. And so the vacancy rate has been fairly steady, it's moved within a relatively narrow band over the last few years. And you've got, of course, a little bit of a spike coming out of the pandemic, as some of the restrictions on evictions and some of the forbearance measures have started to wind down we see that that's causing a little bit more of a vacancy as folks who may be behind on rents are trying to figure out other options. So there's a little bit of a spike, but overall, you can see it stays fairly stable over time.

What hasn't stayed all that stable, right? Is the rent growth. Right? And of course, being from an economic shop, we believe in supply and demand. And as we talked about with running a deficit on supply, costs are going to go up, right? And so, this is just showing us the average rent for a workforce apartment and it's getting to the point where costs are fairly high, right? So we estimate you need about an annual income of $45,000 to afford that workforce apartment. It's about, call it a 20, 21 ish, dollars per hour job, which, that's three times more than the federal minimum wage, that's even more than the $15 minimum wage that many are pushing. So this still isn't a very affordable segment of the market, just because of where rents have risen.

And then if we look at the subsidized portion, the LIHTC and other low-income housing units, again, we see that supply is coming to place, this is just representing the number of units that get put in service in a given year. And we could see that over the last, again, over the last 10 or so years, generally, the trend has been lower as we've produced more, I think, more developers maybe are focused on market rate and others as that part of the market has grown. But overall, the bottom line is, we're just really not putting enough product in place here.

And so if we can look by geographies, of course, well, you're going to put these things in places where population is greatest. So top four states, California, New York, Texas and Florida. Top states by population. So it follows along where you would build, but again, it's going across all states of different types, perhaps some places where people may think housing is affordable anyway, right? But it's really not.

And so my next slide just highlights a little bit of where these things are going up in terms of the lower income, but compared to the market rate, right? So if you look at, we're building multiples at times of market rate versus low income, again, so we're not keeping pace, of course. So roughly over time, this slide showing 10 years, we probably average about, in total 100,000 subsidized units a year, a little bit more. But as you can see, we're building a lot more market rate, but still, it's probably not enough housing for overall.

So finally, I just wanted to highlight what that deficit looks like a little bit. And on the left, the red is really where we might want to take a look at, which is, how much of a deficit is there for really affordable housing? And roughly that's give or take about, let's call it seven million, as a deficit. And if we're only building 100,000 or so units a year, it's of course, going to take a very long time, if ever frankly, at that rate to make a dent in that deficit. So we're again, following the rules of supply and demand here. Idea would be to, of course, build a lot more to meet that demand.

But I think what it may also highlight are some of the potential, if we're looking at it from an investment perspective, as well, that there's so much pent up demand for this type of product. And realistically, and we can all look at the landscape of the cities that we're in and see how much demand for affordable housing is growing, there may be some investment opportunities there as well, because it's not a sector that can be, frankly, really oversupplied at any time soon. So with that, I'll just leave it there to go into the rest of the conversation and happy to answer some questions during the Q&A as well.

Darren Griffith:Great. Thank you so much Randall for the deep insight into the overall market, as well as the people that are affected by COVID. And thank you for the actual great transition. Because now that we've heard from the research side, let's shift over to the StepStone Group. I couldn't think of a better group to weigh in on this topic from the investor perspective. Margaret, I'll turn the session over to you.

Margaret McKnight:Thank you. So our clients include state plans, city plans, these are pension plans for the workers, large endowments and sovereign wealth funds. So the bigger institutional investors. They are generally not active in this sector, although there are some exceptions. Some of the state and city plans do pursue it because it's such an important issue to their constituencies. And still they struggle in the investment portfolio context. One of the issues is measurement, and I'll come back to that in a bit.

I recently surveyed all of our clients, and more than half of them are actively focused on developing an ESG policy, this is the top priority, it's the biggest buzz on my end of the business that I've heard in years. Some of them haven't gotten to it yet, but want to learn and know they have to. And a few of them are never going to do it because their political affiliations and the places are coming from. But there's a huge demand for education. And I would say that's what we're all engaged in right now in the sector, around ESG and around developing goals and measurability is very important.

One of my larger city clients that I work with, has a board package that goes to their public board meeting every quarter measurements for ESG and for climate impact. And this is all brand new, all this stuff is bleeding out. But it's really clear to me that if you're grading all your asset classes and under that all your managers and your assets, on these criteria, over time, you're going to manage your exposures to optimize the outcome. So I believe that all these groups will get a lot more active in these kinds of sectors. Real estate is responsible for 40% of greenhouse gas emissions. So while there's going to be focus there, it's also we're not going to score great for a while. So that will also I think, put some more focus on this. So I think we're not there yet, but we're coming and we're looking at this.

There is also, I would say a concern that participating in this sector requires conciliatory returns. And that is absolutely not true. And it's not true, both from the perspective of the returns available and then also from the perspective of the returns that we get. US core real estate over 20 years delivered an 8%. And by the way, so did the aggregate non-core real estate, so all the opportunity value added funds, if you lump them all together, delivered the same as core. Now there's a huge spectrum in there and you can participate. If you're good at picking managers, you can outperform. But people have it in their heads that they're shooting for and getting 15, they're not. So there's an education process on both sides with respect to returns too.

Darren Griffith:Great. Thank you so much for the investor perspective, Margaret. Greatly appreciate it. At this time, I'll hand the mic over to my colleague, Michael Morris to moderate the panel discussion.

Michael Morris:Darren, thank you so much. And oh, boy, what a stimulating start to this. This panel is a prestigious panel, to have the Rosen Group here. And Randall, thank you for that. Seven million units deficit, oy veh. And Margaret, StepStone, with billions to invest from an investor perspective, I don't think we could ask for a better group to weigh in. Let's go to the operators now. Two of which are friends of mine, and are here in San Francisco. Their product isn't exactly representing the West Coast totally. So I call it, most of Paul’s are out on the East Coast. But Jim, why don't we start with you? Let's hear a little bit more. Tell me a little bit more of how you are involved in this industry and about your company, if you don't mind, just to give us a little perspective.

Jim Farris:Sure. Yeah, thank you, Mike. And we're happy to be here. So Mosser has been an owner and operator investor for over 60 years in this space. And the area that we've focused on is more than naturally occurring affordable housing segment. So we operate in non-LIHTC, non-government subsidized housing. But we typically operate in the workforce housing segments. So what that means is, throughout California, we operate in some of the areas like the San Francisco Bay Area and Los Angeles. And a lot of the communities that we're invested in and that we operate in are lower income, and they are diverse. And there are regulations around how you can increase rent over time, particularly in California now, throughout all multifamily properties that are older than 20 years old. So there are regulations around rent increase, but we typically don't have income restrictions. And there's no tax subsidies, there's no government, there's no bond supporting this. And so it's an interesting, it's actually a not well understood housing product. And interestingly enough, it represents 75% of all affordable housing units in the country. And so it's a huge market.

In the areas in California that we're in, there's a million of these homes, right? And they're naturally occurring, so they're at risk potentially of going full to market or rising, as Randall noted, rising to a point where they're no longer affordable. And so we've been operating in and around this space for a long, long time. And we've developed the tried and true method of how to do it, how to provide a very, very high quality of housing for residents, and also do it at a very efficient cost for us as the operator and our investors. So we are seeking more ways to convert some of these properties or as many as we can to more deed restricted and more longer term affordable housing.

And so we're doing our best to get involved in this conversation. What we found is it's extremely complicated. Even the most powerful affordable housing attorneys we've connected with, they don't understand a clear path to convert existing workforce housing properties in California to affordable. And for us, it was shocking to learn, because we'd just started over the last several years to try and get into this and trying to create more lasting and more secure affordable housing opportunities. And so that's something that we're interested in learning about. And that's why we're happy to be here.

Michael Morris:Is that a reason you moved down to LA with some of your acquisitions?

Jim Farris:Yeah, that was stemmed from our original business strategy of just developing workforce housing and operating workforce housing. So LA is a huge market for this from the naturally occurring affordable housing segment. What we found while operating in these areas, and while being in the Bay Area for over 60 years, that a lot of our buildings actually have rents that are less than 50% of median income levels. So while they may qualify for affordable housing subsidies, if they're part of that program, they're not at all a part of that program. And so if that tenant were to leave, then that unit goes to go into the market, it's no longer affordable. Or if we were to sell a building to an entrepreneur, and they were to buy out all the tenants or kick out the tenants, or whatever they're going to do, those housing units are not protected.

And so we've been able to identify several opportunities where we could actually create a financial incentive for investors and for ourselves and secure long-term affordable housing. But it's unfortunate that it is so complicated, and there's not a clear path to do it. And so we started to look into new development, which is a little bit simpler. But it also is somewhat of a, for lack of a better term, beauty pageant, to be awarded a limited amount of tax credits in California. And again, it's unfortunate because with this need that is so great, our hope is that we can develop a clear path and a simpler path to not only create more long-term affordable housing units, but also preserve and convert more long-term affordable housing units.

Michael Morris:Good. Well, thank you for that Jim. Paul, let's hear from you about Belveron that I've watched blossom over the years. Now you're at 32,000 units. My goodness, that's fantastic. Tell us about Belveron and your perspective, please.

Paul Odland:Oh, thank you, Michael. And thanks, everyone for asking me to say a few words. We're right in the middle of the affordable housing business and pretty much in every facet as an operator. And it's crazy, 10 or 15 years ago, or 15 years ago when we started, affordable housing was a topic that you could put people's feet to sleep in a conversation really quickly. And today, when you talk about affordable housing, it's on the minds of people, not just in the coastal cities or the states, but it's on everyone's mind. I mean, there's an affordable housing crisis going on that was alluded to earlier in the presentation. There's a huge deficit, it's only growing. So now it's a political topic and it's a social topic and everything the country's been through, we have a saying here at Belveron that addiction, homelessness, education, all that stuff can be solved, or at least somewhat solved by people having a safe, affordable home to live in.

So we've been investing through a series of private funds into the space for 15 years. And today, the only way that affordable deals get created is through the low income housing tax credit. And in the slides you saw that a lot of the production was in California and Texas and Florida. And that's purely just an allocation of where those credits go by population. It's not necessarily by need. So we've been buying with regular private equity into affordable deals, primarily project based Section 8 deals, and I guess we're in 30 states now. Last year, we also bought a 15,000 unit portfolio and a full operating development business that's fully integrated, called Conifer Realty, headquartered in Rochester, New York. And they are 9% tax credit developers. So one of our portfolio companies operates in four states, developing brand new ground up 9% LIHTC deals.

So the industry has morphed and changed a lot. One of the very exciting things going on right now is the conversation in Washington, DC. And it's our belief that by the end of the year, some of the provisions that change in affordable housing in Washington, DC have most pronounced impact on the affordable space, since the tax law changes of the '80s. So the low income housing tax credit got established in the late '80s, and that has been the production program for affordable housing. And we believe there's a bunch of changes coming up in 2021 that will increase production by several million units over the next 10 years, that still, by the way, does not do enough to flip the balance or the deficit that we heard about earlier. But there are some really good positive things happening in DC right now for the industry.

So we're excited, we're invigorated. We feel crazy enough; we have been able to achieve amazing returns for our investors. But we've also been able to serve our residents and create affordable housing, both with the production of new units as well as we've converted 4,000 units this year, on the last 12 months not in '21, to affordable in the south west. And the way that happens today is through things like tax abatements, some project based vouchers where there's rental assistance. And that's really the key for the development of affordable housing, is either some stimulus that helps an owner operator decide like, "Hey, I can still make a return on equity by building and providing units that have below market rents." And there has to be something that makes that math work. And that's typically in the form of tax credit equity or some operating expense reductions for the owner. So anyways, that's a long-winded answer, Michael, I'm not sure that's what you were looking for, but that's what we're up to these days.

Michael Morris:Oh, I think that's a great overview. Thank you, Paul. I do have one question to you right away since I've got you here, what do you see the difference just for everybody, between affordable housing and conventional multifamily housing? What's the differentiator there?

Paul Odland:It's sort of checkers versus chess. Conventional stuff is pretty easy. There's a lot of groups that understand and can go out and execute on buying or developing a conventional deal and it's not simple. Development of any deal is difficult in most states these days. But the affordable business is so different because there's so many different stakeholders. When you're buying or doing a conventional multifamily deal, and you're an operator, you generally are answering just to your investors. When you are doing affordable deals, oftentimes you're reporting not just to your investors, but to your residents. We often provide services at our properties like, educational, addiction stuff, community outreach, sometimes there is stuff with elderly folks.

And those things, those stakeholders, so you have the residence, you have investors, you have lenders and you have politicians. So many times, these things become a very political issue as well, like if you look at a lot of places where an affordable developer wants to build something and you get huge public outcry saying, "Not in my backyard. Look where we live. You try to build an affordable deal." Everyone says, "Hey, we really support affordable housing." But then if someone wants to build affordable housing in their neighborhood, they say, "No way." So there's still a stigma that inclusive housing is great so long as it's not in my backyard. And that's got to change. That just has to change.

So there's just more stakeholders in affordable and the deals are more complicated. It takes six months oftentimes to get regulatory approval with HUD or whoever you might be dealing with, a housing authority or the state. We have to develop really deep relationships and trust with those agencies in order to be awarded the opportunity to invest in these communities. And those relationships and that reputation is pretty much the most important thing anyone who's in the affordable space can have. If you're a conventional developer that's been flipping condos and deals, and you go in and try to do an affordable deal, where you say that, "We figured out a way to make some money on this affordable deal," a lot of the agencies will just look at you and shake their head, say, "You're not a long-term player in our space." So that is of the utmost importance in the affordable, I mean, I think reputation across so many different areas is really the key to having success in acquiring, developing, building affordable deals.

Michael Morris:Great. Yeah, thank you.

Jim Farris:Yeah, Paul I'd like to chime in on that. The complexity of affordable housing is unbelievable. And the comments on reputation and stakeholders, that applies across our business as well. I mean, all of the political relationships that we've had to develop, all of the local community relationships that we've had to develop over a long time, those are extremely important. And even in the naturally occurring, affordable space, the unregulated space, which we typically focus on, it's complicated, right? It's complicated. It's more complicated than your typical multifamily.

So there are less, to what you're alluding to, there are less folks that do what we do or understand how to do we do on a big scale better, right? There are not too many companies. So when you think about it from Margaret's position as an investor, there are not too many options in San Francisco or Los Angeles for large scale institutions that can operate either naturally occurring or government subsidized affordable housing. There's not too many people to pick from, and that's unfortunate, because if it was simpler, if it was easier, then we'd have more options, there would be more. There would be more supply based on those facts. So that's how we think of it. Go ahead.

Margaret McKnight:Totally agree. And I think two things, well, we can talk about size. But the complexity that you've just described creates barriers to entry, which as an investor logically, you should want. Because it makes your income stream more durable, right? But there's a lot of government regulation in this sector, and it scares people and they have to want to do it badly enough to get up the learning curve. Certainly on the “capital-A affordable” their eyes glaze over with trying to understand the risks. But Jim, you and I were really close to doing a deal and rent regulation, in California, and I was at a different company. My investment committee was in New York, rent regulation came in, in New York, and all of a sudden, my California deal's dead. Because they got surprised by the regulation. So we need education to bring more investors into the sector, is the short version of that.

Jim Farris:Exactly.

Michael Morris:Margaret while we've got you here, I've got something for you. What's the appetite of StepStone, the billions and billions that you folks have for affordable housing?

Margaret McKnight:It's not there yet. We have a few, like I said, these city and state plans that have a political interest in doing it. It's not there yet. I think it will come, for all the reasons I articulated. But also I was just thinking about this, when I started in this business 30 years ago, you looked at a big institutional portfolio, and it would be predominantly office with some retail, some hotel, not much multifamily, right? So multifamily has grown up as a viable and sizable sector of institutional portfolio, just in the last 30 years. And I think that those investors went into multifamily with an office bias, saying, "I want that gleaming tower in the center of this dense urban area," right? And they've moved out of that, they've had to expand into I think “small-A affordable,” and we do a fair amount of that in terms of just investing in secondary cities that are naturally affordable.

But I think the other thing that's now happening is industrial is growing up as a big part of portfolios. And there, they can't buy the gleaming tower. So they're starting to learn that the right asset in the right place, has durable income. And the other thing that's happening in the industrial sector is affordable to a lot of small assets. So they're building up the kind of technology in the industry to have managers that aggregate portfolios. And then get to the bite size of the large institutions and sell them up and keep managing them. And I think that's another thing that has to be ported over into the affordable sector.

But all these things are pointing to the trends, pointing to the fact that they will get there. And then also in the background, of course there's been a secular decline in demand for office. I don't know about you guys, but our office just opened up and nobody went. People are not going back five days a week. So investors are going to have to find something else to do with their money to get their returns. And in a very yield hungry world. So a lot of different factors.

Michael Morris:And we can talk about office for hours. How has COVID affected each of your markets and affected from an equity in affordable housing standpoint? I mean, I know San Francisco got crushed. Jim.

Jim Farris:Yeah, Michael, I'll jump in there since we're headquartered in San Francisco and we have a lot of exposure to San Francisco, particularly in lower income neighborhoods. And it's been tough. It's been tough on the residents' side, it's been tough on the operator side. And one of the components of naturally occurring affordable is a lot of the buildings that are owned in this segment are owned by individual owners. And so folks, if there's unexpected economic stress or there's unexpected capital event or the city passes a new regulation where you have to seismically upgrade your building, there's risk for owners to lose properties. And again, that points to well, who's going to buy that property? Are they going to be a responsible owner, like Mosser or are they going to be an owner who tries to buy out all the tenants or push out all the tenants? And we've had that in the past at our space.

And so I don't have to tell the audience that rents have gone down in San Francisco this year. But the reality is, and what we talked about is it's a healthy reset. Because what we saw over the past 10 years, and that gets back to Randall's slides and our conversation around the lack of supply, is rents went up 35, 40% in some of these coastal markets that we're in, and that's just not sustainable. And so rents have reset and operators are having to get more sophisticated in how they attract residents. One of the things that we think about in equity is the components of having equal access, having stability in the housing that Paul mentioned. And then affordability. So affordability is one component of them.

But we've gotten more creative and innovative about how we can help people have more access. So people with limited credit, sometimes with no credit, how can we help them if they have income that can support paying for an apartment and we believe that they're going to be a good tenant, how do we get past those typical historical hurdles that would have prevented them from getting an apartment? Right? So we have focused a lot on that over the last year, and it's amazing, we talk about the changes in the market, it's amazing what percentage of renters that we're working with and that are being approved for housing today in our portfolios have that limited credit, no credit, but we've created a systemology, we have partners that we leverage that can secure those units. We have bonds and other things like that. But it's amazing how great a part of the segment that that's happened recently.

Michael Morris:Paul, has COVID affected your markets? I mean, has it even put a dent in what you're doing?

Paul Odland:Yeah. I mean, if you would have asked the question, 12 months ago, we were stress testing our entire portfolio, trying to figure out how long we could hold on to our assets based on having massive, massive collection in rental changes. And so we went through that exercise, and the good news for us is that 70% of our units are project-based Section 8 deals. And even people in the early innings of COVID, some people used the drop off checks to the rental office, right? And people were afraid to go drop off a check. So all that stuff, a year ago, I was very concerned. It was more worry than actual problems that we were having. And it was just trying to forecast.

But I got in our COVID, we would have a collection tracker, and we collected last month, 97%. Our high was 98% a year and a half ago. So we're back to nearly full collections. We have a handful of residents in certain properties primarily in our portfolio company that are behind on their rent, that haven't either applied their stimulus checks to rent, I mean, there's a little bit of a conflict at times when people see eviction moratoriums, where they can get away with not paying and they'll take the risk of losing their unit not to pay. But one of the things that we have to be very sensitive towards is making sure that we're seen as a good landlord. And so we don't have an eviction process per se, like you might have on the conventional side of the business.

So our portfolios held up well. We have just over $500 million of deals in contract right now that have signed PSAs or we have commitments and we're working towards that. So we're busy. On the acquisition side, the market in COVID, really stopped. In fact in Austin, Texas, where we've been very active, we did the first three deals that closed in multifamily period in the city of Austin last spring. So we continue to bite down on the bit and kept moving forward. And I think at a time of COVID, I have this perception that people get very risk averse, collectively. That human psychology is to get really, really risk averse. And one of the things we did was we jumped out early, we traveled, we got to know people, we created relationships, we did everything we can on a proactive basis. So we're now reaping some of those benefits of not being overly cautious during COVID, at least on the acquisition side.

So COVID, it's been a wild ride, right? I mean, I think all of us collectively have taken a little bit of a sigh right now, right? We're finally getting together, the economy's being duct taped together with federal money, we all get that. And hopefully it's a soft landing when that stuff stops, and there's growth again. But it has certainly been challenging. I think it's been more emotionally stressful than it has pragmatically stressful, at least from our portfolios held up.

Michael Morris:Thank you for that. Margaret, how did StepStone address COVID in the sense of from an investor perspective? Did you guys go to the sidelines or did you keep moving forward?

Margaret McKnight:We absolutely did not on the primary funding commitments. We put out a little bit more in 2020 than we did in 2019. That's committing though, to managers who will put that money out over time and have demonstrated success and knowing when to put money out. On our co-investments and secondary side of the business, we did not do any transactions in 2020. We just did our first one in March of this year. So we held off. And we are very off certain sectors like I don't think office is underwritable right now. And that is we're not doing it on the active co- and secondary side and we're directing people away from that on the primary side, at least for a while.

Michael Morris:Very good. Randall, how about Rosen Group? How have you guys fared through all this? And are you going to give us some hope for 2022?

Randall Sakamoto:Sure. Well, I mean, if, you know our forecasts, we're usually a little bit more pessimistic than most. But that being said, overall, I think we are optimistic that this rebound in recovery will be real, right? I mean, I think, as we noted earlier, right? The economy is being held together with some duct tape and some patchwork type of programs, lots of dollars have flowed out there, and pick your acronym, right? And right now, there is a lot of capital out there, right? So I think that, we're all, yeah, there should be a pretty good recovery. And I think you've seen that in metropolitan areas that have reopened so far. I think we'll see that shortly in New York and California, right? As things reopen more fully, hopefully. So I do think you'll see those bumps.

And then you'll see probably some moderate growth as people come through it. There will, of course, be some longer term implications, right? I mean, some of the things, movement towards automation, fewer retail and service positions, those are long-term shifts that were in place before COVID. And I think that there'll be accelerated by COVID. But overall, we're cautiously optimistic that the next couple of years will be pretty good.

Michael Morris:Excellent. Thank you.

Jim Farris:I would just like to add on that topic. It sounds like Paul's portfolio has been pretty protected based on the government subsidies that his portfolio has. Unfortunately, our portfolio, well, we've been at the frontlines of all of the things that people have been reading in the headlines with people not paying rent, not being able to pay rent, losing their jobs, at risk of being evicted. And so this has been on our minds constantly and we've been in direct contact with policymakers, we've been on the edge of our seats, figuring out how are we going to get through this with residents, how are we going to get through this still being a fiduciary to ourselves and to our investors? And the good thing for us is and from an investor perspective is, we go by the old real estate adage, as long as you don't sell at the bottom you're going to be fine. And particularly in our business, as long as we don't sell in the middle of COVID, we're going to do well. And as long as we're not forced to sell, we're going to do well.

So we've been fine from that standpoint. But what's really weighed on our hearts and minds is what's going to happen to these communities, to a lot of the properties that we own, where people have not been able to pay rent? And maybe they don't have their jobs. And so these are some of the reasons why I came to you, Mike, as a friend and I wanted to talk about these issues, diversity, equity, inclusion and equity in affordable housing. Because we're at the ground level here. And that's why we want to be able to learn more on how we can help solve these problems.

Michael Morris:And I would guess, managing your own product is helpful in getting a pulse for what's going on with your tenants. So from an investor perspective, that's probably pretty sweet. All right. Jim, while I've got you here, what do you think are the most impactful ways to make affordable housing more equitable? Since you talked about equitability?

Jim Farris:Yeah. So unfortunately, we don't have a ton of time to get through this. But I would say just simply, there has to be financing incentives like Paul mentioned that are widely used. The unfortunate thing is they're just not widely available, right? So we need to make the process much more simple. So much more streamlined to be approved for some type of tax credit, whether it's CTAC money or LITCH money or 9% bonds or whatever it is, tax abatements, we need to make that simpler and more achievable so that only a select few are not the only ones that can do that, right? That needs to be an incentive that's somewhat easily achievable to both convert existing, whether it's NOAH or market rate to affordable to preserve affordable housing that needs to be more accessible.

And then it needs to be simpler and more accessible to create new affordable housing. Until we do that, this problem is going to continue to persist and those who know how to do it are going to profit from it, and unfortunately, for society, society is not going to benefit because we can't simply produce enough in the current framework.

So you have to have simplification, you have to have the right incentivization. And then innovation is a big part of it too. I've been getting involved with a UC Berkeley housing lab, and their whole mission is to figure out innovative ways to help incubate companies that have innovative solutions to the affordable housing crisis and can do it at scale. So I truly believe that a new part of the puzzle that can be leveraged. And that's an exciting part of the puzzle. And hopefully with the crisis that we've seen with COVID, that's going to create the positive energy that we talked about, that's now focusing on this issue more and allow stakeholders like Mosser, like Belveron, like everybody on this call, policymakers and constituents, those who are stuck in an indie world, to open their minds and see how we could take practical actions to solve this issue.

Michael Morris:We've got a lot of questions, and unfortunately not a lot of time. So Paul, let me throw this one at you, because you touched on some of this when you were speaking earlier. How can investors, developers and owners incorporate sustainability and the health and wellness of tenants, which is what you've touched on, into the rehab of existing affordable housing stock and the new construction that's needed? It's a long question. Paul, do you want to address that one, if you can?

Paul Odland:Sure. Sorry. That's like that question on Jeopardy where you get and you start scratching your head, right? I don't know if there's an easy answer. But in a lot of the production today, in a lot of the stuff, the regulatory changes that are happening, they do provide scoring for the award of tax credit equity to build new units based on services you're providing, social services across the spectrum, sustainability, green scoring. As a firm, we've engaged an ESG consultant, and we are looking at our firm, at the people that we engage with, that we hire outside of our firm, third party providers. So we're doing a complete scoring of that. And our investors are asking for that type of ESG stuff and affordable housing marks really highly on some parts of ESG. I think Margaret alluded to the fact that real estate is responsible for 40% of greenhouse emissions.

But affordable housing marks on the social, on the S, scores really highly. And then Fannie and Freddie are providing incentives on the debt side for the greening of properties. And so we're involved in a lot of that. But it's a complicated question, and really comes down to, how do you best serve your tenants? So we proactively try to provide that stuff, even without scoring or whatever, because in the long run, it's really good for our residents, and ultimately, that means it's probably good for our investors and good for us.

Michael Morris:Unfortunately, we are out of time and this has been a phenomenal panel that I wish we could go another half hour or so on, but I can't so I'm going to pass it right over to Darren. But before I do that, Melody Yang, who's on here has been at our firm for 10 years. And this is her last week. And Mel, we'll miss you.

Darren Griffith:Thank you, Melody. Thank you, Mike. Thank you to our speakers and thank you all for joining us. Reach out to us with any questions or to continue the conversation. A reminder that we have two additional DEI webinars coming up. A link to the registration will be included in the follow up email.

^{Transcribed by Rev.com}