Midpointe Apartments

The combination of stagnant wages and significant increases in rents has created acute housing-affordability issues for many people.  Castle Lanterra Properties has been investing in workforce housing for nearly two decades and owns and manages more than 7,000 apartments across 23 properties. We focus domestically in U.S. markets with strong millennial growth, rising income and job diversity.  

Workforce housing is distinct from affordable housing, targeting middle-income households generally earning 60 percent to 120 percent of the area median income, or AMI. Workforce housing is also distinct from Class A luxury rentals, which target high-earning groups, as well as affordable housing, which targets the lowest income groups. Another key distinction is that there is no ceiling on asking rents in workforce housing. They are free-market units, while government-stabilized housing or rent-stabilized units both have ceilings on the maximum allowable rents and rent growth.

The Class B and Class C multifamily buildings that generally comprise workforce housing offer very good fundamentals for investors for a number of reasons, including strong demand; diminishing supply; low vacancy rates; steady and controlled growth; value-add upside through capital improvements and operational efficiencies; and resiliency throughout the real estate cycle. By being able to offer a high-quality product at rents that are substantially below comparable properties in the downtown core, we are able to capitalize on a “flight to value” when renters become increasingly price-sensitive during market downturns and are willing to compromise on the convenience of living in the downtown core for the benefit of paying up to $500 less in rent in some cases.

A significant shift in the percentage of renters versus owners is driving demand for workforce housing right now. More people are choosing to rent than own for a variety of reasons. People who are renters by necessity usually earn less than $75,000 a year and make up 80 percent of the renter demand in the workforce housing segment. The so-called “renter’s society” is expected to grow to more than 7 million people by 2025.

There are seven main indicators we look for in identifying hot markets for multi-family investment: (1) sustained job and income growth, (2) strong infrastructure, (3) access to mass-transit and highway systems, (4) diversified local economy, (5) highly rated school system, (6) inadequate supply of high-quality rental properties within the submarket and, finally, (7) lifestyle amenities, such as retail, entertainment and recreation. We are looking in many growth markets, where we see these qualities and where we can acquire quality real estate properties at attractive valuations and then enhance them to provide both an outsized return for investors and a better living environment for residents.

Appealing to Millennials

Investors recognize the real estate market today is mainly driven by millennials. To appeal to these renters and to get them to buy into projects and properties, investors and developers need to buy into what makes them happy. Environmental and social issues play a major role in that. As multifamily owner/operators, there are several ways in which we can proactively reduce our carbon footprint and be sensitive to the environment. These include LED lighting; low-flow plumbing fixtures; using recycled materials in our renovations, roofing and insulation enhancements; and introducing solar panels. We also have used technology to help us monitor energy use and be more efficient with consumption, including the use of timers to control air and heat systems, as well as the ability for residents to control their lighting, temperature and lock settings remotely via phone app. It is a win-win for both the owner and resident.

At Castle Lanterra we are driving significant operational cost savings while elevating the standard of living for residents. This is the cornerstone of Castle Lanterra’s ESG investment program. Through the acquisition and improvement of workforce housing, we provide more attractive housing options for those who earn too much to qualify for affordable housing, yet fall short of the necessary income requirements to purchase a home or live in a luxury Class-A rental community.

Castle Lanterra acquires multifamily communities and truly raises the bar by repositioning these assets to include fitness centers, business centers, Internet cafes, automated package retrieval systems, gaming and recreation rooms, dog parks, and other outdoor amenities.  In addition, we look to improve operational efficiencies including staff optimization, expense reduction, energy efficiency initiatives and the implementation of technology and software.  

Similar to the principles that guide ESG investing, at Castle Lanterra we pride ourselves in providing a safe and engaging environment for our residents. Some examples include increased security measures throughout the property, using interior and exterior cameras, electronically controlled access to garages, and courtesy patrol officers at select properties. We also offer bus shuttle services at select properties and holiday events throughout the year. We organize local clothing and food drives, community athletic leagues, annual academic scholarship programs, college internships, regularly scheduled fitness classes, cooking classes, and all different types of social events to really create a sense of belonging and a sense of home.

This sense of community keeps turnover low. As owners, we certainly value resident retention, but it becomes personally fulfilling to know that we are making a difference in our communities and in the lives of our residents. Our residents are the workforce of America — typically the middle class who serve our communities — teachers, police officers, firefighters. It is really a good feeling for us to be able to give back and provide safety, the amenities and the quality of life that they deserve.