How I Made It: This apartment owner makes money by providing affordable homes
Daryl Carter is founder and chief executive of Avanath Capital Management, an Irvine investment firm that owns nearly 9,000 apartments nationwide — both market-rate and affordable. About 75% of its units have some form of rent restriction, and 40% of residents receive rent subsidies under the federal Section 8 program.
Carter, a former chairman of the National Multifamily Housing Council, said Avanath’s mission is to acquire properties, most of which are older, and make them nicer, while at the same time keeping them affordable. “I had a blessing of living in a house that was affordable,” Carter said, adding he wants to give that gift to others so “they can pursue their dreams.”
Carter’s affordable home was in Detroit, where his father worked in an auto factory and his mother worked as a nanny. Growing up in the 1960s, he loved construction and recalled stopping at building sites when he walked down the street. “I could watch for hours,” he said.
He said his parents — who moved from the South for a better life — also encouraged him to strive for more. They’d point to the doctors, businesses owners and other wealthier individuals who also lived in their largely African American neighborhood, but on a tonier street.
“They would say you don’t want to be jealous of people who lived on Oakman Boulevard,” he remembered. “You want to live on Oakman Boulevard.”
Carter attended the University of Michigan, where he majored in architecture and played basketball.
After gaining his bachelor’s degree, Carter went to MIT and graduated with a master’s degree in architecture and an MBA.
After MIT, Carter got a job at Continental Bank in Chicago just as a downturn was gaining steam. He was dispatched to south Florida to do workouts on unsold condominiums — a key learning experience, Carter said. Among the things to untangle: He and his team had to decide whether to sell units at 50 cents on the dollar, or maybe invest in some rehab and shoot for 80 cents.
“You have to use imagination,” he said. “It makes you be very entrepreneurial.”
Building a business
In 1992, Carter teamed up with high school friend Quintin E. Primo III, who was also in banking in Chicago. Together, they founded Carter Primo Chesterton, a real estate investment firm. The company would eventually become Capri Capital and handle billions of dollars’ worth of real estate, including Baldwin Hills Crenshaw Plaza, which it is trying to redevelop.
Carter left during the middle of last decade to focus on housing and in 2007 launched Avanath, named after his daughter Ava and son Nathan. “They are only 17 months apart, so there is this great sibling rivalry,” he said. “She likes to say, ‘My whole name is in the company.’ And he says, ‘Well, I have more letters.’ ”
You have to stay true to your vision, but you have to adjust that vision as you learn more about it.
— Daryl Carter
Be patient. Carter said that when he and Primo looked for funding to start their company, they had 56 rejections before someone finally said yes. In part, it was difficult because as two African Americans from a public high school in Detroit, they lacked many of the connections historically used to launch new firms in the heavily white real estate industry filled with monied families.
“We didn’t look like who they typically bankroll,” Carter said. Eventually, on the 57th meeting a company called Chesterton said yes.
“What happened with us is, each no we got better. Every no gives you information,” Carter said. “You have to stay true to your vision, but you have to adjust that vision as you learn more about it.”
Today, he mentors young businesspeople of color and advocates for diversity in companies. He said Avanath is stronger because its employees come from many backgrounds and “talk about different things,” allowing them to brainstorm smart solutions for the company and its residents.
“The reason we are successful in serving the communities we serve is that we are highly diverse,” he said.
A gentler strategy
In the hot real estate market of recent years, investors have scooped up older apartment buildings in lower-income communities and evicted all the tenants to rehab units and double the rent. That’s not Avanath’s model.
Instead, Carter said, Avanath purchases buildings and works to keep existing tenants. It makes money by reducing vacancies that bring in no money. In some cases, where rent limitations don’t prevent it, Carter said rent is raised after renovations.
But he said renovations are done without evicting tenants and provide residents with added benefits, such as an in-unit washer and dryer or energy-efficient lighting. He called the increases modest and said that properties are still affordable to those of lower and moderate incomes.
Avanath also works with nonprofits to offer services at its properties. At its 528-unit subsidized community in Long Beach, financial literacy courses and an after-school program are offered. Avanath also installed a basketball court.
Carter said such services mean happier residents. And happier residents mean more money. “They stay. They pay their rent on time. They respect the property,” he said.
He called the strategy of emptying a building riskier. “You have to re-lease the building, and you probably get rid of a lot of good people,” he said. “Turnover costs are expensive.”
Carter said too many in the investment community hold misconceptions about Section 8 renters, including that many don’t work and are bad tenants. Carter said 95% of Avanath’s Section 8 tenants have jobs, but their incomes simply can’t support sky-high rent. He said turnover at Avanath’s properties is less than at the typical apartment building.
Many misconceptions stem from “debacles” of old-school public housing projects that became crime hot spots, Carter said, as well as general faulty perceptions about investing in black and Latino neighborhoods. Stereotypes have been so “overwhelming,” Carter said, that at times he’s turned to Europe to raise capital.
So Carter has undertaken a major effort to shift perceptions. On behalf of the U.S. Department of Housing and Urban Development, Carter has talked to property owners about the Section 8 program. He also brings people to Avanath communities to do walk-throughs.
“As many places as I can talk, I talk about Section 8 residents,” he said. “Every time I speak, every time we talk to investors.”
In his spare time, the Coto de Caza resident loves to read and play golf with his son and basketball with his daughter. He’s also a huge University of Michigan sports fan. The ringtone on his phone? The Michigan fight song.