Outside investors are buying up Charlotte’s affordable apartments

The few that exist are usually in older apartment complexes, built between the 1940s and 1990s. They don’t have the amenities typical of new luxury developments in popular areas like South End and Uptown. These modest, cheaper apartments are called “naturally occurring affordable housing,” or NOAH. Households in NOAHs pay no more than 30 percent of their income on housing expenses, without financial assistance.

All over Charlotte, these NOAH units are disappearing. Most are being snatched up by outside investors, fixed up with a few new countertops and cabinets, then turned around for higher rents. Out-of-town investors own nearly 70 percent of apartments built before 1990 in Charlotte.

Now some local investors have developed a fund to try to keep them locally owned and affordable, to help make some dent in the housing crisis here.

Zoom out: From 2010 to 2018, Charlotte’s stock of low-cost rental housing, or apartments that cost $800 a month or less, fell from about 51 percent of the total rental housing stock to only 25 percent, according to the 2020 State of Housing Instability and Homelessness Report from UNC Charlotte’s Urban Institute.

A partial cause of this 26 percent drop, according to the report: The loss of NOAH units.

“As a community, we’ve spent the majority of our resources for affordable housing on new construction,” said Mark Ethridge, a partner at Ascent Real Estate Capital who works on NOAH preservation.

“That would be fine if we weren’t losing our NOAHs. But we’re not building enough. We have to have both.”

Investor interest: For the same reason that new apartment developers are flocking to Charlotte, investors, many of whom are from out of town, are buying up NOAHs. Through what’s known as a “value add” deal, they invest in the properties through renovations. Then, to get a return on their investment, they raise the rent. This often prices out existing tenants.

Of the roughly 36,000 apartment units in Charlotte built in 1990 or before, between 20,000 and 25,000 are owned by out-of-town investors, according to local NOAH experts.

For instance, Cortland Partners of Atlanta bought Cortland University North near UNC Charlotte in 2015. As the Observer reported in a 2018 story, Cortland did extensive renovations, including adding granite countertops and a new clubhouse. The developer raised rents from an average of $764 to $1,017. Today, rents there average about $1,082.

One complex’s story: At the Central Pointe Apartments in east Charlotte, a sign out front advertises, ‘NEWLY RENOVATED APARTMENTS.’

The tidy, unpretentious two-story brown apartments span several buildings. Built in 1972, the complex has a number of fresh amenities, including a playground, dog park, fitness center, and saltwater pool. Two-bedrooms range from about $1,100-$1,270.

That’s cheaper than many newer luxury apartments around town. Just up Central, for instance, the Midwood Station development has two-bedrooms between $1,645 and $2,100. Additionally, Central Pointe boasts “green initiatives” that they say save residents up to $500 per year.

Still, Central Pointe is in an area on Central near Sharon Amity where the median household income is just over $39,000, according to census data.

It’s one of many former NOAHs on Central Avenue that developers have overhauled in recent years. According to property records, an LLC associated with Charlotte-based Ginkgo Residential bought Central Pointe in 2013 for $8.57 million.

Given its location, Central Pointe likely won’t be the last of the NOAHs on Central that developers scoop up and remodel.

Around the corner from the complex is the old Eastland Mall site. There, Crosland Southeast plans for a redevelopment of the formerly vacant property that’ll add offices, retail, residential, and green space.

It’s unclear how much Ginkgo has increased rents over the years. A company representative did not respond to a request for comment.

In what was heralded as a “huge win” for affordable housing a few months ago, Roof Above announced the purchase of a 341-unit NOAH complex in east Charlotte. The local nonprofit plans to set aside 75 apartments for those who are experiencing long-term homelessness.

Roof Above paid $47.7 million for the 23-acre property, nearly three times the purchase price the seller paid only three years ago, property records show.

Additionally, in the last property revaluation, the county assessed the value of the site to be $24,149,400.

On the surface, it would appear that Roof Above overpaid for the property. The previous owner did make extensive upgrades to it, though. And the reality is, purchasing NOAHs is extremely competitive, said Ethridge, who helped execute the sale for Roof Above.

The point of acquiring the HillRock property was to find something with years of life left, Ethridge said. Something that didn’t require millions more in upgrades. Through deed restrictions, Roof Above plans to keep HillRock apartments affordable for at least 27 years for low-income households.

“In an environment where rents are rising, interest rates are at all-time lows, and construction costs are increasing, the value of NOAHs are going to rise. All three are happening now at a precipitous rate,” Ethridge said.

[Related Agenda story: In a ‘huge win’ for affordable housing, Roof Above buys a 341-unit apartment complex off Eastway Drive]

There are a few other groups that’ve also worked to preserve older, affordable apartments around Charlotte.

• In 2019, affordable-housing developer Vitus and the Affordable Housing Institute purchased Heritage Park Apartments, CBJ wrote. The joint venture said it would renovate the property while keeping units affordable.
• The city last year approved plans to spend $2.1 million to renovate the Sharon Oaks apartments in east Charlotte. The complex dates back to the early 1960s and has two-bedroom units for under $900, the Observer reported. Laurel Street Residential, a developer focused on affordable housing, and Ascent Real Estate Capital, bought the complex in spring 2019 and have said they plan to keep the units affordable.

• Also last year, the Charlotte Mecklenburg Housing Partnership (CMHP) bought the 91-unit Wendover Walk apartment complex. The local nonprofit made capital improvements and has capped rents at between $785-$1,010.

CMHP is bidding to buy two other NOAH complexes in Charlotte, according to Julie Porter, the organization’s president. Purchasing NOAHs is very difficult with so much outside investor interest, though.

In 2018, CMHP tried to acquire the 348-unit, 1970s-era Arcadian Village complex, but a company affiliated with Miami-based Monument Real Estate Services outbid them. Last summer, CMHP tried to buy the Lake Arbor apartments, built in 1974, but a New York real estate company, URS Capital, outbid them by about $2 million. The new owners ordered all tenants to move out while renovations are underway.

“It is very difficult without significant promised resources to purchase any type of NOAH complex,” Porter said. “We’re having to overbid in order to acquire these properties.”

Given the demand from local population growth, Charlotte has a shortage of about 34,000 affordable housing units, the city has said.

The need is greatest for households who make 30 percent or less of the area’s median income (AMI), or about $25,050 for a family of four.

“The more severe the difference between supply and demand, the more opportunity there is for people to raise rent,” Ethridge said of developers that flip NOAHs. “It’s a recipe for a lot of investment by a lot of private equity.”

Ethridge sees NOAH preservation as a key part in addressing affordable housing.

That’s why last month, Ascent Housing worked with Erskine Bowles and Nelson Schwab to launch a $58 million fund to purchase about 1,500 NOAH units around Charlotte. It’s called the Housing Impact Fund.

Here’s a bit more about the fund:

• The goal is to buy existing apartments and place deed restrictions on them to keep them affordable.
• The fund comprises investments from local corporations and individuals, including Schwab, Bowles, Truist, LendingTree, Atrium, and Movement Mortgage.
• Truist will serve as the fund’s lead investor, committing $15 million.
• The fund plans to acquire communities in “opportunity-rich neighborhoods” within a few miles of Uptown.

What’s next? Through the new fund, Ascent is acquiring the 144-unit Lake Mist apartment complex in southwest Charlotte near Archdale Drive and South Boulevard. The deal closes this week. Ascent will make significant upgrades to the property, including replacing roofs and siding, and repairing the parking lot.

But it will remain affordable for low-income residents. The majority of units will be for people who make 60 percent or less AMI.

For this development, the city and county recently approved a NOAH rental subsidy pilot program. A third-party administrator will identify tenants most in need of financial assistance and administer subsidies on behalf of the city/county.

“We’re not in the business of trying to create luxury units in these older properties to get the most rent,” Ethridge says.

“We’re getting units that are clean, safe, warm, and dry and trying to keep them as affordable as we can.”

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