With two master’s degrees from MIT and two successful firms under his belt you’d think Daryl J. Carter is good at solving problems. But there is one problem in particular that is guiding his business model and helping him to turn a profit: affordable housing, or the lack thereof.
“We have a real crisis today in affordable housing,” says Carter, of Irvine, Calif.. “I don’t care who is president. Someone is going to have to address it.”
That “someone” includes Carter, who is addressing the issue through his firm Avanath Capital Management. The Detroit native’s passion in life is to provide affordable housing to hardworking families, many of whom–without his apartment communities–would be priced out of the area.
“The median income of a renter today in the United States is $35,000,” Carter says. “When you look at what rents are–in particular [in] the LAs and the San Franciscos–you’re talking $3,000 and $4,000 a month rent. It’s prohibitive. With our business we try a variety of creative ways to buy and renovate housing where, across our portfolio, the median rent is about $1,100 a month… For someone who makes $35,000 to $40,000 a year it’s affordable.”
This is a subject very close to Carter’s heart. Raised on Detroit’s West Side in the 1950s and ‘60s, he is very proud of his humble beginnings and the fact that his working class parents could afford to buy a home. In 1968 the Carter family bought a three-bedroom, one-bathroom bungalow. His mom Flossie was a nanny. His dad Nolan worked at a local auto plant. They paid $15,000 for the house with their $3,000 down payment. In the late ‘60s, with their combined income of $10,000, it was doable.
“Someone back then–who worked in an auto plant–could own a house,” Carter says. “It’s not going to be the Taj Mahal. It was probably 900 square feet for six people. But it was a house and it was your house.”
For Carter that house was the launch pad for him to create his “American Dream.” After graduating from high school he studied architecture at the University of Michigan. He followed that with a Master’s Degree in architecture and an MBA–both from MIT.
His first job out of college was working at Chicago’s Continental Illinois Bank, where he provided development loans to homebuilders.
“When I came out of school and I got a job working in the commercial real estate industry I saw that it was, even today,woefully behind the other industries in diversity,” Carter says. “But when I started in 1981 it was even worse. I got involved in lending to builders who built large subdivisions. You’d look at their ads and [they all] featured a perfectly scrubbed blonde couple with blonde kids and big smiles. Everything that went along with the industry was really not focused on a major group of the population.There were many reasons for that but historically the reason many neighborhoods have declined, whether it’s Oakland or other places, it’s not necessarily because of who lives there but because there’s a lack of investment.”
It was this lack of diversity that led Carter and his high school buddy Quintin Primo III to see a business opportunity and in 1992 found real estate investment firm Capri Capital, which went on to make some $8 billion in real estate equity and debt investments.
Carter says: “One of the things I like to say we pioneered was in the mid to late ‘90s we encouraged a lot of United States pension funds and other investors to invest in some of the urban markets that were underserved by capital. Our premise was not that this was the right thing to do. At the time there was a big push by a lot of US pension funds to invest in emerging markets in Vietnam and all these places.
“We’d say: ‘Look we have emerging markets here in the U.S. in places like East Los Angeles, South Central Los Angeles and North Long Beach.’”
In 2007 Carter and Primo parted ways.
“I wanted to just focus on the apartment space because I felt that was my calling,” Carter says. “I had a very strong interest in what I would call housing advocacy.”
Launching Avanath (named after his daughter Ava, 12, and son Nathan, 13) in the middle of the Great Recession took some grit and determination, but ultimately his foresight proved invaluable.
Says Carter: “My instinct then was that people would see the opportunity more as we evolved out of this downturn and more people rented and they’d be greater demand for affordable rentals.”
His vision paid off. Now he says he has roughly $1 billion in real estate with apartment complexes on both coasts, including Oakland, Calif. And New York City.
Carter says many of his competitors are buying, investing and building elaborate properties to rent to the “Google millennial that makes $100,000.” In reality, he argues: “[The] fastest growing segment of the rental market is people over 45-years-old and many of those people have families.”
Carter has a method to how Avanath is able to invest and improve while keeping rents low, even in gentrification hubs. Last year Avanath acquired a property in Orlando, which Carter says had been “undermanaged” and was in “substandard conditions.” At the time the residents were paying rents starting at $700 a month. Rather than spend $30,000 per apartment in a bid to double the rents, Carter’s firm spent $11,000 a unit adding things like a washer and a dryer to each one.
He calls them “smart renovations.” By the time they were complete the starting rent rose to $900.
Carter says: “Moving it up $200 a month we way underpriced anything else in the market and we now are at 100 percent occupancy. Whereas if we had put in a lot more money we would be at 93 percent and you’re always losing people because it’s not affordable.”
Carter says that sometimes investors question his methods. For example, one asked why Avanath left the 1960s-style popcorn ceiling in one property “Some of our investors say it would look nicer if you got rid of it. I say, ‘Look, I’d have to charge $50 to $60 in rent [extra] if I removed it. The fact is every income level can afford a $300 big screen TV…They’re looking at their big screen TV. They’re not looking at the ceiling.’”
So far Carter says his strategy is working. Avanath has big name investors such as Prudential Insurance and Wells Fargo. And while his competitors are renovating plush apartments complexes and placing fancy coffee shops on site, he is focusing on providing after-school programs so his residents’ children can have somewhere safe and quiet to study.
Says Carter: “We buy a lot of things that people don’t want because of where it is. We then make it nicer and then it becomes desirable again.”
Carter’s goal in the next two years is to double the size of Avanath, which currently has 29 properties across 10 states including California, New York and Michigan. The business is a financial success but for him the proof that he is on the right track is that his residents don’t want to leave.
Carter says: “Our occupancy says that we’re doing the right thing. Our returns are very attractive. Our investors like our returns. We’re in it to make money.”
An earlier version of this article incorrectly stated a figure regarding Carter's parents' income. It has been changed to the correct figure. Also, a figure on what Avanath spent on an Orlando property has been corrected.