Join host, Jim Pfeifer on the Passive Investing from Left Field podcast as he interviews Rich Delgado, Managing Director at DLP Capital, an impact-focused real estate investment firm. Rich provides an inside look at DLP’s unique approach to workforce and affordable housing, how they enrich communities, and the resilient funds fueling investor returns.
About DLP Capital
DLP Capital combines real estate investing and lending to advance affordable housing across the Southeast and Sunbelt. As Managing Director, Rich Delgado oversees DLP’s structured finance arm that provides over $300 million in capital to sponsors annually. The company also manages nearly $500 million in equity funds from global investors.
DLP’s stated purpose is “to build thriving communities.” This manifests through affordable long-term housing, enrichment programs, sustainability, and attractive returns benefitting all stakeholders.
The Needs Behind Affordable Housing
Much dialogue centers on America’s affordable housing crisis. However, the true impacts on everyday citizens often get overlooked.
Rich explained that many vital workers like teachers, healthcare professionals, and first responders cannot find residences near their jobs. DLP aims to bridge this gap by developing workforce housing in the very areas where these critical roles serve.
To enable community building, DLP structures standard leases for two years. Their data shows an average tenure around eight years, indicating happy residents and organic neighborhood connections. DLP also designates its property managers “enrichment directors” to improve onsite life. This resident-first mentality requires extra effort but pays dividends.
Executing the Ground Up Strategy
Constructing new or renovating existing properties poses cost hurdles when ensuring affordable rent rates. DLP’s strategy hinges on securing advantageous land basis for flexibility.
Rich elaborated, “If you can buy land at the right price, you have options in terms of structures, materials, and what you build.” DLP determines construction specs and floorplans balancing utility for residents and profitability for investors.
He also explained that layered tax advantages in regions like Cleveland help boost returns through vehicles like opportunity zones. So site selection ties closely to rental rate feasibility. Markets exhibiting strong growth via in-migration bring added tailwinds too.
Layering in Debt & Equity for Returns
DLP taps various capital sources using both equity funds and debt vehicles to finance projects. Investors can participate based on preferred risk-return profiles.
On the equity side, DLP leverages a value-add fund acquiring existing properties and a development fund for ground-up builds. As Managing Director, Rich overseas DLP’s lending arm supporting third-party sponsors with affordable housing debt financing.
The combination allows experienced teams to deploy expertise across the capital stack while providing fund diversification. Rich noted the DLP Lending Fund has delivered 10%+ annualized returns since inception by starting with first lien positions. The Preferred Credit Fund targets 10-11% through a mix of loan types.
Thriving Through Market Shifts
Navigating recent volatility, most real estate investors suffered, but DLP’s funds have shown resilience and upside. In 2021 the DLP Housing Fund returned 45%, strategically selling select repositioned assets. Despite turbulence in 2022, performance still exceeded targets.
Rich credits on-site enrichment programs driving occupancy and retention. With cap rates and valuations in flux, enhancing net operating income offers some measure of control. And with evergreen funds without forced sales, assets can overcome temporary dips. Conservatively managing leverage also helps mitigate risk when conditions tighten.
Preparing for Future Growth
The widening affordable housing shortage bodes well for companies tackling the problem like DLP. Despite economic concerns nationally, Rich remains bullish on Sunbelt markets where factors like positive migration and job growth fuel fundamental demand long term.
Countercyclical sectors like affordable housing often rebound faster, especially given the overwhelming housing deficit. As the Fed rights the rate ship, Rich expects measured reductions will ease policy-induced market strains by mid-2024.
DLP also continues expanding its outdoor resort hospitality arm given promising lifestyle demographic shifts. Rich said RV ownership tops 11 million U.S. households as retirement-age couples pursue road trip dreams. And with single sites topping $50 million in value, the niche holds scale potential.
Ultimately DLP’s impact vision stays grounded through localized community enrichment and sustainable practices. Solar initiatives help properties achieve net zero carbon emissions for example. But a solid financial foundation lets all ambitions flourish.
In summary, Rich Delgado and DLP Capital deliver unique real estate fund offerings advancing affordable housing where the need runs deepest. Investors gain access to an ESG-friendly asset class with structural headwinds through thoughtful strategies. Those interested in learning more can visit DLPcapital.com for fund details.
Enriching The Affordable Housing Landscape
DLP Capital’s differentiated approach spotlights why workforce and affordable multifamily housing investments present such compelling opportunities. As both developer and lender, they attack escalating societal challenges from all angles.
The combination of equity funds and debt vehicles allows capital deployment flexibility. Investors enjoy choice between renovation value-add plays, ground-up development projects, or financing other specialized sponsors – each path’s risk-return profile fitting different preferences.
Plus the evergreen fund structures avoid elevated liquidation pressures. As long as adequate reserves and distributions satisfy investors, holdings ride out market fluctuations smoothed over long durations.
Dedicated enrichment directors developing tenant communities also showcase DLP’s resident-first mentality. Happy renters renew reliably, avoiding turnover expenses. Holistic programs nurturing mental, physical, and social health make real impacts.
Solar panels and sustainable materials help in achieving net zero emissions targets too. Though cost and profit realities still dominate decision making as in any business.
When asked why DLP entered the RV hospitality sector, Rich described its alignment with affordable housing principles despite the divergent asset type. Outdoor resort properties build communal bonds through shared amenities like pools, recreational facilities and golf courses.
Providing budget-friendly hospitality, particularly for retiree road trippers preferring tiny cottage rentals over RVs, fills a societal need just like workforce apartments. And the lucrative investment returns ensure business logic holds in diversifying, as DLP can cycle profits back into its mission.
Evaluating Operator Track Records
Real estate sponsors tout impressive returns but markets expose weaknesses when conditions tighten. How should investors assess durable partnerships?
According to Rich, evaluating operator histories requires scrutinizing performance through numerous cycles, not just periods of prosperity. Established groups like DLP Capital demonstrate resilience by hitting targets consistently from 2014 through 2022’s turbulence.
He also advises examining investor communications. Do quarterly updates offer transparency around challenges and resolutions alongside successes? This fosters trust in tough stretches when issues surface if strategy adjustments follow open discourse.
Additionally, understanding organizational dynamics aids due diligence as fiduciaries oversee funds beyond founding partners’ lifespans. Seek operators emphasizing strong governance, ethics and transparency while allowing flexibility for innovation to avoid stagnation.
Ultimately search for demonstrated stewardship and duty of care extending equally to investors, tenants, and communities. For partnerships like Rich Delgado and DLP Capital with vision embedded throughout the company’s DNA, it makes riding out uncertainties far easier.
While past returns set baseline expectations, projecting future fund results has grown complex as tighter policies and high inflation disrupt economic flows.
Rich Delgado believes the combination of slowing growth, weakening labor markets, improved supply chain functioning and shifting geopolitics will likely prompt Fed rate reductions by mid-2024. This policy pivot could ease market stresses and stabilize valuations but broader directionality hinges on several bifurcating prospects. Will corporate earnings hold up or crack if consumers pull back, seriously denting growth? Can the Fed navigate a deflationary soft landing? Will they trigger needed resets, or have delayed policy moves already sealed a harder outcome?
On housing specifically, supply-demand mismatches may drive durable strength for workforce apartments as occupancy stays high even as rents and prices wane at peak levels. Yet fears loom around shadow inventory if distress hits white-collar households or investors during slumps.
Under less sanguine scenarios, small businesses and peripheral retail would bear the brunt as consumers prioritize essentials, priming the economy for potential recession. However opportunistic buying could follow as discounted assets hit markets.
According to Rich, reasonable probability weights make a middling path of muted growth more likely over severely adverse ones – salves eventually resolving inflation and income constraints. But uncertainty lingers as all parties feel out new dynamics, counseling patience and vigilance.
Takeaways For Passive Investors
In closing, Rich Delgado delivered several key insights beneficial for passive investors evaluating positions in private real estate:
- Consider evergreen fund structures allowing assets reaching income generation to ride through near-term volatility compared to holding periods requiring prompt exits
- Assess communications across operators for transparency differences that indicate integrity priorities and risk management
- Keep apprised of market developments to understand macroeconomic conditions influencing portfolio returns beyond sponsor strategy
- Target impact areas like affordable housing enjoying durable demand drivers providing innate hedges when broader factors weaken
This final point resonates given the vast societal needs for affordable living options enabling vital workforces to reside securely in the same communities they serve.
Companies embracing thoughtful innovation around tenant enrichment, like DLP Capital, seem poised to keep advancing housing availability across regions where economic mobility otherwise diminishes. Rich sees no stopping groundswells lifting affordable residential communities.
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